Looking to invest in stocks with long-term value? Veteran investor Mohnish Pabrai has two books to recommend.
Speaking to CNBC Pro Talks, Pabrai – a value investor and disciple of billionaire Warren Buffett – said “100 to 1 in the Stock Market” is an “extremely well-written” book.
Written by Thomas Phelps and originally published 50 years ago, the book teaches how to increase wealth a hundredfold through long-term investing.
Buy and hold is a passive investment strategy that involves buying stocks and holding them for a long time, even if there are short-term fluctuations.
The founder of investment funds Pabrai, whose earnings have risen from $100,000 in 1999 to $1.2 million in March this year, was discussing his playbook on what to buy and what to to avoid.
Another book for those looking for “competitive advantage or the ability to achieve superior returns”, he said, is Christopher Mayer’s “100 Baggers” – which is about companies that returned $100 for every dollar invested.
Investors should ask themselves a few questions, he said.
“Is the company getting very high returns on its equity? Can it grow and prosper without resorting to debt? … Can this company reinvest the high returns and equity at high rates?”
How to tell if a business is a “home run”
To illustrate his point, Pabrai gave the example of Starbucks.
“When they open a store in the United States, they get their money back in two years. When they open a store in China, they get their money back in 12 to 15 months,” he said.
These are “astronomical returns on capital,” the seasoned investor said, adding that Starbucks has the ability to “make its money back very quickly.”
“The business becomes more efficient because most of us aren’t going to be lounging at Starbucks. We pre-order, just pick our latte and go. And it’s even more profitable [for them].”
Pabrai summed up his idea of a “home run” – he said it’s being able to see a “clear trail of 10, 20, 30 years”.
“What I’m trying to say is if I find a business where they can grow without the
the use of debt, … at a price that doesn’t seem expensive, then you’ve hit yourself a home run.”
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