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It is important to acknowledge that the stock market can bring risk and it is very possible to lose money from an investment. But with risk, comes great reward potential. Monish Pabrai in the Dhandho Investor shows us how to weigh up risk vs reward in order to find the best stock market investments. 

I read this book a little while ago but the lessons still stick with me. Here’s what you can expect to learn from this book…

The Dhandho Investor: 

“Dhandho” simply translates as “Endeavours to create wealth”. And that is just what this book tries to teach. In the Dhandho investor, you will learn how to measure up investments to find stocks with the highest potential, for as little risk as possible.

To showcase this strategy, Mohnish Pabrai begins the book by telling us the story of the Patel family. How Papa Patel arrived in the USA as a refugee in 1973. In desperate need of income to support his family he knew he’d struggle to get a decent job. So he came across a motel selling for a really low value from a motivated seller. So he gathered money from close friends and family and bought it.

The low cost of this investment means there aren’t loads to lose. Also, in the worst case scenario, they may have low income but they will have a roof over their heads, rent free!!

But the potential for growth on this rundown motel was huge. Their business ended up doing incredibly well and thus scaled the business. To now, the Patel’s own over half the motels in the USA with a net asset value of over $40 Billion.

This is the main lesson of the Dhandho Investor. To seek great investment opportunities in undervalued assets. This is greatly replicable into the stock market. 

Breaking it down…

Pabrai conveys a great idea in the Dhandho investor about breaking down investments into the probabilities of expected returns you may get when looking at an investment. Here’s an example.

So you are looking at a stock, you read the annual reports, financial statements and ask everyone you can who’s worth asking about this stock. So now you have a pretty good idea of the company and where it is likely headed. Mohnish Pabrai breaks these probabilities down like this…

10% chance of gaining 1000%

50% chance of gaining 100%

30% chance of losing 20%

10% chance of losing your whole investment

Would you go for this investment?

Absolutely!! Well I would.

There’s great upside potential and the risk is minimal.

I can think of 3 benefits to looking at a business in this way…

1. It causes you to look statistically at the returns you expect to make.
2. You acknowledge that there’s always a chance of losing some money if the investment turns sour.
3. It allows you to see truly how much growth potential the stock has.

Although this is the main message of this book, the Dhandho Investor has so much more to offer. There are lots of gems of investment knowledge to pick up from Mohnish Pabrai’s wealth of investing experience and from his studies of the Patel family’s success.

Money Your Concern Rating:

Advanced Investor: 7/10

Beginner Investor: 7/10

The Dhandho Investor is a brilliant investment book, with a brilliant message. You will learn to look at stocks as businesses and evaluate the risks vs the rewards. I highly recommend this book to anyone looking to gather a good understanding of how to take calculated risks for maximum gains in the investment world.

If you’d like to pick up a copy of this book, you can find my amazon link here…

Thanks for reading my review. I hope you enjoy the Dhandho Investor.

If you’d like to see what other investment books I have read and really recommend, be sure to check out the Further learning section of this website. 

Make sure to check out the Stock Market section too, where I share the best tips I have learned with my experiences of investing in the stock market.

Best of luck with your investing journey.

Harry