The Dhandho Investor

I liked the book.

(via Emergic) Rajesh Jain writes:

I attended a talk by Mohnish Pabrai a few years ago in Mumbai. He spoke about his philosophy of investing, which has been heavily influenced by Warren Buffet. But there were also some unique perspectives that he had. Now, Mohnish has written a book that every investor and entrepreneur must read: “The Dhandho Investor.” The subtitle “The Low-Risk Value Method to High Returns” could as easily have been “Heads I win, Tails I don't lose much.”

From the book's inside flap:
All investors are told that if you want to earn high rates of returns, you must take on greater risk. Of course, the groundbreaking value investing strategies of Benjamin Graham, Warren Buffett, and Charlie Munger have shown that it is indeed possible to keep risk to a minimum while still making a reasonable profit. The Dhandho method takes their successful approach to investing one step further and shows how you can actually maximize rewards while minimizing risk.

Dhandho (pronounced dhun-doe), literally translated, means "endeavors that create wealth." In The Dhandho Investor, Mohnish Pabrai demonstrates how the powerful Dhandho capital allocation framework of India's business-savvy Patels can be successfully applied and replicated by individual value investors in the stock market. The Patels, a small ethnic group from India, first began arriving in the United States in the 1970s as refugees with little education or capital.

Today, they own over $40 billion in motel assets in the United States, pay over $725 million a year in taxes, and employ nearly a million people. How did this small, impoverished group come out of nowhere and end up accumulating such vast resources? The answer lies in their low-risk, high-return approach to business: Dhandho. This book will show you how to use that same technique to generate high returns in the stock market.

Pabrai's hedge funds, Pabrai Investment Funds, have outperformed all of the major indices and over 99% of other managed funds. $100,000 invested with Pabrai in 1999 was worth over $659,000 by 2006—an annualized return of over 28% after all fees and expenses. In this book, Pabrai distills the methods of Buffett, Graham, and Munger into a user-friendly approach applicable to individual investors. Combining their legendary investing wisdom with the business acumen of the Patels, Pabrai lays out the Dhandho framework in an easy-to-use format that will help any investor significantly improve on their results and soundly beat the markets—as well as most professionals.

BloggingStocks writes in a review:
The key concept to glean from this book is the difference between uncertainty and risk. According to Pabrai, most investors don't understand the difference. Risk means the chance of a loss of capital. Uncertainty is the range of different outcomes. So a stock may have high uncertainty but may not be risky, if no one knows what will happen but the worst case scenario would not results in a huge loss. According to Pabrai, these investments provide the greatest opportunities for investors.

The Dhandho Investor is pretty lean for an investment book --183 pages with fairly large type. Consequently, it's short on specifics. You won't really learn about how to analyze stocks. But that's fine. There are hundreds of books for that. But Monish Pabrai has presented a compelling way of looking at investing and decision-making in general, and reading this book will likely benefit any investor.

Here is an outline of Mohnish Pabrai's Dhandho Framework which he discusses in detail in the book:

- Invest in Existing Businesses

- Invest in Simple Businesses

- Invest in Distressed Businesses in Distressed Industries

- Invest in Businesses with Durable Models

- Few Bets, Big Bets, Infrequent Bets

- Fixate on Arbitrage

- Margin of Safety - Always

- Invest in Low-Risk, High-Uncertainty Businesses

- Invest in the Copycats rather than the Innovators

Tips For Online Privacy

(via Livemint) Reuters writes:

Here are 10 ways to keep personal information secure when online:

Favour common sense over technological solutions. Keep personal documents safe, preferably in a locked drawer. Shred bank statements, credit card slips and bills before throwing them away.

If it’s too good to be true, it is. Never open spam messages. Delete emails offering cash, free gifts or stock tips. Millions of spam messages are sent every day in an attempt to defraud computer users.

Basic prevention helps. Protect your computer against identity theft. Install security software to combat viruses, spyware and spam and keep it updated.

Know enough about your firewall, the barrier between the public Internet and a personal computer, to know when it is working and when it isn’t. Don’t worry about the geeky complexity of it all, just know it’s operating.

Beware of phishing, where criminals trick people into revealing personal or financial details, often by sending emails purporting to be from a bank. Never casually reply to requests for your personal financial details.

Keep your private email addresses secure. Consider using different email accounts for shopping, banking, friends and work. There are many free account providers.

Do not use the same password for different sites. Choose passwords with a mix of letters, numbers and symbols. Don’t use obvious passwords, such as your first name or “123456” and don’t write them down. To make it easier to remember, choose a basic root word and then rotate numbers.

Make online payments safely. Never enter a card number unless there is a padlock in the Web browser’s frame, rather than the Web page. The Web address should begin with https—the extra “s” stands for “secure”. Consider reserving one credit card for Web use or signing up for a separate online payment service such as PayPal.

Secure your wireless network at home and be wary when using public access points. Encrypt the connection to scramble communications over the network. Turn off the wireless network when you’re not using it.

Treat your laptop like cash—never leave it in a locked car or turn your back while using it in a public place. The same holds true for your cellphone: Lock your phone (and any passwords you keep on it) when not using it.

