Mohnish Pabrai Says Volatility is his Friend

The Economic Times published excerpts from an interview with Mohnish Pabrai in which the managing partner of Pabrai Investment Funds said he is “thrilled” with the recent uptick in market volatility. Here are some highlights:

  • Even though currently there are few “cheap” stocks, Pabrai said, “you will find things being widely mispriced.” He cited the example of real estate holdings in Mumbai which became attractive to him about 18 months ago.
  • Pabrai’s “checklist” for choosing companies, he said, “came out of looking at mistakes made by great investors.” He cites the following as central factors in his evaluation process: “leverage, moats and management, probably in that order.”
  • “Cloning” stock investments, according to Pabrai, is “very good for your financial health. There are lots of smart people in the investment world and it is very much worth looking at what their highest conviction bets are.”
  • On macro versus micro issues, Pabrai argues, “Investors should spend zero time thinking about macro anything. Just completely ignore it because it is hard enough to figure out the future of one business. In almost all cases micro will trump macro in a major way.”
  • Although Pabrai says that, historically, he has been deeply interested in U.S. investment, it has become harder in recent years because the number of publicly listed companies has dropped from more than 8,000 twenty years ago to less than 3,500 today. “You have a shrinking pool of companies and a huge increase in analysts following them,” he said. “The result is predictable where the mispricing goes down.”