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You waste less on frictional costs when dealing with the stock market. On the other hand, how many private businesses are for sale within 25 miles of your home? With a few mouse clicks, you can buy stakes in a few of literally thousands of opportunities. The breadth and depth of businesses available to stock market investors is truly astonishing. What's more, you could start investing in stocks or mutual funds with practically nothing and keep adding to your pool with miniscule amounts each month. As Pabrai observed, serious capital is needed to buy even a small neighbourhood gas station of a laundromat. Lower capital requirements are needed to get into business through stocks (or mutual funds), in some cases less than $100. The private seller also has a timing advantage since they pick the time to put the business on the market. In private business deals, the buyer often lacks the insider information available to the seller. Both buyers and sellers on the stock market have roughly equal access to all the relevant information available, though one side may decide to work harder on that information than the other. The stock market platform is a more-level playing field than that provided in private buy and sell transactions. As Pabrai put it, "Humanity has given you a marvelous asset compounding machine that's vastly superior to virtually all other alternatives and made it all amazingly cheap and easy to use." That's the opposite of owning your own motel. Owning a stock means owning a piece of a business without any other obligations (except, perhaps, for voting occasionally). Citing the example of the Patels, he noted it required "tremendous energy and dedication from his whole family for several years to make it work." Not only did the family need to manage the business, they also had to work in it, changing the linens and cleaning the rooms, doing all the maintenance themselves, having family members at the front desk 24 hours a day and seven days a week and so on. There is a great deal of work required if you buy an existing business. He went on to argue that there are six compelling reasons to go to the stock market rather than buying and selling whole businesses. If you examine returns from the broad stock market indexes over the past one hundred years, it is pretty clear that stocks do better than virtually all other easily accessible asset classes." Treasuries, bonds, stocks, real estate, private businesses, gold, silver, platinum, oil futures-the list is endless. Another was Lakshmi Mittal in Pakistan, who bought up distressed steel mills, streamlined their operations and made them powerhouses in the industry (now part of ArcelorMittal ( MT)).Īmong all existing asset classes, the author recommended common stocks: "There are a plethora of asset classes you could choose to invest in-CDs, U.S. Any investor who adopts the framework is bound to improve on results and soundly beat the markets and most professionals.Among his examples were the extended Patel families and their low-cost approach to buying and operating American motels. Using a light, entertaining style, Pabrai lays out the Dhandho framework in an easy-to-use format. Readers will be introduced to important value investing concepts such as "Heads, I win! Tails, I don't lose that much!," "Few Bets, Big Bets, Infrequent Bets," Abhimanyu's dilemma, and a detailed treatise on using the Kelly Formula to invest in undervalued stocks.
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The Dhandho method expands on the groundbreaking principles of value investing expounded by Benjamin Graham, Warren Buffett, and Charlie Munger. Written with the intelligent individual investor in mind, this comprehensive guide distills the Dhandho capital allocation framework of the business savvy Patels from India and presents how they can be applied successfully to the stock market. In a straightforward and accessible manner, The Dhandho Investor lays out the powerful framework of value investing. Science Fiction & Fantasy - Available NowĪ comprehensive value investing framework for the individual investor.
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