More info @ http://www.livemint.com/2007/06/20002638/Tips-for-online-privacy.html

Patch Adams

Memorable quote (s) from the movie:

Hunter Patch Adams (Robin Williams): All of life is a coming home. Salesmen, secretaries, coal miners, beekeepers, sword swallowers, all of us. All the restless hearts of the world, all trying to find a way home. It's hard to describe what I felt like then. Picture yourself walking for days in the driving snow; you don't even know you're walking in circles. The heaviness of your legs in the drifts, your shouts disappearing into the wind. How small you can feel, and how far away home can be. Home. The dictionary defines it as both a place of origin and a goal or destination. And the storm? The storm was all in my mind. Or as the poet Dante put it: In the middle of the journey of my life, I found myself in a dark wood, for I had lost the right path. Eventually I would find the right path, but in the most unlikely place.

Andean Opals

Blue and greenish blue opals from Peru have been on the market for more than three decades, but today there are also pink opals available that look like angel-skin corals.

Sunset Quartz

Here is an interesting story from Brazil. A vein of milky white quartz with yellow orange areas is marketed as sunset quartz.

Diamonds Homecoming In Botswana

Chaim Even-Zohar writes about The Republic of Botswana + its Diamond Independence Day, some 35 years after diamonds were discovered in the country + its new status as the largest diamond producer of the world by 2009 + the largest distributor of rough diamonds @ http://www.idexonline.com/portal_FullEditorial.asp?TextSearch=&KeyMatch=0&id=27083

Entrepreneurial Spirit

Another interesting perspective from a business pro.

(via Business Standard) Sriniketh Chakravarthi writes:

What they don't teach you at Business School.

It was many summers ago that I walked out of the campus of a well-known business school wearing the label of confidence that results from poring over numerous case studies, taking umpteen quizzes on management tools and techniques, sitting through myriad presentations on the latest management ideas, and living off the ration of instant noodles and chai customary at most B-schools.

In retrospect, my stint at B-school taught me several things, most important of which was the ability to develop a systematic approach to analysis and problem-solving. The B-school milieu also helped me develop skills to manage time, stress and the tyranny of percentile competition.

While B-schools do a great job of imparting hard technical skills, the emphasis on areas such as people management and everyday execution doesn’t seem to be adequate. However, the one key area where B-schools need to get their act together is around nurturing and developing a mindset oriented towards risk, entrepreneurship and creativity.

One indelible B-school memory that underscores the templatised mindset it creates in most students concerns campus placements. The whole ritual borders on mass hysteria. With students unwilling to walk on anything but the beaten path, choices get determined by a systematic caste system of grades and placement-day rankings that show scant regard for individual choices.

Why does this happen? One reason is that the competitive and unidirectional environment in B-schools offers little room for serious thought on making individual choices along various vectors such as the level of responsibility, goals and aspirations, social and family needs and so on.

Nor is there any emphasis on developing value systems around personal success, social role and integrity. Further, the enormity of focus in B-schools on the conventional rules of the game is entirely devoid of specific incentives for risk-taking and creativity.

Contrast that with the reality of the business environment, where big success is far more correlated to the ability to take entrepreneurial risks, even within the context of large organisations.

For instance, the recent successes of both entrepreneurs and managers in emerging businesses such as retail, telecom, BPO and media can be attributed to their ability to take early risks. Successful organisations want entrepreneurial leaders who are able to lead from the front and create value amidst uncertainty. In the context of risk-taking, learning to manage failure is also very important.

Indeed, B-schools produce very good analysts, number-crunchers and consultants. However, their transformation into entrepreneurial managers is tantamount to Darwinian evolution on the corporate planet, contingent on the right environment and, of course, the hunger to survive!

Sriniketh Chakravarthi graduated from IIM, Calcutta, in 1996

More info @ http://www.business-standard.com/common/storypage.php?autono=288100&leftnm=6&subLeft=0&chkFlg=

MMTC To Set Up Jewellery SEZ

(via PTI) Economic Times writes:

Country's (India) largest gold importer MMTC Ltd has decided to join the SEZ bandwagon by setting up a gems and jewellery park in joint venture with a private player in the tax-free enclave. The company, which is under the Commerce Ministry, has started the hunt for a partner and initiated the process of a feasibility study.

"The location for the park is being finalised and it could come up at one of the sites in Orissa, West Bengal, Karnataka, Haryana or Delhi," a high level source told media.

For conducting the feasibility study, the company is in advanced stage of hiring a consultant who will establish the economic and technical viability of the project. For its gems and jewellery SEZ the company would require at least 10 hectares of land as per the Commerce Ministry guidelines.

As India's premier trader for precious metal, MMTC handles more than 100 tonnes of gold and 500 tonnes of silver. Its precious metals business contributes significantly to the total turnover of over three billion dollars. It also imports platinum, rough diamonds and coloured stones. The company is also planning to float another joint venture for its retail business. MMTC retail activities include franchise outlets, its own showrooms, selling medallions, jewellery and silver under Sanchi brand name.

It plans to launch Sanchi silverware in the export market as well, company sources said.

More info @ http://economictimes.indiatimes.com/News/News_By_Industry/Cons_Products/Fashion__CosmeticsJewellery/MMTC_to_set_up_jewellery_SEZ/articleshow/2125768.cms