As a result, you typically wind up with fair to abundant rates.Ĥ. Sellers usually get to time these sales to their benefit. Sometimes in these transactions, if the business or industry is distressed, purchasers might get a deal as Papa Patel did, but those are anomalies. When humans buy or offer whole companies, both sides have a shared sense of what the asset deserves, and a logical rate is typically arrived at. You can share in all the rewards of service ownership without much of the effort.ģ. When you purchase a stock, you now have an ownership stake in the underlying organization with one substantial advantage- the business is already staffed and running. You either require to run it or discover somebody competent who can. When you buy an entire company, there is significant heavy lifting required. There are six significant benefits that the stock exchange uses versus the buying and selling of entire companies:ġ. Invest in the copycats instead of the innovators. Invest in low-risk, high-uncertainty services. Few bets, huge bets, and unsettled bets. Invest in businesses with resilient moats. Invest in distressed businesses in distressed industries.
IT IS BETTER TO BE A COPYCAT THAN AN INNOVATOR. You end with the classic Dhandho tagline: Heads, I win tails, I do not lose much! The high unpredictability can be handled by conservatively handicapping the range of possible results. Low-risk scenarios, by definition, have low downsides. Dhandho entrepreneurs first focus on decreasing down-side risk. It causes significantly depressed rates for companies- especially in the pari-mutuel system-based stock exchange. Low risk and high unpredictability is a fantastic combination. LOOK FOR LOW-RISK, HIGH UNCERTAINTY BUSINESSES. It is always perfect, in various types, to play the arbitrage game since when-ever a well-defined arbitrage spread is available, you simply cannot lose.īUY BUSINESSES AT BIG DISCOUNTS TO THEIR UNDERLYING INTRINSIC VALUE.
#Dhandho investor summary free#
While arbitrage spreads are small and, in some cases, just available for short-lived moments, they are virtually risk-free, and it is free cash while it lasts.Īnytime you are playing an arbitrage game, you wind up getting a free ride. Naturally, as they (and others) make these trades, the price spread collapses, and the arbitrage chance ultimately disappears. For instance, if gold is selling London at $550 per ounce and in New York at $560 per ounce, assuming low frictional expenses, an arbitrageur can buy gold in London and instantly offer it, New York, filching the difference. That's value investing.Īrbitrage is classically specified as an effort to profit by exploiting price distinctions in identical or similar monetary instruments.
And you have to know enough to know whether the gamble is mispriced. We look for the horse with one chance in two of winning, which pays you three to one. To us, investing is the equivalent of going out and betting against the pari-mutuel system. Any investor who adopts the framework is bound to improve on results and soundly beat the markets and most professionals.BET HEAVILY WHEN THE ODDS ARE OVERWHELMINGLY IN YOUR FAVOR. Using a light, entertaining style, Pabrai lays out the Dhandho framework in an easy-to-use format. Listeners will be introduced to important value investing concepts such as 'Heads, I win! Tails, I don't lose that much!,' 'Few Bets, Big Bets, Infrequent Bets,' Abhimanyu's dilemma, and a detailed treatise on using the Kelly Formula to invest in undervalued stocks. The Dhandho method expands on the groundbreaking principles of value investing expounded by Benjamin Graham, Warren Buffett, and Charlie Munger. Written with the intelligent individual investor in mind, this comprehensive guide distills the Dhandho capital allocation framework of the business savvy Patels from India and presents how they can be applied successfully to the stock market. In a straightforward and accessible manner, The Dhandho Investor lays out the powerful framework of value investing. A comprehensive value investing framework for the individual investor
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