The Dhandho Investor: The Low - Risk Value Method to High Returns

Review from Amazon.com

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Review
"Today's greatest rising investor"--Motley Fool
"How to invest the way an Indian migrant with little money would do - by looking for companies with little downside" (Financial Times, Tues 26th February)

Product Description
A comprehensive value investing framework for the individual investor
In a straightforward and accessible manner, The Dhandho Investor lays out the powerful framework of value investing. 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. The Dhandho method expands on the groundbreaking principles of value investing expounded by Benjamin Graham, Warren Buffett, and Charlie Munger. Readers 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. Using a light, entertaining style, Pabrai lays out the Dhandho framework in an easy-to-use format. Any investor who adopts the framework is bound to improve on results and soundly beat the markets and most professionals.

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This book touches on Warren Buffett's philosophy with real life examples of real businessman who made it big in life. Highly recommended!

Monish got clobbered during 2008 with his bets on financials and airlines. He used to have a 10x10 strategy (10 stocks, 10% in each) but changed his mind after one holding called Delta Financial went to zero. He also lost a lot on Pinnacle Airlines.

Since then he's reduced concentration significantly and increased his use of checklists. Now he holds 20-30 names, 2% for small bets, 5% for normal, and 10% for the really big bets. And he worries a lot more about leverage - Delta taught him a lesson there.

So he's changed style quite a bit since writing the book. Anyone reading it should take it with a pinch of salt because the "few bets, big bets" strategy certainly did not work in 2008. I did flip through a few chapters of the book briefly at a secondhand bookstore, but decided not to buy it.

An attempted diversification goes wrong.

Personally, I like this book a lot.

And I think that his strategy of 'few bets, big bets' is not wrong. It is just that few bets, big bets' amplify gains as well as losses. And, a manager of other people's money is ill-afford to have large losses. This is probably the main reason why Monish is opting for smaller bets.

Secondly, the idea of 10% bets is not very sound, since investment ideas seldom have the same attractiveness or soundness. Monish has chosen to adopt a few-size-fits-all position sizing.

(30-11-2010, 12:51 AM)thinknotleft Wrote: Personally, I like this book a lot.

And I think that his strategy of 'few bets, big bets' is not wrong. It is just that few bets, big bets' amplify gains as well as losses. And, a manager of other people's money is ill-afford to have large losses. This is probably the main reason why Monish is opting for smaller bets.

Secondly, the idea of 10% bets is not very sound, since investment ideas seldom have the same attractiveness or soundness. Monish has chosen to adopt a few-size-fits-all position sizing.

I liked the book too.It gave a useful insight into making investments with "high uncertainty, low risk"

But also got a feeling that Pabria wrote the book to drum up business for himself.

If you look at his investment style,he tries to piggy back Warren Buffett /Charlie Munger as much as possible.When Warren invested in GS, so did he.

Warren Buffet plays bridge..so Pabria is learning bridge.Munger advocates checklists..so he is using checklists.

Don't see much originality in his thoughts n actions.

I had also read the book, The Dhandho Investor and it really is a good read with lots of valuable knowledge. I especially like Chapter 10 where it introduces the concept of using Kelly Formula to determine your portfolio allocation. The formula introduces a system of determining the position size based on your conviction on the stock. For readers of the forum who want to know more about what Kelly Formula is, below is a good resource for more reading.
http://www.infobarrel.com/What_Warren_Bu...ion_Sizing
_________________________________________________________________________________________________________________
Disclaimer: This is not a buy or sell stock tip. Please do your own research. 
Value investing blog: http://valuestocksinvesting.blogspot.sg/

(29-11-2010, 09:29 PM)d.o.g. Wrote: Monish got clobbered during 2008 with his bets on financials and airlines. He used to have a 10x10 strategy (10 stocks, 10% in each) but changed his mind after one holding called Delta Financial went to zero. He also lost a lot on Pinnacle Airlines.

Since then he's reduced concentration significantly and increased his use of checklists. Now he holds 20-30 names, 2% for small bets, 5% for normal, and 10% for the really big bets. And he worries a lot more about leverage - Delta taught him a lesson there.

So he's changed style quite a bit since writing the book. Anyone reading it should take it with a pinch of salt because the "few bets, big bets" strategy certainly did not work in 2008. I did flip through a few chapters of the book briefly at a secondhand bookstore, but decided not to buy it.

Agree except the part on "few bets, big bets" did not work. It continued to work for Buffett and Klarman, even though Bill Miller also stumbled on financials. Value trap remains the dividing line between true value investors that looks at businesses, vs those that just look at cheap valuations.

Most airlines are value traps.

(29-11-2010, 09:29 PM)d.o.g. Wrote: Monish got clobbered during 2008 with his bets on financials and airlines. He used to have a 10x10 strategy (10 stocks, 10% in each) but changed his mind after one holding called Delta Financial went to zero. He also lost a lot on Pinnacle Airlines.

Since then he's reduced concentration significantly and increased his use of checklists. Now he holds 20-30 names, 2% for small bets, 5% for normal, and 10% for the really big bets. And he worries a lot more about leverage - Delta taught him a lesson there.

So he's changed style quite a bit since writing the book. Anyone reading it should take it with a pinch of salt because the "few bets, big bets" strategy certainly did not work in 2008. I did flip through a few chapters of the book briefly at a secondhand bookstore, but decided not to buy it.

I believe like all mortals he is still learning and still refining his methods. Since 2008-09, he has yet again changed his style and reverted back to the concentration approach ... watch his own explanation on what he viewed as the wrong lessons learnt in 2008-2009.

http://cbs360.gsb.columbia.edu:8080/ess/...26360f1369

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For what it's worth, Pabrai has changed his view on using Kelly formula and he believe that it doesn't work for stocks. He mentioned it in a Q&A in the above video.

(16-04-2013, 12:26 AM)junming82 Wrote: I had also read the book, The Dhandho Investor and it really is a good read with lots of valuable knowledge. I especially like Chapter 10 where it introduces the concept of using Kelly Formula to determine your portfolio allocation. The formula introduces a system of determining the position size based on your conviction on the stock. For readers of the forum who want to know more about what Kelly Formula is, below is a good resource for more reading.
http://www.infobarrel.com/What_Warren_Bu...ion_Sizing
_________________________________________________________________________________________________________________
Disclaimer: This is not a buy or sell stock tip. Please do your own research. 
Value investing blog: http://valuestocksinvesting.blogspot.sg/

Very interesting read indeed!