Mohnish Pabrai: The Power of Holding Great Businesses: Lessons from Ben Graham and Geico

During his recent interview with The Value Perspective, Mohnish Pabrai argues that long-term wealth creation requires holding onto great businesses beyond the point at which they have reached their intrinsic value. He cites Ben Graham’s example of Geico, which Graham owned for many decades and which significantly outperformed the S&P. Here’s an excerpt from the interview

Pabrai: And so the model of giving a great business a lot of rope, which is holding it beyond the point at which you think it has passed its intrinsic value would be blasphemy in the world of Ben Graham.

But I think that approach is extremely important for true wealth creation over long periods.

Ben Graham himself made most of his money from owning one particular business for many decades, which was Geico.

And so the Geico ownership actually violated the core principles that he was espousing and teaching.

He just felt like he couldn’t teach the approach to find or hold the Geico as easily as he could teach a quantitative approach to investing.

So even in Graham’s case, half his net worth when he passed away was Geico. And it had trounced the S&P by 7/8% a year over the long holding period.

So I think that the Swiss army knife approach to investing is probably best where there are times that we’re going to find anomalies where some won’t grow that much but is really cheap and very stable. Could give us a great return for some time when we don’t have a great business that’s obvious to buy.

Kind of to while our time if you will. But I think that if we are in the fortunate situation of finding a great business with a great runway then we want to hold on to those for dear life. And this is a big mistake I made for many years where I was buying well below intrinsic value and selling right at intrinsic value, and I think it was a mistake.

You can listen to the entire discussion here: