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Ultra-low frictional costs are a substantial advantage. You can buy or offer a stake in a publicly-traded business for under $10- and they keep getting lower (as a percent) as the worth of the portfolio increases over time. On the other hand, think of how many private organizations Are on sale within 25 miles of your home. There are thousands of publicly traded businesses in the United States, and you can buy a stake in any of them with a couple of mouse clicks. The capability to get going with a small pool of capital- and contribute to that pool throughout the years- is a substantial advantage.ĥ. In the stock market, you can hitch your wagon to the prospects of any organization with what you have in your wallet today. Buying an entire organization- even a little neighbor-hood gas station or laundromat- needs some severe capital. As a result, you typically wind up with fair to abundant rates.Ĥ.
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Sellers usually get to time these sales to their benefit. Sometimes in these transactions, if the business or industry is distressed, purchasers might get a deal as Papa Patel did, but those are anomalies. When humans buy or offer whole companies, both sides have a shared sense of what the asset deserves, and a logical rate is typically arrived at. You can share in all the rewards of service ownership without much of the effort.ģ. When you purchase a stock, you now have an ownership stake in the underlying organization with one substantial advantage- the business is already staffed and running. You either require to run it or discover somebody competent who can. When you buy an entire company, there is significant heavy lifting required. There are six significant benefits that the stock exchange uses versus the buying and selling of entire companies:ġ. Invest in the copycats instead of the innovators.
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Invest in low-risk, high-uncertainty services. Few bets, huge bets, and unsettled bets. Invest in businesses with resilient moats. Invest in distressed businesses in distressed industries. IT IS BETTER TO BE A COPYCAT THAN AN INNOVATOR. You end with the classic Dhandho tagline: Heads, I win tails, I do not lose much! The high unpredictability can be handled by conservatively handicapping the range of possible results. Low-risk scenarios, by definition, have low downsides. Dhandho entrepreneurs first focus on decreasing down-side risk. It causes significantly depressed rates for companies- especially in the pari-mutuel system-based stock exchange. Low risk and high unpredictability is a fantastic combination. LOOK FOR LOW-RISK, HIGH UNCERTAINTY BUSINESSES. It is always perfect, in various types, to play the arbitrage game since when-ever a well-defined arbitrage spread is available, you simply cannot lose.īUY BUSINESSES AT BIG DISCOUNTS TO THEIR UNDERLYING INTRINSIC VALUE.
DHANDHO INVESTOR SUMMARY FREE
While arbitrage spreads are small and, in some cases, just available for short-lived moments, they are virtually risk-free, and it is free cash while it lasts.Īnytime you are playing an arbitrage game, you wind up getting a free ride. Naturally, as they (and others) make these trades, the price spread collapses, and the arbitrage chance ultimately disappears. For instance, if gold is selling London at $550 per ounce and in New York at $560 per ounce, assuming low frictional expenses, an arbitrageur can buy gold in London and instantly offer it, New York, filching the difference. That's value investing.Īrbitrage is classically specified as an effort to profit by exploiting price distinctions in identical or similar monetary instruments.
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And you have to know enough to know whether the gamble is mispriced. We look for the horse with one chance in two of winning, which pays you three to one. To us, investing is the equivalent of going out and betting against the pari-mutuel system. BET HEAVILY WHEN THE ODDS ARE OVERWHELMINGLY IN YOUR FAVOR.