Mohnish Pabrai: This will save you 10 years of bad investments

Where this was said

Life advice disguised as investing advice

At 1:23:14 · chapter starts 1:21:57

Pabrai's investment in Constellation Software begins with an observation about what makes Mark Leonard uniquely uncloneable ^{[1] — Mohnish Pabrai "Constellation Software buys ~200 small vertical software companies per year, pays 5-6x cash flow, and compounds them at 20-25% annually. No…" 1:18:00 Play} . Leonard has built a machine that touches 70,000-100,000 small vertical software companies twice a year — two phone calls, two emails — waiting patiently for owners who are ready to sell. Constellation pays 5-6x cash flow, which immediately becomes 3-4x cash flow within a year or two as the team implements best practices: 20% license fee increases, shared learnings from 1,000+ prior acquisitions, and operational efficiencies all without dictating to the acquired businesses. The organic growth rate of the acquired businesses is ~3% per year — just enough to make them worth buying at a low multiple given the risk-free rate. On top of that organic growth, Constellation reinvests cash flows at 25% returns through new acquisitions. The result is a mousetrap compounding at 20-25% per year. Private equity hates deals this small and wants to flip, not hold. No one else has built the culture, the team, or the patience to touch 70,000 companies twice a year. The market cap fell to teens P/E multiples — cheap enough that even the cheapskate Mohnish got interested. In a world of 50,000 stocks, this is the inch-wide, mile-deep bet.