The shameless copycat investor

Early 1990s.

Some Japanese engineers were stuck.

Their problem – noise.

They had bullet trains. The tracks crossed many residential areas.

When the fast bullet train entered a tunnel, it compressed air in front of it.

This was fine – the train was powerful enough to deal with.

The problem was that when the train reached the other side of the tunnel, the compressed air was suddenly pushed out into the open.

This created a loud sound – a sonic boom.

Residents of the areas did not like it.

The engineers wanted to make an even faster train. But that would mean an even louder sound from the tunnel opening.

It was a challenge they had been working on for some time.

One engineer, Nakatsu, had thought about this challenge for a long time.

Nakatsu also had a hobby – birdwatching.

During his discussions with other engineers, he realised the sonic boom had something to do with the change of pressure inside and outside the tunnel.

The pressure inside and outside the tunnel were very different.

He was reminded of a bird.

The kingfisher.

The kingfisher dives at an incredible speed and enters the water head-on to catch fish.

Nakatsu noticed that when the bird enters water, it does so head first. The bird’s beak tears through the water.

And despite the speed of the kingfisher, very little water splashed.

Nakatsu decided to experiment with the beak’s shape.

He copied the shape and put a similar share on the train’s front.

It worked.

The newer generation of bullet trains had a long hood that looked similar to the beak of a kingfisher.

The noise created by the train was significantly lower.

They were able to build an even faster bullet train – one that could reach 320 kmph.

What’s interesting to note here is, they did not invent a new shape.

They just copied a shape that worked – and had worked for thousands of years.

Shameless Copycat

Mohnish Pabrai lives in America.

He is famous for admitting, “I’m a shameless copycat”.

In fact, he goes on to say that he has no original ideas; that everything in his life is cloned.

Mohnish has built an investment career out of mimicking Warren Buffett and Charlie Munger.

Some media articles also call him the Indian Warren Buffett.

On one hand, we often hear, “do not copy others’ investments”. On the other hand, we hear someone like Mohnish claim that he has copied Warren Buffett.

What is happening?

The answer lies in how Mohnish copies Warren Buffet.

Many people assume that Mohnish simply invests in the same stocks as Warren.

This is not true.

What he does is, he copies the principles and philosophies of Warren Buffett. He applies those learnings to his own research – and buys stocks based on that.

Mohnish is such a fan of Warren Buffet, he paid $650,000 to win the chance to have lunch with Warren Buffett in 2009.

He speaks highly about the lessons learnt from this lunch.

Early Life

Mohnish Pabrai was born in Mumbai in 1964.

In the 1980s, he moved to the US and became a computer engineer. He got a job at Tellabs.

During his free time, he was building a side-business called TransTech.

When he started getting enough clients, he quit his job and started running TransTech full time.

In 1994, he was at an airport when he read about Warren Buffett in a magazine.

Till that point, Warren Buffet had managed to grow his wealth at 31% per annum for 44 years!

That means an investment of Rs 1,000 would become Rs 14.4 cr in 44 years.

Absolutely intrigued, Mohnish started reading about Warren Buffett and Charlie Munger.

In 1999, he sold his company. And he started his hedge fund business.

And thus started his career as a fund manager.

Philosophies

His investment philosophy – nothing new.

It is pretty much what Warren Buffett and Charlie Munger say.

Invest in businesses with a good track record Choose stable/low volatility companies Look for companies with strong moats Buy shares when they are undervalued Have a long-term approach to investing

He does not believe in buying many stocks. The idea is that he wants to concentrate (and not diversify) his investments.

Since he likes buying undervalued stocks, he keeps his eyes open for troubled industries. That is when many companies’ stocks become undervalued.

And obviously, he sticks businesses he understands – those that are within his circle of competence.

He calls this ‘dhando’ approach.

Dhando means exactly what you are thinking – business.

Mohnish has even written a book called ‘The Dhando Investor’.

Investments

So he copies Warren’s strategies and philosophies.

How has it done?

From when he started in 1999 to 2007 (right before the 2008 recession), he made 37.2% per annum. When the recession hit, his returns fell to - 47.1% per annum.

Concentrated portfolio can grow fast – but can fall fast too.

But this did not seem to bother someone like him – a long-term investor.

By 2018, his hedge fund had managed to grow over 1200% compared to S&P 500 (that grew around 160%).

That means, roughly 14% per annum. The index in the US, S&P 500 returned less than 5% over the same period.

His concentrated investing style has shown a tendency to fall sharply in bad times – his investments fell by 60% in 2008.

In some others years too, his concentrated portfolio has dipped downward. But the same concentrated nature also gave him his high returns.

He continues to stick to his copied philosophies – the ones he picked from Warren Buffett and Charlie Munger.

Some sources claim his net worth is around $2 billion as of 2024.

He is seen driving around in a sports car with a number plate that says ‘Dhando’.

And he loves to remind everyone of his favourite strategy: “heads I win; tails, I lose little”.

The images above were generated using AI tools.