Mohnish Pabrai Quote
It is the performance of the business that matters. It is hard enough to figure out the future of the business. Do not try to figure out the future of the country or the world, focus on the business.” – Mohnish Pabrai
Business Profits are most important
As an investor, it is critical to remember that your money is made from the profits of the companies which you own. You don’t make money from increased GDP growth or a lower unemployment rate. You make money only from the products or services that you sell through your ownership of the company. If you want the intrinsic value of your shares to increase, they will increase only by the company selling more widgets. Alternatively, the company could sell the same volume of widgets at a higher price. There are numerous combinations by which a company can increase in value, but they all relate to the fundamental ability of the business to increase profits over time. Any other consideration, especially macroeconomic movements of the country or world are unimportant.
It’s also important to focus on that which you can control, understand, or predict. As Mohnish Pabrai states, it’s difficult to predict future business performance. Don’t make the mistake of trying to predict future macroeconomic events as it’s all but impossible on a country or global scale. Therefore, it’s best to ignore them completely. The only method by which macroeconomics can be reliably predicted is through the use of broad generalizations. Stay away from specifics. “The world population is growing steadily,” vs “The population will grow at 2% and GDP will grow at 3% annually.” The first statement is much more dependable than the latter two.
Key Wisdom for Investors
Focus on analyzing and predicting the present and future cash flows of a company. Macroeconomic factors are less important, hard to predict, and unreliable indicators of future business performance.
This post is one of many in my ‘Words of Wisdom’ series. This series focuses on pithy quotes which distill wisdom into a short statement. Consider reviewing my full condensed wisdom page for my useful insights for your investing journey.