During his recent interview on The Investor’s Podcast, Mohnish Pabrai explained why successful investing requires you not to touch it. Here’s an excerpt from the interview:
Pabrai: So when the pioneers and the settlers were moving west to stake out and take over land and start farming it and so on, these wagons used to get attacked by the American Indians.
And the defensive posture they took to defend against the Indians was to circle the wagons. Which means you put everything, your crown jewels in the center of the circle, and then you fight and you try to protect the center.
It’s a similar concept in investing with the Nifty 50, with Walmart, you really need to not touch it.
It only works if you don’t touch it. Similarly with Sees Candy and American Express and Coke for Berkshire, you know all of these hiring Ajit Jain and so on, you need the long runway and Naspers needs the very long runway with Tencent. And so the key in investing is to recognize two things.
One, we are going to make a lot of mistakes. Two, this is a very forgiving business. You can be wrong, even 98% of the time still come out smelling really nice. And three, that is only going to happen if you are able to buy businesses with great economics at reasonable valuations and then hang on to them forever.
So when they get fully priced, they don’t get sold. When they get overpriced, they don’t get sold. It’s only possibly when they get completely ridiculously egregiously overpriced that you can consider selling.
And so this framework of circle the wagons is very fundamental. I think it’s very hard to beat the market if you don’t have this framework, because you’re going to be cutting the flowers and watering the weeds.
And what we need to do is make sure we don’t cut the flowers. And it really doesn’t matter whether you water the weeds or not, but the important thing is you just don’t cut the flowers. It’s okay if you want to water the weeds.
You can listen to the entire discussion here:
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