And no, it does not use Intel’s newest microprocessor nor is it made by HP or IBM.
12.6 Mile Bike Ride in Newport Bay
I got to attend the annual Pabrai investment funds meeting in Aliso Viejo, California. It started off with a 12.6-mile bike ride around Newport bay. As I arrived at Starbucks I got a lot of compliments on my rented bike. I was about to meet the man who picks most of the investments, who is one the greatest value investors of our time, Mohnish Pabrai.
While waiting to start the ride, I networked with fellow riders learning why they were there and where they were from. Most were there for the same reason. We were keenly interested in value investing, or as Mohnish puts it, “buying dollar bills for 50 cents.” We wanted to know how does he come up with his investment ideas and how he judges them. I kept thinking how does this apply to my business?
The Work Ethic of a Winning Executive
Here is one key take away, Mohnish would much rather have a decent company run by a driven entrepreneur, than a great company run by an incompetent executive. As an example, Fiat Chrysler’s CEO has an ironclad work ethic. He looks at Saturdays and Sundays as work days. If there is a vacation day in Europe, he flies to the US to work and vice versa. This is a holding he spoke in length about.
So how did this work ethic affect Fiat Chrysler when Chrysler was bought by Fiat it was selling 250,000 Jeep vehicles. Now it sells 1.4M on its way to 2M.
Enter, Mohnish Pabrai, Hedge Fund Investing Mogul
Back to the bike ride. Someone started giving us instructions on the route, the stops, and looks outs. Wanting to be attentive and informed, I asked what his name was. He replied, “I am Mohnish.” To my surprise, he was the fund manager who invited me, whoops. I failed to recognize Mohnish Prabai in front of the group. In case you have not guessed, his mind (a computer of sorts) manages 500 million dollars and likes to play bridge.
Mohnish came across as a very humble man as he took questions from investors about his funds and stock picks for over an hour. My favorite part was when he talks about his failures or bad investments. He told us what learned from a few of those experiences.
Learning from Mistakes – Horsehead Holdings
One of those disappointments was his $100M investment in Horsehead Holdings, now in bankruptcy. He went through the thinking process how when he bought the stock, the share value was based on inventory and receivables. The plant and equipment was all extra value. The mistake Horsehead made was using borrowed money to build a new zinc plant. They borrowed large sums of money while relying on hedging forward of zinc prices. The plant had cost overruns and delays. Then the price of Zinc collapsed and one of the banks called in their loan. Mohnish said in hindsight, it would have been better to issue more stock than to borrow money.
Applying Facets to my Own Business
When I think how I might apply value investing to my business of remarketing Data Center assets for our corporate customers. I think, how we are we adding the extra value to our corporate clients. Why should corporate clients use us instead of someone else? Here are 3 reasons.
1. We take a value approach to remarketing. Since we have 26 years in the business we know who the best buyers are for the servers, storage and networking equipment. As a comparison, some of our competitors look for a quick return and blast the inventory list to the whole broker market. Brokers, upon seeing the flood of product drop the price on their stock. What happens to the value of those assets? They may plummet 30%. We do not operate like that. We strategically sell various amount of that product to our value chain and hold the values up for the corporate client, us and our buyers. Everyone wins and this usually adds up to 30% more value.
2. We are experts at determining the best way to get the highest resale for our clients. Should it be sold as a complete item or parted out because of demand for certain components.
3. We generally pay higher prices than our competitors and offer White Glove Service.
My other favorite part of the event was hearing how he started years ago investing his first million. Part of it was a 30k investment in India. He put 15k in one company and the other 15k he split into 3 other companies. After many years that 15k was worth 1.5 million. Want to be a value investor? I do.
If you are wondering how all this came about, I read his book The Dhandho Investor. Then I wrote a letter to Mohnish and he invited me to their annual meeting.
So, use your 8lb computer to add value to your organization or company. That will benefit you and those you serve in the long run.