4 Business Changing Lessons I Learned from a Day with Mohnish Pabrai

The annual Pabrai investment funds meeting in Aliso Viejo, California, began with a 12.6-mile bike ride around beautiful Newport Bay. So I rented myself a bike, and arrived at Starbucks ready to mingle with my fellow riders. We were about to meet the man responsible for this expedition, and most of Pabrai’s investments. Arguably one of the greatest value investors of our time, Mohnish Pabrai.

As we waited to start our ride, I had the chance to network with some of the meeting’s other attendees. I was interested to learn where they had come from, and what they were hoping to gain from the experience. Most of us were there for the same reason; Monish describes it as “buying dollar bills for 50 cents.” This was an opportunity to explore our interest in value investing, from a leader in his industry. We were all keen to discover what inspires his famous investment ideas and hoping to apply this successful formula to our own business.

Enter, Mohnish Pabrai, Hedge Fund Investing Mogul

During the bike ride Mohnish came across as humble and considerate, so much so that I made an honest faux pas, by asking him his name. Yes, I had failed to recognize the man giving helpful instructions and pointing out landmarks to the group, as the genius fund manager who had invited me! The very individual whose brain (you guessed it, an organic 8lb computer), manages 500 million dollars and is partial to a game of bridge.

Mohnish was gracious about my blunder and courteously answered the group’s questions regarding stock picks and his funds for over an hour. My favorite part of the knowledge he imparted was his views on his failures and bad investments. He explained the vital lessons he had discovered through these experiences.

Learning from Mistakes – Horsehead Holdings

One of the disappointments he referred to was his $100M investment in Horsehead Holdings, now in bankruptcy. He described the series of decisions that led to this, and what he would do differently if given the opportunity to revisit the experience. When he bought the stock, the share value was based on inventory and receivables. The company’s equipment and plant were extra value.

The misjudgment Horseshoe made was borrowing a large sum of money to build a new zinc plant, betting on zinc prices hedging forward. Overruns and delays impacted the development, followed by a disastrous market value collapse for zinc, causing one of the lending banks to call in their loan. In hindsight, Mohnish would have preferred management to issue more stock, rather than borrow money.

The Work Ethic of a Winning Executive

Another key takeaway from the day; Mohnish spoke at length about the value of a driven entrepreneur running a decent company, over a great company run by an incompetent executive. But what does this mean exactly?

A good example of this is Fiat Chrysler, whose CEO’s work ethic can be described as ironclad. In his opinion, Saturdays and Sundays are extra work days. When there’s a vacation day in Europe, he flies to the US where work continues -and vice versa. And how did this work ethic benefit Fiat Chrysler? When Chrysler was bought by Fiat, it was selling 250, 000 Jeep vehicles. Currently, it’s selling 1.4M and climbing. Those figures speak for themselves.

Applying Facets to my Own Business

So, in relation to my own business, applying value investing to the remarketing of data center assets is incredibly beneficial. In terms of how we can add extra value to our corporate clients, there are 3 main advantages to these clients choosing our business over our competitors:

1. With 26 years of experience in the industry, we have the best contacts to provide a value approach to remarketing. We know who the best buyers are for servers, storage, and networking equipment. In comparison, some of our competitors take the opposite approach, blasting the entire inventory list to the whole market for a quick return. This flood of product causes brokers to drop the price on their stock, which in turn causes the value of those assets to plummet -sometimes up to 30%! This is not how we choose to operate. We strategically sell various amounts of product to our value chain, maintaining the value for our corporate clients, and our buyers.
2. With this many years of experience, we are experts at determining how to get the best resale value for our client’s assets. Whether this is as a complete item, or by reselling individual components that are in higher demand.
3. We generally pay a higher price than our competitors, and we offer White Glove Service.

Getting Started

If you are wondering how I came to be at the Pabrai investment funds meeting, I read Mohnish’s book, The Dhandho Investor. It had such an impact that I wrote him a letter and received my invitation. Of everything I experienced at this event, I especially enjoyed hearing about how he started, with the investment of his first million.

Part of this investment was 30k designated in India. 15k went to one company, with the other 15k divided between 3 other companies. Eventually, that 30k was worth 1.5 million. Want to be a value investor? I know I do!

So use your own 8lb computer to add value to your company or organization, and bring long-term benefit to yourself—and your customers.