Dhandho Investor Book Summary (Achieve High Returns W/ Low Risk)

what is up everyone I'm rose and welcome back to my channel in this video I'm gonna share the top 9 tips and takeaways from this book the Dondo investor which is an amazing investing how-to book written by Mohnish Pabrai british pariah Andheri Bal u investor who has generated a cumulative return of 517 percent from the period 2000 to 2013 compared to a cumulative 43% for the S&P 500 index unfortunately his fund Popeye funds is closed to new investors but the next best thing to having him manager money is to learn how to invest the way he does the Dunda investor is based on one key premise that the key to generating high returns with low risk is by taking a symmetrical bets in other words taking investments that have a huge potential for upside and a very small potential for downside heads I win tails I don't lose much this low risk high return approach to investing is one Mohnish calls of the Sandow method so if you want to learn some valuable tips and tricks that will help you turn a small amount of money into a fortune with low risk then keep watching before we get started have you subscribed to my channel yet if not what are you waiting for my channel is all about dock investing for beginners and you're gonna learn a ton about how to put your money to work intelligently so make sure to subscribe and hit the notification bell because it puts new video videos like this every week one of the most remarkable examples he gives that the Dondo method is the story of the tells the Patels are a small ethnic Indian group that came to the u.s. in the 1970s with nothing and using Dondo investing principles the Patels went on to become the largest owner of motels in the entire country so how does a penniless family of immigrants go from zero dollars to forty billion dollars in motel assets in the span of a few decades the answer is done doe investing the book synthesizes the done dough method into nine key principles so let's go over each of these nine prints the first is to focus on buying existing businesses since existing businesses are much less riskier than startups mohnish recommends investing only in companies that have a proven business model and a stable history of operations and he says that the best way to do that is via buying stocks of publicly traded companies if you examine the performance of various asset classes over the past century you'll see that stocks do better than all of the other main asset classes bonds real estate gold etc not only that but it's the easiest way to become a business owner because when you buy a stock you get an ownership stake in the business but you don't have to actually run the business yourself so you get to reap the rewards of business ownership without doing any of the heavy lifting yourself plus you can do this with whatever cash you have in your wallet as long as you have enough money to buy just one share of the company you want to invest in you can afford an ownership stake in basically any publicly traded company so to summarize the first principle of dumbo investing focus on buying existing businesses and do this via the stock market and now for principle number two invest in simple businesses the dungo investor avoids investing in complicated companies why there's actually a very numbers driven reason for this in order to assess whether an investment is a good deal or not you need to first know the intrinsic value of a business the formula for estimating what a business is worth or estimating its intrinsic value is by adding up all the cash flows that will occur during the life of business and then discounting them at a reasonable interest rate a business's worth is derived from the cash flows that it generates it's not just pulled out of thin air so this is called a discounted cash flow analysis in the book mohnish explains this with the example of the neighborhood gas station so let's say that the owner of the gas station puts it up for sale out of price of $500,000 and you know that after 10 years the gas station can be sold for $400,000 and then during those 10 years the gas station will put a hundred thousand dollars in your pocket every year for the next ten years so that gives an estimated online of cash flows that looks like this $100,000 every year for ten years plus a lump sum of $400,000 in the tenth year and because these cash flows are future cash flows they have to be converted into present-day dollars if interest rates are ten percent right now then the present value of these cash flows look like this comparing future cash flows in present-day terms ensures that we're comparing apples to apples since the purchase price is also in present-day terms so the sum of the cash flows in present value terms is four hundred sixty eight thousand dollars this is what the business is really worth so is it a good deal well considering that you can buy the gas station for five hundred thousand dollars it's a great deal because you're paying a lot less for the business relative to its intrinsic value of seven hundred sixty eight thousand dollars discounted cash flow of analysis is hands-down the best way to assess investment opportunities but you can see that estimating future cash flows is not always an easy task when it comes to predicting the future nobody has a crystal ball that's why the Gondo way to deal with this uncertainty is to invest only in simple businesses where the future cash flows can be estimated with relative confidence so the cash flows of a gas station while they're not completely guaranteed they're a lot more estimate a bull is that even a word estimate a bowl then the cash flows of a business such as like a biotech company that's still in the research phase and they don't have a proven product yet so rather than try to be all smart and predict the future of these kinds of complicated companies the Dunda Method wants you to simply avoid those kinds of companies and just stick with businesses that are relatively predictable and have stable cash flows examples of businesses like this are motels as in the Patel story Coca Cola which was Warren Buffett's most successful investment and Bed Bath and Beyond which Mohnish uses in the book to walk us through a discounted cash flow analysis and now that brings me to the third component of the Dondo frameworks invest in distressed businesses in distressed industries now that you understand how to calculate the intrinsic value of a business you now have a powerful tool for finding great investment opportunities just like with the gas station example where you could buy something worth 768 thousand dollars for only $500,000 when it comes to stocks you also want to look for ways to buy stocks at less than their intrinsic value and according to Dondo the best way to do this is to look for distressed companies so going back to the books story of Pappa Patel and his Motel investment he bought the motel in the 1970s during a very troubled time in the economy 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