During his recent interview with Guy Spier at the Helvetian Investment Club, Mohnish Pabrai explained why auction driven markets are really a gift to investors. Here’s an excerpt from the interview:
Pabrai: So basically in a negotiated transaction you have a intelligent buyer, most of the time you have an intelligent buyer facing an intelligent seller. And they arrive their price discovery, and they arrive at a price that works.
In auction driven markets, especially if there is distress, you’re going to get crazy pricing sometimes. You’re going to get crazy pricing where things are very euphoric, kind of like you know Snowflake after the IPO. Or Carvana after the IPO.
And subsequently… or you can get extremely depressed pricing because it’s faceless buyers and sellers doing different things which attenuate the ranges.
So it’s because of that more extreme attenuation that Guy and I are able to make a living and I think it’s a lot harder if I were to go into private equity then you’re playing other games, like you’re levering up and different things like that.
And you know putting lipstick on a pig sometimes and so on so forth. So I think that it’s harder to do it in most of the asset classes than it is in auction driven markets.
Auction driven markets really are a gift to investors.
You can watch the entire discussion here:
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