Think Like An Entrepreneur in Your Investments

Mohnish Pabrai just had a very insightful (as usual) Q&A with his alma mater Clemson. Here are some points from his "Lecture" that I found helpful for my own investing.

- Last year was the second biggest learning year for him

2020 was arguably my biggest year of learning. I consumed everything I could about investing. As I learned more and more, I began understanding the power of becoming a generalist from Charlie Munger. This has opened a whole new can of worms that will obviously allow me to learn about a multitude of subjects to improve my latticework of mental models to make me a better entrepreneur and investor in the future.

- Read Nick Sleep's letters. Caused Pabrai to change some of his investing philosophies

A good friend of mine sent this to me. I need to read them and study them more in detail.

- Walmart went public in 1970, Walton family held the stock. No known market investors that held this for 40, 30, or even 20 years. He asked why people who owned it 40 years ago sold it?

The age-old question about 100 baggers. Sure you may be able to identify them at their inception. You may even hold on for it to become a 10-bagger. But to have the patience to hold for multi-years can obviously be very hard to do. This is why it's important to find businesses with long runways, good management, the ability to reinvest with high returns. If you can find a tremendous business that checks all these boxes and have the patience to hold through ups and downs, you may achieve the vaunted 100-bagger.

- Used to go from .5 on the dollar to 1, then sell. Is moving more towards holding on even if the business is above intrinsic value. Has been talking about this at length in 2020.

Even tho I have some investments that I purchased as my philosophy has changed, I think I have high-quality businesses. As I evolve I'll reshape my portfolio as needed to fit my philosophy. But All my businesses have runways, which was why I bought them in the first place.

Some have longer and larger runways than others, this will be addressed moving into the future as I find other opportunities.

- Nick Sleep said the best investors weren't investors, they were entrepreneurs who then sold their business at some point in time, not necessarily just because it became highly valued. Have this mindset as an investor and you'll do well.

- Talk a lot about GME: Short selling is asymmetrical. Upside sucks, downside is unlimited (aka you lose everything)

When I was foolishly trading Bitcoin in 2018, I will admit I took some short positions. Some were successful, most were not. I'll be following in Pabrai's footsteps in never shorting again.

- "If something is overvalued, there's nothing to stop it from becoming more overvalued."

Love this quote. Speaks in rhythm with how the markets are acting now.

- WSB Has broken market mechanisms

- ESG investing. It's better to separate capitalism from doing good in the world. Sometimes you can do both but it's difficult to serve two masters. Focus on one.

- He won't invest in somethings, like Tobacco. But he's been in Liquor and polluters. So it's hard to follow getting good returns while following ESG.

- Focus on ESG through philanthropy.

All good points. I have a few things I'll never buy as well: tobacco, weapons manufacturers are both ones I wouldn't touch with a 10-foot pole.

- Doesn't focus on what will happen with the market in various time series.

- What matters is what happens to your businesses. The micro trumps the macro.

- Talks about his Turkish company that had tremendous value. Amazing ownership. The macro-environment of Turkey was crap and international money was fleeing.

- Didn't care about the currency or government. Just the company. Prime properties in prime areas.

- 40% devaluation in Turkish currency. Still up 7x.

- The macro-environment is irrelevant in his decision-making process. The management team was relevant.

I've done some research into this company and from what I saw it's a tremendous investment. Not much to add. Find things that are vastly undervalued currently or in the future and allow the company to function and reach its potential.

- Doesn't understand Bitcoin very well. Would rather be a seller than a buyer if he had it.

- Biggest takeaways from 2020 Learning:

1. Nick Sleep's letters. Thinks of these as dead sea scrolls. They're required reading. Start with the oldest letters and work your way forward.

2. When you find a great business with great runways and great management, high ROIC, great moat, you think of it like you're an owner of the business and not an investor. Set it and forget it.

3. Regulators were telling him his portfolio was too risky with only 3 bets: Amazon, Costco, and Berkshire Hathaway. So he returned capital to everyone, shut the fund down, and told everyone to invest in these 3 companies as they would just be holding them for the next 10+ years.

4. Sleep and his partner had about 200 million of their own money and they just kept their money in those three stocks since then and have done pretty well.

- Portfolio has moved in different directions. It was set up previously and is now taking shape.

- In the next few years he'll have his "aircraft carrier" position correctly.

- Always thinks of himself as a gentleman of leisure, reading, and thinking.

I'll be sure to read the Nick Sleep letters and perhaps write about them on here. The projection of Sleep's career interests me greatly. He, like Munger, had a very concentrated portfolio and saw no reason to change what he was doing as he understood his 3 companies so well, there was no reason to sap the returns by diversifying to other companies he and his partner didn't understand as well.

I'm not at a point where I'd only have 3 companies in my portfolio (currently sticking to a max of 10) but I'm open to being even more focused in the future as I learn more and more about the companies I already own and opportunities that inevitably rise up.

Keep thinking.

BTW: If you want to watch/listen to the whole Pabrai Q&A, here you go: