The Dhandho Investor Book Summary: What is the Dhandho Approach?

Quick Summary: Mohnish Pabrai’s The Dhandho Investor is a masterclass in value investing, inspired by the business acumen of the Patel community.

The dhandho approach is simple: seek investments that offer high returns with minimal risk.

The book provides a practical roadmap for investors looking to apply Buffett-style value investing without unnecessary complexity.

Tapan’s Verdict: Dig deep 🧐

A Kindle book cover of Mohnish Pabrai's book, the Dhandho Investor for a book summary explaining the dhandho approach and key lessons from the book.

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Actionable Insights: The Dhandho Approach

Heads, I Win; Tails, I Don’t Lose Much

The essence of the Dhandho approach is finding bets where the downside is limited, but the upside is massive.

Instead of gambling on uncertain opportunities, Mohnish Pabrai advises seeking investments where, even if things go wrong, the loss is minimal.

This asymmetric payoff structure is the foundation of successful investing.

Buy Simple, Existing Businesses with Slow Change

Pabrai argues that the best investments are in businesses that are already operating, rather than startups. The ideal candidates:

Have low competition due to high barriers to entry.
Belong to industries with slow technological evolution (e.g., railways, utilities, or insurance).
Offer steady cash flows without constant reinvestment.

Buy Distressed Businesses at a Discount

The best time to buy is when a company is unloved and its future appears uncertain. Investors should:

Look for businesses selling below intrinsic value.
Focus on assets that can be turned around or monetised.
Ignore short-term pessimism and capitalise on mispricing.

If you need help calculating intrinsic value of a stock, use Screenwich.

The Power of Moats: Competitive Advantage Matters

A business with a durable competitive advantage or a ‘moat’ is far more valuable than one that lacks protection from competitors.

Pabrai advises looking for pricing power, brand strength, or regulatory barriers that make it difficult for new entrants to compete.

A strong moat is often reflected in financial statements through high returns on invested capital (ROIC).

Businesses that competitors struggle to enter or disrupt tend to generate consistent profits over time, making them ideal long-term investments.

This has also been captured in my book review of the University of Berkshire Hathaway.

The University of Berkshire Hathaway – Book Summary

Make Few, Big, and Infrequent Bets

Following Charlie Munger’s wisdom, Pabrai suggests concentrating bets on rare, high-probability opportunities. Instead of diversifying blindly, investors should:

Wait for the perfect pitch, there are no penalties for waiting.
Bet heavily when the odds are overwhelmingly in their favour.
Avoid constant trading; investing is about patience, not activity.

This is in line with Warren Buffett and Charlie Munger’s idea of Circle of Competence.

Image from the book the Science of Hitting by Ted Williams for an article on Circle of Competence as explained by Warren Buffett and Charlie Munger. — *Circle of Competence or the science of hitting the perfect pitch?*

Arbitrage: Minimise Downside Risk

Arbitrage is the art of eliminating risk while securing upside. Whether it’s through merger arbitrage, special situations, or market mispricing, the goal is always to:

Exploit temporary inefficiencies in pricing.
Buy with a significant margin of safety.
Focus on reducing potential losses rather than chasing gains.

Copy the Best, Don’t Reinvent the Wheel

Pabrai openly admits that the Dhandho approach is heavily inspired by Warren Buffett, Charlie Munger, and Ben Graham. His advice:

Study successful investors and reverse-engineer their strategies.
Avoid unnecessary complexity, simplicity wins in investing.
Accept that originality is overrated; the best opportunities are often hiding in plain sight.