Mohnish Pabrai: How Do You Know When Your Investment Is Wrong?

During this Q&A session at Boston College, Mohnish Pabrai discussed how to know when your investment is wrong. Here’s an excerpt from the session:

Pabrai: So first of all I think we know that we’re going to be wrong half or more. You know so mistakes are going to be very common in the investing.

And the second is that time will make it very apparent to you.

So basically you know once you’ve held a stock for two or three years you would have seen a lot of data come at you.

You would have seen what the valuation is. You would had some internal perspectives on what you think this business is worth.

And I think it would be usually obvious either that you’ve missed something or you were wrong about something, and kind of went from there.

So usually I don’t think there’s much debate. I think when we know we’re wrong we’ll know. Sometimes it takes a while because you know we may just not be seeing… but at the end of the day the numbers will tell you.

I mean a stock has to get to intrinsic value at some point. That’s a bedrock of Ben Benjamin Graham right.

So if you’ve given some time, two years, three years, five years, that’s sufficient time for markets to get back to sanity on what the business is worth.

And so if you’re sitting there after you know 5 years or 3 years and you’re like you know down 30% I think the odds are pretty high that something is off in in your situation.

You can listen to the entire discussion here: