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How Mohnish Pabrai Is Stealing an Idea from Warren Buffett to Get Poor Kids into India’s M.I.T.

February 27, 2012 | About:

I’m a big fan of Mohnish. His concept of “heads I win big, tails I don’t lose much” is a cornerstone of my investing approach.

When I read things like this I like him even more:

Greetings. I am a fund manager, investing $500 million from an office near Newport Beach, Calif. And as I finish editing this piece, the sun is shining, I am wearing shorts, and U.S. stocks look blessedly cheap.

Not everyone is so fortunate, though, so what I really want to tell you about is philanthropy, an area far more difficult to excel in than stock picking. Yes, yes, I know— it may sound like a tired cliché of our gilded age: A man gets rich off of our inequitable economic system and, in a fit of conscience, decides to give some of it away. And worse, now he wants to tell you about it.

I’ll let you in on something even more contemptible about me: I am a shameless copycat. And I sincerely wish more philanthropists were, too.

We Americans love original ideas. But truly, there are already plenty of good ones out there, ours for the taking. If I were too proud to copy the ideas of others, I likely wouldn’t have even a fraction of my current success. Nor, despite my many mistakes, would I have been able to turn my small charity into a surprisingly effective operation. We help some of the poorest children on the planet beat tremendous odds and make it into one of the most exclusive university systems in the world, the Indian Institute of Technology, or IIT.

I formed this copycat habit in my business life. I developed my investing style by cloning Warren Buffett, with whom I once lunched after paying one of Warren’s favorite charities $650,100 (I actually split the cost with my friend, Guy Spier). I liberally swipe investing ideas from other value investors. A while back, I rummaged around the portfolio disclosures of Wilbur Ross & Co. and Fairfax Financial and discovered that both outfits were holding the same coal stock. After some reverse engineering to figure out why, my investors and I bought in and rode the stock from $4 to $10 in a year. And one of my key investing tools is a checklist of 98 or so items that help me avoid bad stock picks (most gleaned from mistakes the very best investors on the planet have made). My list was copied from the famed checklist the Federal Aviation Administration mandates to keep airline crashes to a minimum.

Truthfully, copying ideas like this is common in the world of business. But in the world of philanthropy, it’s too rare, with many good-hearted people wrong-headedly trying to reinvent the wheel. And that’s tragic.

A few years ago, my wife Harina and I were fortunate enough to have our net worth exceed $50 million and we decided it was time to start giving some of it away. I had always assumed we’d copy Warren Buffett’s approach, letting our wealth compound into my 70s and then giving away the hopefully-much-larger amount. But listening to Warren on the subject of philanthropy—he wisely says it’s far easier to make money than to give it away effectively—Harina and I decided we had better get started earlier.

We formed a small foundation. Getting good at philanthropy would take time, so our plan was to give away about 2% of our net worth each year. Hopefully, that would allow us to learn from our mistakes as we went and avoid blowing the whole wad at once.

Our aim was to bring the same rigor and discipline to philanthropy that I employ in investing. And, honestly, much of the non-profit world fails to achieve rigor or discipline. The charity world is run by non-business people. They don’t think return on investment. They don’t measure their results. Too many fail to focus their efforts—instead employing the fairy-dust approach, sprinkling a little cash here, a little there. Thus they have little impact. I wanted our philanthropy, the Dakshana Foundation, to do better than that.

And amazingly we have, mostly by identifying an opportunity so promising that we’ve been able to succeed even while making a series of early mistakes. Again, to quote my idol, Warren Buffett:

“Invest in businesses that any idiot can run because, sooner or later, one will.”

As Harina and I researched, I gleefully copied the best ideas we encountered and added them to my list of core principles: help an area that has no other funding source; keep overhead low; make programs self-sustainable in the long-run; and limit yourself to one or two narrow causes.

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