The book opens with ‘Patel motel dhandho’. Do you know that Patels of Gujarat, who number less than one in five hundred Americans, “own over $40 billion in motel assets in the US, pay over $725 million a year in taxes, and employ nearly a million people”?

They started arriving in the early 1970s without much in the way of education or capital, narrates Pabrai. “Their heavily accented, broken-English speaking skills didn’t improve their prospects either. From that severely handicapped beginning, with all the odds stacked against them, the Patels triumphed.” How? “There is one word explanation: Dhandho.”

Pabrai identifies nine principles that constitute the dhandho framework. One, focus on buying an existing business with a well-defined business model and a long history of operations that can be analysed.

Two, buy simple businesses in industries with an ultra-slow rate of change; “as long as humans travel long distances and have a need to sleep and refresh themselves, there will always be a need for motels and hotels.” Three, buy distressed businesses in distressed industries; as Warren Buffett would say, “Have the purchase price so attractive that even a mediocre sale gives good results.”

Another quote of his in the book is direct: “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” In circumstances when the near-term future prospects are murky and the business is hated and unloved, the odds are high that an investor can pick up assets at steep discounts to their underlying value, explains Pabrai. “No one knows that better than Lakshmi Mittal.”

The fourth principle is about the moat: buy businesses with a durable competitive advantage. Patels created moats by being the lowest-cost service providers. In the IT (information technology) services industry too there can be deep moats, in the form of relationship with clients and the knowledge of their business and systems.

“As a company gets more familiar with a client’s business and technology infrastructure, the harder it is to be replaced by a competitor.”

Worth trying out dhandho techniques.

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