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"Neither a lender nor a borrower be", ran a famous line in William Shakespeare's Hamlet. Legendary investor Warren Buffett improvised upon this advice when he urged investors to never borrow money to invest in stocks.
US-based Mohnish Pabrai, Managing Partner at Pabrai Funds and author of the famous investing book The Dhandho Investor says India's non-banking financial companies (NBFCs) erred when they failed to heed Buffett's wisdom.
"They (NBFCs) loved the fact that if you borrow short and lend long you get fat, juicy strips," the US-based investor added, discussing the liquidity crisis that has engulfed NBFCs.
This crisis started after it emerged infrastructure financier had borrowed heavily in the short-term market to lend to long-term projects.
Speaking at the Morningstar Investment Conference 2018 in Mumbai, Pabrai also advised against shorting, listing it as one of his ten commandments of investing.
"Shorting does make sense to me. Your maximum upside is a double, and your maximum downside is bankruptcy," Pabrai said.
With shorting, it's difficult to get the timing right and markets don't follow rationality. He also said he has never shorted a stock in his life.
Pabrai highlighted the importance of focusing on targets and cut out "noise".
"None of what is happening with the currency, crude oil and IL&FS is relevant to what we do (at Pabrai Funds)," he added.
Parts of the Indian market are still overvalued, but investors can still found opportunities, he said.
Pabrai's investment philosophy has been shaped by legendary investor Warren Buffett. Pabrai even had lunch with Buffett in 2007, spending about $650,000 to win the chance to dine with the legendary investor -- proceeds of Buffett's annual lunch offer go to charity.
"I wanted to thank Buffett during the lunch," he added. The biggest learning from the lunch was to stop worrying about societal expectations.
When asked for book recommendations, Pabari mentioned Poor Charlie's Almanack and Bad Blood: Secrets and Lies in a Silicon Valley Startup.
About 40 percent of Pabrai's portfolio is invested in India.
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