Mohnish Pabrai

[learner]

During a presentation at Columbia Business School (link below), Mohnish Pabrai mentions that an investor could do a good job by spending just 15 hours/week.  He has alluded to something similar in various other instances.  Do you guys know if he ever expanded on that?  I was wondering what Mohnish’s suggested process for doing that would be.

 

Link to presentation:  http://cbs360.gsb.columbia.edu:8080/ess/echo/presentation/670921b2-4bad-4843-8dc5-4026360f1369

[APG12]

Maybe he meant that you could take a two hour nap every day and use the remaining hour to clone his portfolio in your own account.  ;D

[cubsfan]

Maybe he meant that you could take a two hour nap every day and use the remaining hour to clone his portfolio in your own account.  ;D

 

I love it!!

[tng]

I think he mentions it in almost all his talks to business school students. There are a lot of ways to easy beat the market:

 

1) Zero time / zero effort. Just buy Berkshire Hathaway.

2) Little effort. Blindly replicate what Buffett (or other known value guru) does on each 13F, regardless of how the price has moved or whether there is new data since Buffett made his purchase. Because you are dealing with a smaller portfolio, you can concentrate more on his highest allocations and likely do better. Historically, this has worked out well because the Buffett picks usually take more than 3 months to play out.

3) Little more effort. Get the top ideas from several gurus and actually do a little research on them. Maybe one of the stocks went up 100% since the last 13F so it isn't as attractive any more. You don't want to indiscriminately buy. Pick from this pool. Even if you make mistakes in your analysis and you are, in effect, blindly throwing darts, you are expected to do as well as the gurus on average.

[learner]

Thanks for the response.

[yadayada]

I think that once you become competent at this, then you it becomes a part time job really. You know what to look for, and if you have your screening process nicely tuned it shouldn't take that much time to maintain your portfolio every year? Certainly not a constant 40 hours a week. There are only so many annual reports and books you can read. Unless you do bankruptcy's

[learner]

I had a quick followup question.  Mohnish mentions multiple times a study by 2 Professors (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=806246) that shows that purchasing stocks that Buffett purchases after the news is made public and selling them after that news is made public would have earned a 11% alpha during 1976-2006.  Adding this to market return of 9-10% gives a 20% return.  Buffett has stated himself that float adds 6-7% to the returns, so the implied return on Berkshire should be closer to 26% (20%+6%).  However, Berkshire's longer-term annualized returns has been closer to 20%.  Can someone please help me understand why is there a 6% difference I'm noticing?

[merkhet]

I had a quick followup question.  Mohnish mentions multiple times a study by 2 Professors (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=806246) that shows that purchasing stocks that Buffett purchases after the news is made public and selling them after that news is made public would have earned a 11% alpha during 1976-2006.  Adding this to market return of 9-10% gives a 20% return.  Buffett has stated himself that float adds 6-7% to the returns, so the implied return on Berkshire should be closer to 26% (20%+6%).  However, Berkshire's longer-term annualized returns has been closer to 20%.  Can someone please help me understand why is there a 6% difference I'm noticing?

 

I can hold 4 of Berkshire's holdings as 100% of my portfolio. Berkshire cannot have 4 holdings as 100% of its portfolio.

[constructive]

Buffett has stated himself that float adds 6-7% to the returns

 

Insurance also requires large cash and fixed income allocation, which drags the returns down compared to an equity heavy portfolio.

 

If he has historically earned ~20% on equities, ~5% on fixed income and insurance adds ~7%, the total still worked out to 20%.

[learner]

Makes sense, thanks.