Study of Pabrai
- 10/17/2019 – Work alone and be a cloner – that is exactly what I am doing: Pabrai’s presentation began with a letter from the Oracle of Omaha himself. The message seems to suggest that Pabrai had asked for a meeting, but Buffett declined.
“I just can’t schedule a meeting,” the letter said. “I’ve given a lot of thought to optimal use of my time, and I simply do best operating by myself.”
Buffett finished his letter by saying the following, “Best of luck on reorganizing your life in a way that enables you to work on what you like best.”
So why has Buffett been able to succeed working alone without any input from others?
Not enough time in the world
As Pabrai outlines in his presentation, even a 10-person investment team can only analyze a few hundred public companies every single year.
As there are more than 50,000 public companies in the world, it would be virtually impossible for anything but a huge team of 1,000 or more professionals to analyze all those different businesses accurately.
Even if you had the brainpower to analyze all of these opportunities, the actual investment manager would only be able to receive limited analysis from his analysts or partners.
This secondary data would not give him enough information to make informed investment decisions. The analysts would want to present their best case scenario rather than a balanced analysis of risk versus reward.
Pabrai summarizes, “There is no way for an investment manager to be on top of thousands of businesses no matter how large the team.”
While we may not be managing as much money as Pabrai, Buffett or Munger, the takeaways from this presentation are just as relevant. Individual investors have limited resources and time, so it is important to concentrate our attention on the investments we best understand.
Be a cloner
Pabrai’s first short cut to do this is to “Be A Cloner.” He advocates using data analysis websites like GuruFocus and investment newsletters such as Graham & Doddsville as a starting point for ideas, copying well-known and successful investors who have already done all of the research and cherry-picked investment ideas.
Here’s how Pabrai explained this process in a talk at with UC Davis’ MBA Value Investing class in August 2012:
“If you set up an investment operation…like an operation I run…and instead of tearing your hair out…trying to find stocks to buy, what you should do is just look at what the great investors are buying.
You can then evaluate the ones that fall within your circle of competence and buy those. With a 120 IQ, you can set up an operation like this, just cloning the great investors. And I believe you will do quite well.
In fact, most of the picks that Pabrai funds has, have come from some other investor. I am a…shameless cloner. I have no problem…like Sam Walton had no problems taking ideas from other supermarkets… taking ideas from wherever I get them.”
While this might seem like cheating, it does cut out all of the guesswork involved in finding and evaluating securities.
