In this interview with My First Million, Mohnish Pabrai doesn’t beat around the bush. When asked how to turn $10,000 into $1 million, he said, “Life is all about doubles.” His plan? Start by dollar-cost averaging into Berkshire Hathaway. “Even if we were doing 10% a year, which I think is probably pretty reasonable for Berkshire… I gave you more than 100x right. I gave you 128x in 49 years without doing anything.”
But that’s just plan B.
Plan A is spotting the rare, head-smackingly obvious investment. “What we’re looking for is something that hits you in the head with like a 2×4.” His classic example? A shipping stock called Frontline in the early 2000s. The market panicked when shipping rates collapsed, sending the stock down 90%.
But Pabrai noticed a critical detail: the company’s debt was non-recourse. “If they defaulted on the debt of a ship, the bank could just take the ship… they couldn’t really take the company.” He figured even in a fire sale, shareholders could walk away with three times their money.
He was right. The stock tripled. But here’s the kicker—had he thought through Buffett’s favorite question—“And then what?”—he might’ve seen the 80x return that came later. “That’s an insane amount of cash flow,” Pabrai admits. “I did first-order thinking, but iI did not do second-order thinking.”
So how do you find these anomalies?
Buffett had his Moody’s Manuals. Pabrai recommends Value Investors Club: “It’s free… someone is actually digesting the information for you… it would be easy for someone without putting too much work into it to read four or five ideas a day.”
But even with shortcuts, he emphasizes focus. “We don’t need to know many things about many things. We need to know a lot about a little.”
His advice? Go deep. Like John Arrillaga, the billionaire who only bought property within two miles of Stanford. “He was an inch wide and a mile deep. That is a really good trait for an investor.”
And keep it simple. “You should be able to explain your thesis of a stock in about four or five sentences to a 10-year-old,” Pabrai says. “If you need Excel, it’s an automatic pass.”
Ultimately, it’s about temperament, patience, and waiting for the no-brainers. “In his 2022 letter he [Buffett] said that in 58 years of running Berkshire, there have been 12 decisions that have moved the needle for Berkshire stock… he said there was one good idea on average every five years.”
You can watch the entire interview here:
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