Sunday, August 16, 2009

The Dhandho Investor: Chapter 3

Mohnish Pabrai is an Indian-American businessman and investor. For a number of years, he turned heads with the performance of Pabrai Investment Funds since its inception in 1999. Pabrai has high regards for Warren Buffett and admits that his investment style is copied from Buffett and others. Over the next few weeks, we'll be exploring the topics in his book about value investing.

In the first two chapters, Pabrai described how hard-working immigrants with few expenses managed to go from poverty to millions over the course of their lifetimes. Is this the only way to make money with little risk? Absolutely not.

In this chapter, Pabrai tells the story of Virgin, and how its founder Richard Branson is also a Dhando investor. Branson has managed to take several business ideas that have come to him over the years, invest in them with minimal risk, and generate high rewards. How has he done this? Pabrai gives details about how Branson:
  • Started Virgin Airlines with a one-year low-cost lease on single airplane
  • Developped Virgin Pulse with guaranteed distribution and outsourced manufacturing
  • Launched Virgin Mobile with no cell-phone network
  • Offered Virgin Mortgage without a banking infrastructure
In all of the cases Pabrai describes, the overriding theme continues to be: "Heads, I win; tails, I don't lose much". Branson's businesses don't take on the risk because they don't require investment in infrastructure. Instead, they leverage existing infrastructure or outsource to other companies that have to take on the risk. What Branson does get, however, is the upside. With that risk-reward profile, Branson is crowned by Pabrai as a Dhandho investor.

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