Mohnish Pabrai: The Biggest Mistake Investors Make Is Selling Too Early

Investor enthusiasm around artificial intelligence and other fast-rising assets has once again highlighted one of the market’s most persistent characteristics: investors are naturally attracted to what has recently performed well. For Mohnish Pabrai, that tendency is not something that can be eliminated. Instead, it creates the mispricing that patient investors can exploit.

“Humans want to invest in things that have recently done well. It’s just the nature of people wanting to go to flavor of the day, and actually that going to the flavor of the day actually makes it possible for me to do what I’m doing.”

That behavior can push popular investments to extreme valuations while leaving less fashionable opportunities overlooked. Pabrai believes auction-driven markets naturally exaggerate price movements, creating opportunities for investors willing to move against prevailing sentiment.

“So auction-driven markets accentuate price movements much more than you would if you were not auction-driven. And because they accentuate price movements, sometimes you get extreme mispricing in both directions. You get extreme overvaluation and you get extreme undervaluation.”

Rather than attempting to predict every market move, Pabrai focuses on finding situations where the disconnect between price and value appears unusually large.

“So what I’m looking for is anomalies. I’m looking for weird things that make no sense.”

This approach requires patience because compelling opportunities do not appear every day. In an environment dominated by constant financial commentary, rapid trading, and pressure to remain active, Pabrai argues that successful investing often requires doing considerably less.

“If I find something like level three once a year, I might only have one or two ideas like that, but that’s all I need. I need a idea like that once every two or three years. I don’t even need it once a year.”

The same patience applies after an exceptional business has been purchased. Pabrai points to past investments in Ferrari and Goldman Sachs as examples where selling profitable holdings ultimately proved costly because the businesses continued compounding.

“The biggest mistake I have made in life is selling too early.”

His experience has reinforced the importance of allowing rare businesses with durable competitive advantages to compound for extended periods.

“The key to investing is that when you find yourself in the happy position of partial ownership of a great business, don’t sell it when it’s fully priced. Don’t sell it when it’s overpriced. Only possibly sell it when it’s egregiously overpriced.”

For investors navigating today’s market, Pabrai’s approach offers a clear framework: avoid chasing recent performance, wait patiently for extreme mispricing, act decisively when genuine anomalies appear, and resist selling exceptional businesses simply because their share prices have risen.

Full interview here: