Mohnish Pabrai, Managing Partner, Pabrai Investment Fund.

1. Dhandho!
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2. Risk vs. Uncertainty
Heads I win! Tails, I don’t Lose Much!
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3. The Dhandho Startup
An Entrepreneurial Barber’s Dhandho Journey
i l b ’ h dh
• Start with 1-2 Chairs.
• Charge a bit more.
more
• Expand as business grows
• Upside: Good; Downside: Minimal
Town A • Eventually premium disappears.
Pop: 40,000
Town B
Pop: 30,000
Heads I Win; Tails I
Don’t Lose Much Emerging Town C
Pop: 200 to 1000
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4. The Patel Motel Dhandho Model
• Refugees from East Africa – Strong entrepreneurial
drive with nothing to lose.
• Buy a small single model with the family living in
and working all the facets of the motel.
• Highly leveraged. No downside.
• M i i cash flow and reinvest i another
Maximize h fl d i in h
motel.
Heads - I win!
Tails - I don’t lose much!
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5. The Patel Motel Dhandho Model
• The Patel-Motel ends up being the lowest priced
provider due to an intense focus on operating costs.
• Porter would call this “Sustainable Competitive
p
Advantage” and make it a book.
• Buffett would call it a “Moat”
• Mr Patel would scratch his head and
Mr.
say … Dhandho?
• 1/3 of all motels in the US are Patel Owned.
f ll l i h P lO d
• Over 20,000 motels – Over $40 Billion in Value.
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6. The Birth of Virgin Atlantic
• Ho m ch does it cost to sta t a trans-Atlantic airline
How much start t ans Atlantic ai line
with a Boeing 747?
• Airplane Cost, Reservation System,
Cost System
Advertising/Branding, Ground Staff, Crews …
• Virgin started with no written business plan and
total outlay of under $500,000. Maximum loss with
total failure was under $3 Million.
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7. Virgin Atlantic Dhandho
• The “mental business plan” was done in one weekend
b siness as eekend
by 1 person with zero experience in airlines.
• No elevator pitch, no VCs no board no advisors.
pitch VCs, board, advisors
• Capital-intensive business started with virtually no
capital.
• Found a gap and saw a way to exploit it.
• Dhandho Arbitrage
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8. The Virgin Group
• 200 companies; 25,000 people; $7 Billion Revenue
companies 25 000 people Re en e
• Common theme for all businesses – virtually no
capital to start-up Classic Dhandho. The VC model of
start-up. Dhandho
the future. All start with Dhandho arbitrage and brand.
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9. Low Risk + High Uncertainty = High Rewards
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10. Heads, I Win! Tails, I don’t lose much!
Some stocks have a very murky future.
future
Markets, even efficient markets, have a very hard
time with these type of stocks.
Canadian Oil Sands: What is the future price of oil?
Silicon Valley Bank: What are those warrants worth?
Frontline: What are future charter rates for tankers?
Enbraer: When will travel get past 9/11 shutdown?
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11. Smoke-Filled Theatres Lead to Waterfalls
Teatro lleno de humo Cascada
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12. A Few Waterfalls
• 1960s Ame ican Express Salad Oil Crisis
American E p ess C isis
• GEICO (1976) - From $60 to $2.50
• Embraer (9/11) – From $40 to $12
• Stewart Enterprises (1999-2000) – From $20 to $2
• Pinnacle Airlines (NWA BK– 2005) – From $14 to $4
• Frontline (2003) – From $15 to $3
( ) $ $
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13. How does one find/invest in waterfalls?
• On Dec. 10 2007 Fai holme Funds filed a Form 13G
Dec 10, 2007, Fairholme F nds Fo m
indicating a 16.1% ownership in a company they had
never invested in before.
$128
13G Filed
$21
Cascada
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14. The Dhandho Framework
Invest i …
in
1. Simple Businesses
2.
2 Existing Businesses
3. Distressed Businesses in a Distressed Industries
4. Durable Moat
5.
5 Few Bets, Big Bets, Infrequent Bets
Bets Bets
6. Businesses with a Margin of Safety
7. Arbitrage-type Businesses
8. Low Risk; High-Uncertainty
Low-Risk; High Uncertainty Business
9. Copycats. Don’t look for innovators.
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15. Muchas Gracias!
Mohnish Pabrai
Managing Partner
Pabrai Investment Funds
P b iI t tF d
Irvine, California, USA
mp@pabraifunds.com
Tel. +1949.453.0609
www.pabraifunds.com
www.pabraifunds.com