Do you want 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 that “100 to 1 in the stock market” is an “extremely well-written” book.
Authored by Thomas Phelps and originally published 50 years ago, the book teaches how to increase wealth a hundred times through buy-and-hold investments.
Buy-and-hold is a passive investment strategy that involves buying stocks and holding them over a long period of time, even if there are short-term fluctuations.
The founder of Pabrai Investment Funds, which has grown from $ 1[ads1]00,000 in 1999 to $ 1.2 million in turnover in March this year, discussed his playbook on what to buy and what to avoid.
Another book for those looking for “competitive advantage or the ability to earn superior returns,” he said, is Christopher Mayer’s “100 Baggers” – which talks about companies that returned $ 100 for every $ 1 invested.
Investors should ask themselves some questions, he said.
“Does the business earn a very high return on equity? Can it grow and prosper without the use of debt? … Can this business reinvest the high return and equity back at high prices?”
How to know if a company is a “homerun”
To illustrate his point, Pabrai set 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.
This is “astronomical return on capital,” said the veteran investor, adding that Starbucks had the opportunity to “get the money back very quickly.”
“The business is becoming more efficient because most of us do not go and relax at Starbucks. We pre-order, just pick the latte and go. And it’s even more profitable [for them]. “
Pabrai summed up the idea of a “homerun” – he said it is to be able to see a clear “10-, 20-, 30-year runway.”
“What I’m trying to say is that if I find a business where they can grow without
use of debt, … at a not expensive price, then you got yourself a homerun. “
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