Foreign Media: Monish Pabrai: Investing Doesn't Need to Be Right Every Time
Capitalism is inherently ruthless. There are always competitors lurking in the market, eager to erode any company’s competitive advantage. The moat of ADP is under threat, just as the moats of Visa and Mastercard are being challenged. Looking back 30, 50, or even 100 years, how many once-dominant companies still stand tall today? Most have long since vanished.
Even Buffett and Munger were not infallible throughout their investing careers. If we calculate all Berkshire Hathaway’s acquisitions with equal weighting, at least one-third turned out to be failures. Of course, when weighted by capital deployed, the success rate reaches 80% to 90%—precisely where the brilliance of concentrated betting lies: the returns from a few big winners easily offset the losses from the losers.
Allocate your capital equally across 10 carefully selected stocks, each representing 10%. Even if three or four of them go to zero, as long as one stock grows 30-fold over 20 to 30 years, and the others multiply by 5 to 10 times, the overall return remains highly impressive. In other words, even if 40% of your judgments are wrong, as long as the remaining 60% are correct, it's enough to make you wealthy.
The starting point for stock selection is genuine understanding of the business itself—not financial numbers. Before reviewing ADP’s financial statements, you should already understand that it runs a great business; before analyzing Visa’s reports, you should already be confident in its economic moat. This kind of judgment comes before data—it’s an intuitive grasp of the business model.
When evaluating a company, the core question remains: What will it look like in 10 or 15 years? Will its moat still exist? How much growth potential remains? How will the competitive landscape evolve? You don’t need definitive answers to every question, but you must be confident that, probabilistically, most scenarios still point toward a favorable outcome.
Investing is never about perfection. It’s about making sufficiently correct decisions amid uncertainty—and then letting time unleash the power of compounding.
Original: toutiao.com/article/1863279391045639/
Disclaimer: The views expressed in this article are solely those of the author.