Warren Buffett & Ajit Jain Interview From India

Transcript below from the Farnam Street blog.

If you look at the typical stock on the New York Stock Exchange, its high will be, perhaps, for the last 12 months will be 150 percent of its low so they’re bobbing all over the place. All you have to do is sit there and wait until something is really attractive that you understand.

And you can forget about everything else. That is a wonderful game to play in. There’s almost nothing where the game is stacked in your favor like the stock market.

What happens is people start listening to everybody talk on television or whatever it may be or read the paper, and they take what is a fundamental advantage and turn it into a disadvantage. There’s no easier game than stocks. You have to be sure you don’t play it too often.

—Warren Buffett

FYI. There is a watermarked transcript available for purchase via Farnam Street.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned.

Forbes Transcript: Mohnish Pabrai on Checklists

“No wise pilot, no matter how great his talent and experience, fails to use his checklist.”—Charlie Munger, Poor Charlie’s Almanack

“So you know, and all of these questions are not questions I created out of the blue. What I did is I looked at businesses where people had lost money.”—Mohnish Pabrai

Steve Forbes Interview With Mohnish Pabrai

A few years back, in 2010, Steve Forbes interviewed Mohnish Pabrai. This interview is about half an hour long, and among the topics discussed, checklists was one of them. The interview is available on YouTube, and there’s also a transcript available at Forbes’ – see here.

Below is an excerpt of the part of the discussion where Steve and Mohnish talk about checklists. Emphasis added by me.

“Make Checklists

Forbes: So in the first quarter of 2010, did you add any positions?

Pabrai: Yeah, actually, we did. We did find. In fact, there’s one I’m buying right now. But I found two businesses, but they’re anomalies. They were just, you know, businesses that had distress in them because of specific factors. And I think we’ll do very well on both of them. They’ll go nameless here. But no, I think, for example, in the fourth quarter of 2008 or the first quarter of 2009, you could have just thrown darts and done well. And that is definitely not the case today.

Forbes: And finally, telling you about mistakes, one of the things I guess an investor has to realize, they cannot control the universe. Delta Financial: You had done the homework, you fell and then events took it away from you.

FI1Pabrai: Well Delta Financial was a full loss for the firm, for the fund. We lost 100% of our investment. It was a company that went bankrupt. And we’ve learned a lot of lessons from Delta. And one of the lessons was that Delta was, in many ways, a very highly levered company and they were very dependent on a functioning securitization market. And when that market shut down, they were pretty much out of business. And they were caught flat-footed. And so there’s a number of lessons I’ve obviously learned from Delta.

It’s easier to learn the lessons when you don’t take the hits in your own portfolio. But when you take the hits in your own portfolio, those lessons stay with you for a long time.

Forbes: So that gets to, you’re a great fan of The Checklist Manifesto. And you now have checklists. You said one of the key things is mistakes, in terms of a checklist, so you don’t let your emotions get in the way of analyzing. What are some of the mistakes on your checklist now that you go through systematically, even if your gut says, ‘This is great. I want to do it.’

Pabrai: Yeah, so the checklist I have currently has about 80 items on it. And even though 80 sounds like a lot, it doesn’t take a long time.

It takes about 30 minutes to go through the checklist. What I do is when I’m starting a business, I go through my normal process of analyzing the business. When I’m fully done and I’m ready to pull the trigger, that’s when I take the business to the checklist. And I run it against the 80 items. And what happens the first time when I run it, there might be seven or eight questions that I don’t know the answer to, which is great, which what that means is, ‘Listen dummy, go find out the answer to these eight questions first.’ Which means I have more work to do. So I go off again to find those answers. When I have those answers, I come back and run the checklist again. And any business that I look at is going to have some items on which the checklist raises red flags. But the good news is that you’re looking in front of you with all your facilities at the range of things that could possibly cause a problem.

And when you look at that list, you can also compare it to how those factors correlate with the rest of your portfolio. And at that point, kind of, you have a go, no-go point, where you can say, ‘I’m comfortable with these risk factors here. I’m comfortable with probabilities. And I’ll go ahead with it.’ Or you can say, ‘I’m just going to take a pass.’

And one of the things that came out of running the checklist was I used to run a 10×10 portfolio, which is when I’d make a bet, it was typically 10% of assets. And after I incorporated the checklist and I started to see all the red flags, I changed my allocation. So the typical allocation now at Pabrai Funds is 5%. And we’ll go as low as 2%, if we are doing a basket bet.

