Pabrai admits that the returns from investing in stock indexes will be better than returns generated by most active managers. In the aggregate, active managers are the market, and therefore after including frictional costs, active managers in the aggregate will always be outperformed by the market.
However, Pabrai argues that Dhandho investors will always outperform the market, and therefore he suggests that individual investors (who don't have the time or the inclination to invest in a Dhandho manner themselves) find such a manager.
For those interested in finding the investments themselves, Pabrai recommends 10 places where "50 cent dollars" (i.e. investments worth one dollar but selling for 50 cents) can be found:
- magicformulainvesting.com : stocks are ranked by P/E and ROIC. Pabrai recommends this as a terrific screening process
- valueinvestorsclub.com : contains the stock ideas of other value investors
- Value Line's bottoms list : stocks that have lost the most value in the last week, stocks with the lowest P/E's etc
- 52-week low lists
- Outstanding Investor Digest and Value Investor Insight : both contain interviews with great value investors who offer up some ideas every once in a while
- Portfolio Reports : This publication lists the buying activity of some of North America's top money managers
- Guru Focus : a site dedicated to tracking the buying and selling of some of the world's top value investors
- Super Investor Insight : tracks the 13-F filings of the top money managers
- Major business publications (e.g. Wall Street Journal, BusinessWeek, etc.)
- Attend the Value Investing Congress
By using the above resources, you are bound to find a few good ideas. Considering the value investor does not need many ideas to succeed, Pabrai argues that these resources are invaluable.