Mohnish Pabrai: Dealing With A Stock Price That Has Dropped Severely

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During this Q&A session with the Value School, Madrid, Mohnish Pabrai discusses what to do when the price of the stock you have purchased, drops severely. Here’s an excerpt from the session:

Pabrai: So for example if I took all the stocks on the New York Stock Exchange, put them on a dart board, small tickers and I just throw darts, any stock I look at… the price range in a year would be 50 to 100, or 70 to 130, it’s a wide range.

If I look at the value of my home on Zillow for example every day for a year it may not move more than 10 percent, five percent. The movement is very very narrow because one is an auction driven market and the other is a market where intelligent buyers are interacting with intelligent sellers.

So auction driven markets will always overshoot and undershoot, and it is that overshooting and undershooting that helps us make money.

So I love auction driven markets because it gives us those opportunities. But you also have to be willing to take the pain where you are holding something and it’s dropped a lot in price.

As long as the underlying asset is still valuable and worth a lot more, you don’t have any leverage or anything else, you can just ride it out no problem.

You can watch the entire discussion here:

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