And once in a blue moon, we’ll go up to 10%. In fact I haven’t done a 10% investment in a long time. And so the portfolio has become more names than it used to have. But since we started running the checklists, which is about 18 months ago, so far it’s a zero error rate. And in the last 18 months, it’s probably been the most prolific period of making investments for Pabrai Funds. We made a huge number of investments, more than any other period, any other 18-month period in our history. So with more activity so far, and it’s a very short period, we have a much lower error rate.

I know in the future we will make errors. But I know those errors, the rate of errors will be much lower. And this is key. The thing is that Warren says, ‘Rule No. 1: Don’t lose money. Rule No. 2: Don’t forget rule No. 1.’ OK, so the key to investing is downside protection. The upsides will take care of themselves. But you have to make sure that your losers are few and far between. And the checklist is very central to that.

Forbes: Can you give a couple of the things that are on your 80 [item] checklist?

C2Pabrai: Oh yeah, sure. The checklist was created, looking at my mistakes and other investors’ mistakes. So for example, there’s questions like, you know, ‘Can this business be decimated by low-cost competition from China or other low-cost countries?’ That’s a checklist question. Another question is, ‘Is this a win-win business for the entire ecosystem?’ So for example, if there’s some company doing, you know, high-interest credit cards and they make a lot of money, that’s not exactly, you know, helping society. So you might pass on that. Also, a liquor company or tobacco company, those can be great businesses, but in my book, I would just pass on those. Or a gambling business, and so on.

C2So the checklist will kind of focus you more toward playing center court rather than going to the edge of the court. And there’s a whole set of questions on leverage. For example, you know, how much leverage? What are the covenants? Is it recourse or non-recourse? There’s a whole bunch of questions on management, on management comp, on the interests of management. You know, just a whole–on their historical track records and so on. So there’s questions on unions, on collective bargaining.

C2So you know, and all of these questions are not questions I created out of the blue. What I did is I looked at businesses where people had lost money. I looked at Dexter Shoes, where Warren Buffett lost money. And he lost it to low-cost Chinese competition. So that led to the question. And I looked at CORT Furniture, which was a Charlie Munger investment. And that was an investment made at the peak of the dot-com boom, where they were doing a lot of office furniture rentals. And the question was, ‘Are you looking at normalized earnings or are you looking at boom earnings?’ And so that question came from there. So the checklist questions, I think, are very robust, because they’re based on real-world arrows people have taken in the back.”

OLYMPUS DIGITAL CAMERADisclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned.

Deep Value Investing: Finding Bargain Shares With Big Potential (Free Sample)

Deep Value Investing: Free Book Excerpt

Click here for a free sample of Deep Value Investing: Finding Bargain Shares With Big Potential.

Below is an interview from The Manual of Ideas with the author Jeroen Bos.

Book description below taken from the publisher of the book, Harriman House.

DVI1“Let the market come to you

Deep Value Investing by Jeroen Bos is an incredibly candid and revealing guide to the secrets of deep value investment. Written by an investor with a long and remarkable track record, it shares for the first time the ins and outs of finding high-potential undervalued stocks before anyone else.

Deep value investing means finding companies that are genuine bargains that can pay back phenomenally over the long term. They are firms so cheap that even if they were to close tomorrow their assets would pay you out at a profit. But if they can turn things around, the rewards will be many times greater …

These were the favourite shares of Benjamin Graham, author of ‘The Intelligent Investor’. Inspired by Graham’s classic and with a long history of discovering these great value stocks – sometimes known as ‘bargain issues’ or ‘netnets’ – author and investor Jeroen Bos reveals:

– how to use only publicly available information to discover these shares and filter the gold from the dross

– everything he did when analysing, purchasing, monitoring and selling more than ten recent successful deep value investments

– the complete philosophy behind deep value investing, and the ins and outs of this strategy in practice

– what can go wrong and how to minimise the chances of it happening to you.

Deep value investing has a better track record than almost any other approach to the market. Even better, it doesn’t require minute and technical knowledge of a company, nor is it fixated on earnings or often-unreliable future projections.

It’s all about the balance sheet and patience. This makes it the perfect investing approach for those who want to see phenomenal stock market returns without wasting time or commission costs.” (Source: Harriman House)

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. This article is informational and is in my own personal opinion.

Masters in Business Interview: Jim Chanos

JC2Barry Ritholtz Interviews Chanos: Masters in Business (Audio)

Bloomberg View columnist Barry Ritholtz interviews James Chanos,the hedge fund manager of Kynikos Associates. They discuss short selling and the excess of Wall Street. Masters In Business aired on Bloomberg Radio.

 

A few pieces to read to get to learn Jim Chanos a little better: