Mohnish Pabrai: A Super Salesman, not a Super Investor

Mohnish Pabrai is clearly savvy at self-promotion (as I noted elsewhere last year) and a consummate salesman, judging by the hundreds of millions of dollars of assets he's gathered. I think it's clear by now though that he's not a great investor. If it's not, these notes on Pabrai's 2009 Chicago investor meeting, compiled by Miguel Barbosa of Simoleon Sense may be instructive. Reading them, you'll be reminded that Pabrai used to use shares of Berkshire Hathaway as a "placeholder for cash", which made absolutely no sense; that he ignored his own advice about avoiding retailers (not to mention his alleged preference for small caps) when he invested in Sears; and that he has belatedly realized that a highly-leveraged, subprime lender (Compucredit, on which Pabrai took a 72% loss¹) might not do well during a credit crunch.

A couple of years ago, I sent a copy of Pabrai's book, The Dhando Investor², to a friend of mine who works in the Southern California office of a firm that was initially established as the family office for a Gilded Age family, and now handles the finances for other wealthy families. At the time, I figured my friend's firm might be interested in looking at Pabrai as a candidate for its stable of outside investment managers, but now I think a better role for Pabrai would be as a salesman for a wealth management firm (though perhaps one with a lower minimum asset requirement than my friend's firm).

If I were Pabrai, I would quietly approach some leading wealth management/family office firms about them absorbing Pabrai's assets under management and bringing Pabrai on to gather assets for the firm from affluent Indian Americans. Pabrai could probably add more value to his wealthy clients as an excellent salesman than as an investor.

¹Pabrai also doubled down on a subprime mortgage lender, Delta Financial Corporation, after the securitization market seized up in August of 2007. He held his stake until that company went bankrupt.

²Pabrai's brief book actually contains some interesting stories about entrepreneurship (Pabrai was an IT entrepreneur before becoming a hedge fund manager), but Pabrai himself ignored some of the lessons in those stories. For example, Pabrai wrote about the ethnic Indians whose businesses were expropriated by Idi Amin, and despite this, Pabrai invested in an oil company based in Hugo Chavez's Venezuela.

On the Value Added by Excellent Salesmen

A conversation elsewhere about sales reminded me of this essay written a couple of years ago by Thomas Lifson of American Thinker. Below is the relevant excerpt.

When I entered the business world and actually got to know not only some really excellent salesmen (and women) and developed an appreciation for the ways they contribute not just to the bottom line but to their customers' operations, my respect for the sales profession grew and grew. The best sales professionals have a bit of nobility to them, doing what's right for the customer, even if it costs them or their employers in the short run. They build trust and personal bonds and actively help their customers succeed, bringing far more than a shoeshine and a smile. The best sales professionals are all problem-solvers and dedicated to their customers. They deserve the big bucks they earn.

I will never forget a conversation with a former colleague of mine at Columbia University who left teaching to take a job in business, where he was in charge of marketing certain big ticket products for a major company whose name you would instantly recognize. He spoke movingly of his deep admiration for the dealers of his company's products, many of whom were self-made millionaires. "They created entire businesses out of nothing," he said with awe in his voice, selling and servicing important tools that made life better for millions. We commiserated over the deeply flawed views of business and entrepreneurs (and life itself) so common in the academic world he left and from which I was departing. Both of us quite voluntarily, I might add.