Mohnish Pabrai’s ‘Free Lunch’ portfolio starting with $6,000

Our Potential Future Returns

Now that we know just how well this portfolio performs over a 17 year period, let’s do some math and look at just how well we could do with a portfolio that performs this well.

Let’s keep this much more realistic to the everyday investor like you and me. ​​ First, let’s look at an account that starts with $6,000. ​​ In order for you to achieve this you need to be able to save $500 a month. ​​ That sounds reasonable right?

We then invest that $6,000 we saved at the beginning of every year, and continue to save the same amount each year, reinvesting any gains we made from the portfolio. ​​ Let’s now look at how well our portfolio would have done over that 17 year period. ​​ We’ll look at what would have happened if we had invested with the Mohnish Pabrai’s Free Lunch portfolio and what would have happened if we invested in the S&P 500 over the same period.

$6000 starting point and $6000 a year

Average return over the last 17 years (from 2000 - 11/30/2017)

• S&P 500 ​​ return  ​​ ​​ ​​ ​​ ​​ ​​​​ = 5.4%  ​​ ​​​​ 

• Free Lunch Portfolio = 17.1% ​​ 

As you can see, after 17 years, our portfolio would now be worth $160,562.76 and our investments would increase by $8,670.39. ​​ After 22 years we’d have $242,276.18 and our investments would increase by $13,082.91 that year. That’s not too bad considering we only had to save $500 a month. ​​ Let’s take a look at how well we would have done with Pabrai’s Free Lunch Portfolio:

That’s looking much better. ​​ After 17 years our account would have grew to an impressive $478,509.14, but here’s the most exciting part… If we look at our yearly increase, the account would have grown by $81,825.06. ​​ Now, if we know how much we’ll need in our retirement to live the life we want, we can see this is much more achievable with the Free Lunch portfolio, especially when we compare it to the S&P 17 year return of only $8,670.39. ​​ The Free lunch portfolio gives us a larger return by almost a factor of 10.

What if we hold it for another 5 years?

Well this is when Pabrai’s Free Lunch Portfolio would have hit that magic $1,000,000 level. ​​ In fact our account would now be worth $1,095,767.04, not only that, but our account would now be growing by $187,376.16 that year.

Do you think you could live off $187,000 a year in your retirement? Imagine the life you could have. It is almost full of endless possibilities.

Exciting right? ​​ If that doesn’t motivate you to save $500 a month, I don’t know what will.

Here what most people expect

Ok ok, let’s be a little more generous, and use the 90 year average for the S&P 500, which at todays level is right around 9.8%. How well would we have done with that?

Not too bad. Though nowhere near our ‘Free Lunch’ portfolio levels. ​​ As you can see by year 22 we’re still only getting an increase of $40,924.83 compared to the Free Lunch Portfolio’s increase of more than $187,000 the same year. ​​ That $40,900 is likely not enough to live on in retirement for many of us.

Hmmm, which should I choose...

What if you can save more?

Now let’s take a look and see how well we do if we are able to save $1,000 each month, bringing our total investment addition to $12,000 a year. You’ll really see the power your ability to save as much as possible has on your future. ​​ Check that out here.

What this means for us

It should be obvious by now the power that a portfolio like this can have on your potential future. It’s also important to understand that this is a long-term strategy. ​​ It’s not meant to be held for only 5 years, it’s meant to be held for 17+ years. ​​ What this means is that just like investing in the S&P 500, you will have down years. ​​ The key is to continue to follow the rules, continue saving the same amount each month, and do so for as long as possible. ​​ The longer you follow the portfolio the better, just like the more you save the more you will have. ​​ That’s the magic of compounding interest.

Part 3: What 15 stocks are in the ‘Free Lunch’ Portfolio this year?

Disclaimer: This is for entertainment and educational purposes only. This is not to be taken as investment advice. I am not an investment advisor, nor have I considered your personal situation as your fiduciary. In other words, any investment you make ​​ (or don't make) is completely your responsibility.