Mohnish Pabrai is one of the best-known value investors on the planet and is known by many for his intensive use of
In this article, I would like to introduce you to Mohnish Pabrai's so-called "Dhandho Checklist"
(named after the title of his latest book,
By the way, Dhandho translates as "efforts that create wealth".
Mohnish Pabrai, the Checklist Investor
According to Mohnish Pabrai, a checklist is a very helpful tool in selecting suitable investments. The main advantage: compared to the time it takes to go through the checklist, the gain in knowledge is usually enormous.
"The checklist is a wonderful tool and I think that every investor should use it." Mohnish Pabrai
Pabrai's current checklist contained about 150 questions at the time of the Forbes interview. He started about 10 years ago with about 80 to 90. Over time, Pabrai has continuously refined his checklist and added about 50 to 60 new questions. Even today, according to his own statement, more content is added, but not at the same speed as in the past. The checklist is therefore a dynamic and living document.
Interestingly, 70-80% of the questions on Pabrai's dhandho checklist fall naturally into one of the following three categories (other topics include regulatory issues and employee participation):
This is probably due to the fact that a large part of all wrong decisions made in connection with the purchase of shares can be traced back to wrong conclusions or misjudgements regarding these three areas.
Pabrai's dhandho checklist is accordingly based, among other things, on a detailed analysis of investment mistakes made by well-known investors. Warren Buffett's Shareholder Letters were obviously a very rich source of information for Pabrai (although he did not limit himself to this, of course, but also analysed his own mistakes and those of others in detail).
"It's good to learn from your mistakes. It's better to learn from other people's mistakes."
The use of the Dhandho Checklist
If I interpret his statements correctly, Mohnish Pabrai's dhandho checklist is not congruent with his investment process, but rather serves as a final review before clicking the "buy" button (content review versus process checklist).
According to Pabrai, this final review does not take a great deal of time, but of course requires the appropriate groundwork. As a rule, Pabrai goes through his checklist completely at least twice before making the final investment decision, with the second time typically taking no longer than 20 to 30 minutes.
The short version: The Dhandho Checklist
Note in advance: in
He provides the following rationale for this: first, the checklist is also part of the competitive advantage that Pabrai has built for himself over time. Secondly - and in my view the argument is even more valid - a checklist in this high level of detail is only of use to the investor who has developed the list himself (much of the learning is in the process itself).
Nevertheless, it can of course not be wrong to take a look at the "high level" checklist from the book. So here is the abbreviated
- Do we understand the industry and the company? Are they within our circle of competence?
- Do we know the current intrinsic value of the company, and can we predict with a high degree of probability how it will develop over the next few years?
- Is the company trading at a high discount (over 50%) to its intrinsic value - today and also in two to three years' time?
- Would we be willing to invest a large part of our capital in the company?
- Are the risks minimal?
- Does the company have a sustainable competitive advantage (called moat)?
- Is the company run by capable and honest managers?