Mohnish Pabrai: The Boom-Bust Mental Model

In this interview at the 2025 MOI Global, Mohnish Pabrai shares insights on his investment philosophy and current market perspectives. The conversation covers various industries and investment approaches, with particular focus on cyclical businesses and special situations.

Key Takeaways

• The Boom-Bust Cycle Mental Model: Mohnish emphasizes the importance of understanding industry-specific boom-bust cycles, particularly in sectors with long gestation periods (like office towers, shipping, and coal). Industries with longer development timelines (3-5 years) tend to have more pronounced boom-bust cycles because supply hits the market simultaneously, creating opportunities for investors who can time these cycles correctly.

• Coal Industry Dynamics: Despite being a “four-letter word” due to ESG pressures, coal companies (especially metallurgical coal) present unique investment opportunities. Many are debt-free with strong balance sheets following the 2022 Ukraine war-related price spikes. The high barriers to restarting closed mines (financing difficulties, equipment shortages, labor challenges) create potential for outsized returns when prices recover.

• Patience and Uncertainty Management: Mohnish identifies patience as the most crucial skill for investors, followed by comfort with uncertainty. He distinguishes between risk and uncertainty, noting that “a combination of high uncertainty with low risk is likely to give you great reward if you are patient.”

• Portfolio Concentration: Mohnish typically starts with a “10×1” approach (10% positions) but allows winners to become concentrated positions. In one of his funds, a Turkish real estate investment (Reysas) grew from a $16 million market cap to over $1 billion and now represents over 60% of the fund.

• Size Advantage for Small Investors: Smaller investors have significant advantages in finding opportunities in market niches that large funds cannot access. As successful investors grow their capital base, they must leave these “fertile pastures” for larger opportunities, creating an “evergreen situation” where new opportunities constantly become available for smaller investors.