Mittal Dhandho

In 2005, Lakshmi Mittal was listed as the third richest man in the world by Forbes. Mutual, unlike other rich people, operated in an industry with awfully poor returns on capital - steel mills. As an owner of a steel mill, one has no control over the selling price of the products. Also, they require a constant supply of capital to be able to keep producing the end product. As a result, the steel industry has been one of the worst places to invest over the last few decades, with bankruptcies infesting every corner.

Mittal was able to revamp his steel mills into profitable steel-producing machines. Had he grown organically, he probably would never have managed to get the net worth to $20 billion. Instead, he grew by acquiring steel mills. He acquired a few mills for 10 cents which other investors had built for $1. Once he applied his operational efficiencies to the plants, he restored the value of the assets to $1 or more, thus yielding extraordinary returns on investment. Once again, Mohnish Pabrai's "Dhandho" theme echoes- the downside is minimal, and the upside is immense.

The author also takes the readers through his own experience applying "Dhandho". When he started his business, he had $30000 in cash and $70000 in credit card limits. If his investment went down, he would have to announce bankruptcy and would have lost $30000 and would have returned to his old job. In other words, his downside risk was minimum, but his upside was not. After a few years, he sold his business for several million dollars. This illustrates another example of the author’s  "Heads, I win; Tails, I don't lose much" ideology.

This chapter also tells that every once in a while, one encounters overwhelming odds in his favour. In such situations, they should act decisively and place a large bet.