The Dhandho Investor
Module Units
- 1. Introduction
- 2. Patel Motel Dhandho
- 3. Manilal Dhando
- 4. Virgin Dhandho
- 5. Mittal Dhandho
- 6. The Dhandho Framework
- 7. Dhandho101: Invest in Existing Businesses
- 8. Dhandho 102: Invest in Simple Businesses
- 9. Dhandho 201: Invest in Distressed Businesses in Distressed Industries
- 10. Dhandho 202: Invest in Businesses with Durable Moats
- 11. Dhandho 301: Few Bets, Big Bets, Infrequent Bets
- 12. Dhandho 302: Fixate on Arbitrage
- 13. Dhandho 401: Margin of Safety—Always!
- 14. Dhandho 402: Invest in Low-Risk, High-Uncertainty Businesses
- 15. Dhandho 403: Invest in the Copycats rather than the Innovators
- 16. Abhimanyu’s Dilemma—The Art of Selling
- 17. To Index or Not to Index—That Is the Question
- 18. Arjuna’s Focus: Investing Lessons from a Great Warrior
- 19. Conclusion
Dhandho 401: Margin of Safety—Always!
This chapter emphasises the significance of purchasing investments with a decent margin of safety only. He uses Buffett's quote to back up this point:
"Make sure that you are buying a business for way less than you think it is conservatively worth."
He also relates to Ben Graham's writing in the book ‘The Intelligent Investor’ by pointing out that Graham talked about the following joint benefits of utilizing a margin of safety: lower downside risk and greater upside potential.
The entrepreneurs depicted at the beginning of this book had likely never read Graham's writings. However, their decisions were always taken by keeping the idea of risk minimization in mind. On the other hand, Business schools do a great injustice to their students by teaching that reward comes from risk.
The impression that higher rewards can be gained through higher risk only is a common idea for those who think that the market is efficient. Hence it does no good to look for low-risk, high-reward situations. On this subject, the author once again quotes Buffett:
"We are enormously indebted to those academics: what could be more advantageous in an intellectual contest - whether it be a bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?"
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