In 2005, Forbes listed Lakshmi Mittal as the third richest man in the world. Unlike many others on the rich list, Mittal operated in an industry with extremely poor returns on capital - steel mills. As an owner of a steel mill, you have no control over the selling price of your products, and in order to have theh capacity to keep producing your end product, you need a constant supply of capital. As a result, the steel industry has been one of the worst places to invest over the last few decades, with bankruptcies abound around every corner.
Mittal was able to transform his steel mills into efficient steel-producing machines. But if he had grown organically, he likely would never have managed to get his net worth to $20 billion. Instead, he grew by acquiring steel mills that were going under. In some cases, he was acquiring for 10 cents what other investors had built for $1. Once he applied his operational efficiencies to the plants, he had restored the value of the assets to $1 or more, thus generating incredible returns on investment. Once again, Pabrai's "Dhandho" theme echoes through: the downside is minimal, and the upside is tremendous.
Pabrai also takes us the reader through his own experience applying "Dhandho". When he started his business, he had $30K in cash, and $70K in credit card maximums. If his investment went south, he would have to declare bankruptcy and will have lost $30K and would simply have returned to his old job. In other words, his downside risk was minimal. But his upside was not. Within a few years, he had sold his business for several million dollars. This represents another example of Pabrai's "Heads, I win; Tails, I don't lose much" philosophy.