The title may lead you to believe that this will be about market timing, but that is not the case. I know, I know. Very ‘cheeky’ of me. In my previous post, I spoke to the categorization method employed by Mohnish. His method for categorizing businesses is an excellent process for investors to follow. If you look closely, the categories create a level of understanding so that one sets an expectation for the investment holding period.
For example, if you purchased a Category #3 business (Market Risk vs. Reality), your expectation for how long to hold will not be the same as Category #1, which is ‘Buy-and-Hold Forever.’ This category is designed to capitalize on a market overreaction whereas as Category #1 is a business you want to own outright forever, if given the opportunity. While the categories were the headline of the lecture, the subtler lessons speak to his investing process.
The Pabrai Process
“You don’t make money buying and selling. You make money waiting.” – Charlie Munger
The number one skill an investor needs is extreme patience. As I alluded to previously, Mohnish advises investors to:
- Make a list of assets that they believe to be wonderful
- Write down a desired entry price for said assets
He explains that he will research a company for weeks and/or months before making a decision to buy or move on to another idea. I know people who spend less time researching a new home to purchase! This is a key to why he has been so successful in the markets, if you were wondering.
However, Mohnish hinted at a key to his process, almost in passing, that I think many listeners would miss:
- He never makes buying or selling decisions during market hours
Mohnish stated that all buying or selling decisions are made late at night, after 11PM or midnight, when the market tickers are static, and the world is quiet. While this statement oozes common sense, I heard that and thought ‘how often have I employed that strategy myself?’
Whether we realize it or not, it is so easy for emotion drive our decisions when ticker prices are moving up and down. The headlines, email notifications, and talking heads lead us to believe that we are missing out on a once-in-a-lifetime opportunity. Divorcing ourselves from the markets during the day can be one of the most beneficial decisions to our financial future. While I can research companies periodically throughout the day, I now believe that the decision to invest, once a wonderful asset has been identified, should be made during nights and weekends after much quiet thought has been applied. I plan to incorporate this practice into my investing process, among other areas of my life. Thanks Mohnish!
~ Holden Alexander