We have to deal in things that we are capable of understanding.Munger in the interview is mentioned below In the below video, Munger talks about the 4 filters.Ĥ filters mentioned by Mr. Warren Buffett and Mr.Charlie Munger used to run Berkshire Hathaway. It could see a strong correlation between the 4 filters which Mr. It is better to be a copycat than an innovator.Look for low-risk, high-uncertainty businesses.Buy businesses at big discounts to their underlying intrinsic value.Bet heavily when the odds are overwhelmingly in your favour.Buy businesses with a durable competitive advantage – THE MOAT.Buy Distressed business in distressed industries.Buy simple businesses in industries with an ultra-slow rate of change.We have the abstraction of “low-risk high reward” but what is the framework/tools I would use to apply this to the investing world? Mr.Pabrai talks about the Dhandho framework which are listed below: I got a mental model out from the first few chapters which is “Dhandho – low risk high return approach”. You’ve got to hang experience on a latticework of models in your head. You may have noticed students who just try to remember and pound back what is remembered. And you’ve got to array your experience-both vicarious and direct-on this latticework of models. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. This reminded me of the “latticework of mental model”, which one should possess where real world examples can be mapped back to the fundamental models that we should possess:Įxcerpt from Mr.Charlie Munger’s Elementary worldy wisdom The wonderful thing about all these examples are how the same abstraction of “low-risk high-return” approach is being clearly visible in all these cases. Pabrai talks about 5 real world examples like Mr. Real world examples for “Low-risk high-return” approach I was more than convinced, that “low-risk” is a very important component to factor in making investing decisions. So, in a sense, one could get exposure to positive black swans embedded in the drug pipeline business of Piramal Healthcare (Taleb) by making a sidecar investment alongside a man with great capital allocation and complementary skills (Zeckhauser) on extremely favourable terms (Graham) and have practically no risk of permanent loss of capital (Buffett). The below excerpt can be found here, value-investing-sanjay-bakshi-way-part-3 Vishal Khandelwal, professor talks about minimizing permanent loss of capital.
This key point of minimising risk triggered a few associations in my head: The entire book revolves around this simple yet powerful abstraction, “low-risk, high-return” approach. If an investor can make virtually risk-free bets with outsized rewards, and keep making the bets over and over, the results are stunning. Pabrai points out across various examples is the “Low-risk high-return” approach. However, if we examine the low-risk, high-returnapproach to business taken by the Patels, Dhandho takes on a much narrower meaning. What is business if not an endeavour to create wealth? The street translation of Dhandho is simply “business”. Dhan-dho, literally translated, means “endeavors that create wealth”. Dhan comes from the Sanskrit root word Dhana meaning wealth.
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Abstractions in Object Oriented Design patterns – Design Patterns: Elements of Reusable Object-Oriented Software is one of the best books that I have read in software engineering where it discusses about recurring solutions to common problems in software design.I am a software engineer by profession and, I have encountered a few powerful abstractions like: Several related concrete examples and use cases can be unified under a generic abstraction. I have always been fascinated by the power of “ Abstraction“. Mohnish Pabrai.Ībstraction in its main sense is a conceptual process by which general rules and concepts are derived from the usage and classification of specific examples, literal (“real” or “concrete”) signifiers, first principles, or other methods. In this blog post, I will share my learnings from the book “The Dhandho Investor” written by famous value investor Mr.