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Book Review: Mosaic by Mohnish Pabrai

 Mosaic: Perspectives on Investing, which is currently out-of-print, was the first book written by respected value investor Mohnish Pabrai.  This book is actually a compilation of Pabrai’s investing articles that  he published on various Internet sites from the late 1990s to the early 2000s.  Most of the articles are concise and avoid overwhelming the reader with details, thus providing a decent introduction to value investing concepts.

Occasionally, Pabrai provides an original insight, but he – admittedly – spends much of the book rehashing concepts and quotes from Warren Buffett and Charlie Munger.  Yet, to the benefit of the reader, Pabrai has the ability to take Buffett’s concepts and effectively illustrate them through relevant examples and context.  Nevertheless, experienced value investors may find the book largely familiar with the primary focus on Buffet and Munger.

The following are a few concept’s highlighted throughout Pabrai’s articles:

  • Investors tend to over diversify their investments.  Instead, they should invest in a 10 to 12 companies that they understand very well and are not too complex.
  • Investors should purchase companies with a durable moat, or competitive advantage, that are priced at a significant discount to intrinsic value.  Yet, no moat is permanent and changes in technology or the world can quickly lead to the demise of a company’s moat.
  • Investors should focus on understanding a company’s business model and its potential in the future years.  Moreover, investors should spend time evaluating the traits of the company’s management.
  • In general, companies should allocate excess cash to capital projects and investments.  Companies sitting on a large pile of cash are not maximizing their resources and their value.
  • Blue chips, or large companies, with annual free cash flow of $3 billion to $4 billion, are usually bad investments as they tend to lack the ability to grow.  Furthermore, they are rarely priced significantly below their intrinsic value.
  • Investors and Company executives tend to approach the company’s operations and financial results from two different perspectives, thus leading to many miscommunications during earnings calls.
  • Investors should know that there are times when finding good investments will be very difficult.  Consequently, investors should not buy stock during these times if they cannot find profitable opportunities.
  • Investors need to understand the difference between uncertainty and risk.  Wall Street tends to confuse the two concepts.  As a result, companies can be priced at significant discounts to intrinsic value when Wall Street incorrectly believes uncertainty to be risk.

One caution we have to readers is that Pabrai often discusses using a company’s free cash flow to determine the intrinsic value of that company.  Yet, he does not disclose the calculation he uses (there are several accepted calculations) to determine free cash flow.  The lack of disclosure makes it difficult for the reader to replicate Pabrai’s work.  Moreover, Pabrai’s calculation of intrinsic value may be incorrect depending on his free cash flow calculation.  Given its importance throughout Mosaic, this book would have benefitted significantly if there was a chapter focused on Pabrai’s calculation of free cash flow.

While we enjoyed reading Mosaic and believe it could benefit the new value investor, such a person may find it cheaper (the book is expensive since it is out-of-print) and more informative to review the original Berkshire Hathaway shareholder letters, which are available for free at  After all, the majority of Pabrai’s material is derived from these cogent letters.  Furthermore, Pabrai’s investment style today has evolved significantly from the time that Mosaic was written.  The book is no longer a complete picture of his investment methods.  Unless the reader is a collector of investment books, as we are, we recommend that Mosaic be avoided due to cheaper and better alternatives.