Learn Dhandho Investing

Business schools teach us that risk and reward go hand in hand: higher the risk, higher the possibility of reward. The dhandho approach to business is different: it is about maximising returns while minimising risk (heads I win heavily; tails I don’t lose much). The word dhandho comes from Gujarat’s Patel community. The Patels arrived in the US in the seventies as mostly indigent, uneducated immigrants with poor command over the English language. From those humble beginnings they have transformed themselves into a prosperous community that dominates America’s motel business. The author attributes their astounding success to the dhandho approach. The author’s own life story illustrates the efficacy of this approach. When he founded his company, Transtech Inc., all the capital that he could bank on was $30,000 in his retirement account and about $70,000 in credit card limits. To begin with, he researched the US bankruptcy laws and found that the penalty for failure wasn’t high. If his start-up failed and he was unable to repay his loans, he could declare personal bankruptcy. Thereafter, he would be free to start all over again. This satisfied one of the central tenets of the dhandho approach — the downside risk should be minimal. Pabrai founded his company in 1990 while continuing to work at the firm where he was then employed. So even while he worked on his start-up, he had a regular pay cheque coming. He would work for his own company from 6.30 to 8.30 AM in the m

This article was originally published on May 13, 2011.