Dhandho

'Dhandha' is business in Hindi and is as common a word as any, used in everyday talk among the middle class business community. Dhandho means “endeavors to create wealth”. Dhandho lays out the powerful framework framework of value investing. With With the intelligent individual investor in in mind, the eample of !atels from "ndia can be applied to the stock  market. #he Dhandho method epands on the groundbreaking principles of value investing epounded by $en%amin &raham, Warren $uffett, $uffett, and harlie (unger.

#he Dhandho framework consists of nine core principles. Principle # 1: Focus on buying an existing business

Having shares )ownership stakes* in a few publicly traded, eisting businesses is the best  path to wealth. #here are several advantages with this way of investing+ no heavy lifting is reuired, on the stock market you can sometimes find real bargain buying opportunities, you don-t need a lot of capital to start investing in publicly traded stocks, there is an ultralarge selection of stocks )read+ companies* available, and / with online  brokers / frictional costs are very low. low. Principle # 2: Invest in simple businesses

0implicity is an etremely powerful construct. 1or 2instein, simplicity was the highest level of intellect. #he Dhandho way of investing is simple, and therein lies its power. 3nly after buying a specific stock, the psychological warfare with our brains really gets heated )see also !rinciple 45*. #o fight these powerful psychological forces, you need to  buy painfully simple businesses with painfully simple simple theses for why you-ll likely earn a decent profit and are unlikely to lose much money. "f you need difficult spreadsheet calculations or more than one short paragraph for your thesis, you should look at another  investment opportunity op portunity.. Principle # 3: Invest in distressed businesses

0tock prices, in most instances, reflect the underlying fundamentals. $ut that-s not always the case. Human psychology affects the buying and selling of stocks much more than the  buying and selling of entire businesses. $ad news coming out sometimes leads to etreme etreme fear, stock dumping and a very low valuation as a conseuence. 6ou 6ou should look for simple businesses that are und er distress, so you can buy them at unreasonably low prices. 6ou 6ou can find such distressed businesses by e.g. reading bad headline stories about certain businesses or industries, looking for stocks with low price toearnings ratios or reading a book like 7#he 8ittle $ook #hat $eats the (arket- written  by value investor 9oel &reenblatt.

Principle # 4: Invest in business with durable moats 3nly businesses with durable moats / or, in other words, only businesses with sustainable competitive advantages / are able to show above average returns on their invested capital. 0uch companies are able to earn more money for their investors than companies without durable moats. 3ver time, the power of all moats tends to weaken. harlie (unger once mentioned that of the fifty most important stocks on the :602 in ;lways look for arbitrage opportunities with spreads as wide and long as possible. >rbitrage opportunities help you to earn a high return on invested capital with low levels of risk. >n enduring Dhandho arbitrage spread can be seen as a moat or a durable competitive advantage. 6ou should be aware that, over time, arbitrage spreads eventually disappear. #he critical uestion then is+ how long is the spread likely to last and how wide is the moat really? Principle # %: &argin o" sa"ety ' always

#he bigger the discount to intrinsic value, the lower is the risk. #he bigger the discount to intrinsic value, the higher will be the return. (ost of the time, assets are traded at or  above their intrinsic value. 6ou should patiently wait for finding cheap stocks with a large margin of safety, a lowrisk and a high upside potential. Having a margin of safety in order to minimi@e risk of loss is of crucial importance+ when you lose e.g. A=B you need to make a profit of ;==B for only getting your money back. 2specially in the long term, the cost of loss is etremely high. #his is related to the incredible power of compounding. Principle # (: Invest in low)ris*! high)uncertainty businesses

Cisks and uncertainty are different concepts. #he future performance of a company in distress may be uncertain. $ut, when you have carefully thought through the range of   possible future scenarios and conclude that the odds of a permanent loss of capital are very low, you may have found a lucrative lowrisk, highuncertainty investment opportunity. When etreme fear sets in, stock markets may behave irrational. $y applying the Dhandho techniues, you can profit from this irrational behaviour.

Principle # +: Invest in the copycats rather than the innovators

"nnovation is a crapshoot, but cloning is for sure. #herefore, good cloners are great  businesses. 8ook for businesses run by people who have demonstrated that they are able to repeatedly lift and scale the work of the innovators. some interesting ideas about the business models that are the most successful+ “opycats rather than "nnovators.” $y imitating a rather successful or promising company, you improve your dhandho/endeavors to create wealth/ because you can improvise their  models to make it work for you. "t is important to understand from the above+ Dhandho • 1ew $ets, $ig $ets, "nfreuent $ets • Heads you win a lot, #ails you lose a little • opycats rather than "nnovators •

>pplying the Warren $uffet theories to the '!atel' way of doing business. #he !atels are the &u%arati :C"s who've made billions in the motel business in >merica. #he !atel community bought real estate in the early ;