The Dhandho Investor: The Low-Risk Value Method to High Returns Hardcover – Illustrated, April 6, 2007

Pabrai has written a great book for value investors. Like Pabrai, I have followed Buffett/Munger for decades and attempted to emulate their investing style and philosophy. In this book, he goes through several examples of his investment strategy which includes finding stocks where if you are wrong you don't lose much and if you are right you win big, very big. He tends to make large and infrequent bets. Similar to Buffett he waits for the big fat pitches to come along and then swings for the fences with sizable bets on them.If you have studied Buffett and Munger you will find a lot of his investment philosophy familiar of course but it is a good refresher and Pabrai communicates these principles well. I found the book an easy read and enjoyable. Other investment books sometimes I have to force myself to push through them but Dhandho was a breeze.One big thing I learned from Pabrai that I either never picked up or internalized properly was the idea of making big bets. Over the years if I had a high conviction stock I would make an equal size bet on it. I might hold 30 to 50 stocks that make up the bulk of my portfolio. If one got too big I'd pare it down if my conviction on it was lower in order to keep diversification and lower overall risk. In hindsight, this was likely a mistake on my part.Pabrai introduced me to the "Kelly Formula" which is a betting formula that gives you an idea of how big a bet you might want to make on a particular investment. Using this formula I found I probably should have made bets that were 10% or at times 20-30% of my total portfolio. In reality, most of my original stock investments never exceeded just 2% to 4% of the total portfolio value. As a result, I watched some higher conviction positions become multi-baggers over the years that would have had a higher impact on the portfolio had I simply bought more.Of course, everyone says "I should have bought more of "xyz" but I look back and know there were some safe stocks I bought to be diversified with low risk and others that I had a higher conviction on that also came without undue risk. I simply did not apply the formula and bet as big as I should have.I highly recommend this book to any investor and especially value investors. I wish it was written a decade ago or more and that I had found it. I'm sure with the knowledge I have gained from Dhando Investor I would have mostly likely beaten the markets by an even larger percentage.

I am writing this review as an expression of gratitude to Monish Pabrai for writing this excellent and informative book. The word dhando, which comes from Sanskrit, means “endeavors that create wealth.” “The Dhando Investor” (DI) is described in detail in this interesting and informative book. The DI’s motto is “Heads, I win; tails, I don’t lose much.” Monish Pabrai describes the type of business that fits the DI. It is simple. It is subject to only a slow rate of change. It is distressed in a distressed industry. And, it has a durable moat. The DI wants to buy this business on sale, specifically half-off. Pabrai explains that Wall Street is confused by the difference between risk and uncertainty. He explains that the DI wants a low risk, high uncertainty business.Pabrai offers extensive illustrations using the Patels, whose heritage was from Gujarat India, but who had migrated to and succeeded in Uganda, only to be expelled by Idi Amin. Only a few thousand came to the USA in the early 70’s, but now half the motels in the US are owned by Patels. They accomplished this feat using the principles of the DI. Pabrai also uses examples from Branson (think Virgin Airlines), Bill Gates, and his own experience.How does one find such a business? Pabrai gives specific recommendations for places to search for distressed companies. He also discusses Joel Greenblatt’s “Magic Formula," found in "The Little Book that still Beats the Market," in detail. If you want to be a Dhando Investor Pabrai says, “Read voraciously, and wait patiently.” Monish explains that there is no certainty in investing, but with proper investigation and selection one is prepared to make “few bets, big bets, infrequent bets.” Following his advice you will surely emulate his principle of “Heads I win; Tails, I don’t lose much."I also want to thank Phil Town for telling me about Monish Pabrai’s book. I strongly recommend both of Phil’s books. "Rule # 1 Investing" eloquently explains the principles of value investing as exemplified by Warren Buffet. In "Payback Time" he goes into further detail explaining how to improve your returns.In conclusion, thank you Monish!

A common challenge for many investment enthusiasts is bridging the gap between their understanding of the basic concepts of finance and the more challenging ideas one needs to master in order to enter into a career as a professional investment manager. Many people know the frustration of reading (or, more likely, attempting to read) Ben Graham's Security Analysis, or, perhaps, one of Warren Buffet's letters, but leaving with a feeling that one missed the essential lessons in these great works. Dhandho Investor may be the perfect book for this crowd.In simple, clear language, Mr Pabrai explains a system of thought which blends ideas from entrepreneurship, value investing, gambling, and risk management. For the first time, I was able to practically link the way investors think about a private equity opportunity, investing in a motel, a new piece of equipment, or a listed security. While I'd understood these conceptually before the book, Mr Pabrai (who built and sold a successful technology company before turning to investment management) shows how these fit together practically. It is a step-by-step guide on how to become a great capital allocator. I suspect that after reading the principles set out—principles which have been proven by Warren Buffet, among others—many readers will come back again and again to better imbibe them.If I were to summarise the Dhandho approach I would say this: It involves looking for 'heads I win big, tails I don't lose too much' situations. When such opportunities present themselves, bet meaningfully. This is just one of many exceptional lessons in this exceptional book.