In 1994, Mohnish Pabrai found himself with $1 million in savings, providing him with a war chest to invest for the first time. While at Heathrow Airport that year, he came across a book about Warren Buffett and was astonished by the Berkshire Hathaway chairman and CEO’s impressive track record.
Buffett had achieved an average annual return of 31% over 44 years, resulting in remarkable compounding growth. Pabrai realized that Buffett had mastered the game of compounding, doubling his money 18 times and positioning himself to become one of the wealthiest people on the planet.
Recalling a childhood story about an Indian who invented chess, Pabrai grasped the concept of compounding even more profoundly. He understood that Buffett had applied this principle effectively and consistently. Inspired by Buffett’s success, Pabrai embarked on a “30-year game” with the goal of turning his $1 million into $1 billion. He shared Buffett’s mindset of wanting to win the game by following the rules and achieving exceptional results.
Pabrai’s commitment to cloning Buffett’s investment approach has made him one of the most prominent investors of today. From 2000 to 2018, his flagship hedge fund delivered a 1,204% return compared to the S&P 500 index’s 159%. If someone had invested $100,000 with Pabrai when he started managing funds in July 1999, it would have grown to $1,826,500 by March 31, 2018.
While Pabrai aimed to mirror the investment strategies of renowned investors like Buffett, it can be difficult to nail down where to start. Anyone can stick millions into the S&P 500 but that won't get you anywhere near Buffett, and now you're just another hedge fund that can't beat the flagship index. Many of todays billionaires make their money in the world of startups, private equity, and pre-IPO opportunities. Recently retail investors have begun attempting to replicate this strategy and success on platforms like StartEngine, a site for retail investors to invest in private companies and startups..
He openly acknowledges that his success is rooted in the smart ideas he has borrowed from others. William Green’s book “Richer, Wiser, Happier” chronicles the journeys of renowned investors and recognizes Pabrai’s emulating Buffett as a key factor in his success. Pabrai’s admission in the book is refreshingly candid: “I’m a shameless copycat. Everything in my life is cloned … I have no original ideas.”
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Through meticulous cloning, he has not only emulated Buffett but also learned from Charlie Munger, Buffett’s polymathic partner. Pabrai’s cloning process extends beyond investment wisdom, encompassing insights on business management, mistake avoidance, branding, philanthropy, relationship building, time management and a fulfilled life.
Pabrai’s reverence for Buffett led him to analyze Buffett’s letters to shareholders spanning several decades and attend Berkshire’s annual meetings faithfully for over 20 years. Eventually, Pabrai developed a personal relationship with Buffett and befriended Munger, who invited him to dinners at his Los Angeles home and bridge games at his club. Pabrai’s knowledge initially came solely from reading, but he eventually gained direct exposure to his idols.
Pabrai’s recent insights shed light on current investment opportunities. He cautions against being lured by bubbles, particularly in the crypto and meme stock markets such as GameStop Corp. and AMC Entertainment Holdings. Instead, he advises investors to concentrate on comprehending businesses that they can truly understand. Pabrai highlights T.J. Maxx as an example of a company that has consistently performed well by capitalizing on excess inventory at discounted prices.
This investor's "unoriginal" approach and dedication to cloning offer valuable lessons applicable to various areas of life, not just investing. Instead of trying to reinvent the wheel or pursue innovative strategies, he identifies the most skillful players in a particular game, dissects their success and replicates their approach. He prioritizes winning over sounding respectable or highbrow, illustrating the power of modeling, mimicry or replication for those striving for success.
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