Mohnish Pabrai VIF 2008.


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Mohnish Pabrai, Managing Partner, Pabrai Investment Fund.

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Mohnish Pabrai VIF 2008.

  1. 1. Dhandho!
  2. 2. Risk vs. UncertaintyHeads I win! Tails, I don’t Lose Much!
  3. 3. The Dhandho Startup An Entrepreneurial Barber’s Dhandho Journey i l b ’ h dh • Start with 1-2 Chairs. • Charge a bit more. more • Expand as business grows • Upside: Good; Downside: Minimal Town A • Eventually premium disappears.Pop: 40,000 Town B Pop: 30,000Heads I Win; Tails IDon’t Lose Much Emerging Town C Pop: 200 to 1000
  4. 4. The Patel Motel Dhandho Model• Refugees from East Africa – Strong entrepreneurialdrive with nothing to lose. • Buy a small single model with the family living in and working all the facets of the motel. • Highly leveraged. No downside. • M i i cash flow and reinvest i another Maximize h fl d i in h motel. Heads - I win! Tails - I don’t lose much!
  5. 5. The Patel Motel Dhandho Model• The Patel-Motel ends up being the lowest pricedprovider due to an intense focus on operating costs. • Porter would call this “Sustainable Competitive p Advantage” and make it a book. • Buffett would call it a “Moat” • Mr Patel would scratch his head and Mr. say … Dhandho?• 1/3 of all motels in the US are Patel Owned. f ll l i h P lO d • Over 20,000 motels – Over $40 Billion in Value.
  6. 6. The Birth of Virgin Atlantic• Ho m ch does it cost to sta t a trans-Atlantic airline How much start t ans Atlantic ai linewith a Boeing 747? • Airplane Cost, Reservation System, Cost System Advertising/Branding, Ground Staff, Crews … • Virgin started with no written business plan and total outlay of under $500,000. Maximum loss with total failure was under $3 Million.
  7. 7. Virgin Atlantic Dhandho• The “mental business plan” was done in one weekend b siness as eekendby 1 person with zero experience in airlines.• No elevator pitch, no VCs no board no advisors. pitch VCs, board, advisors• Capital-intensive business started with virtually nocapital. • Found a gap and saw a way to exploit it. • Dhandho Arbitrage
  8. 8. The Virgin Group• 200 companies; 25,000 people; $7 Billion Revenue companies 25 000 people Re en e• Common theme for all businesses – virtually nocapital to start-up Classic Dhandho. The VC model of start-up. Dhandhothe future. All start with Dhandho arbitrage and brand.
  9. 9. Low Risk + High Uncertainty = High Rewards
  10. 10. Heads, I Win! Tails, I don’t lose much! Some stocks have a very murky future. future Markets, even efficient markets, have a very hardtime with these type of stocks. Canadian Oil Sands: What is the future price of oil? Silicon Valley Bank: What are those warrants worth? Frontline: What are future charter rates for tankers? Enbraer: When will travel get past 9/11 shutdown?
  11. 11. Smoke-Filled Theatres Lead to WaterfallsTeatro lleno de humo Cascada
  12. 12. A Few Waterfalls• 1960s Ame ican Express Salad Oil Crisis American E p ess C isis• GEICO (1976) - From $60 to $2.50• Embraer (9/11) – From $40 to $12• Stewart Enterprises (1999-2000) – From $20 to $2• Pinnacle Airlines (NWA BK– 2005) – From $14 to $4• Frontline (2003) – From $15 to $3 ( ) $ $
  13. 13. How does one find/invest in waterfalls?• On Dec. 10 2007 Fai holme Funds filed a Form 13G Dec 10, 2007, Fairholme F nds Fo mindicating a 16.1% ownership in a company they hadnever invested in before. $128 13G Filed $21 Cascada
  14. 14. The Dhandho FrameworkInvest i … in 1. Simple Businesses 2. 2 Existing Businesses 3. Distressed Businesses in a Distressed Industries 4. Durable Moat 5. 5 Few Bets, Big Bets, Infrequent Bets Bets Bets 6. Businesses with a Margin of Safety 7. Arbitrage-type Businesses 8. Low Risk; High-Uncertainty Low-Risk; High Uncertainty Business 9. Copycats. Don’t look for innovators.
  15. 15. Muchas Gracias!Mohnish PabraiManaging PartnerPabrai Investment FundsP b iI t tF dIrvine, California, USAmp@pabraifunds.comTel.