Mohnish Pabrai blog

[Picasso]

Shadowbanned?

[tombgrt]

Shadowbanned?

 

Just joking. A few posters after me just repeated stuff I already said in reply 18 and one clearly didn't bother to read the posts above him. Not that I mind, I found it funny. So I was alluding to the fact that people couldn't see what I wrote. (When you are shadowbanned, you can still post but have no clue that others can't read your posts. It's to prevent spammers,trollers, ... from making new accounts that moderators would have to monitor again etc.)

 

Even when writing, many people tend to be so focussed on what is going on in their own head that they tend to ignore others. Maybe we need a new mental model for this problem. Anyone?  ::)

[Ballinvarosig Investors]

You guys are a riot. To attack Pabrai for under-performing the index is hilarious given the fact that most of the value funds out there have also under-performed. When you look at how the market has become so heavily weighted to the likes of Amazon, Netflix, Google, Facebook, etc. if you are not in those stocks, then your chances at meeting the S&P average are incredibly difficult. Think about it. If the broader market is flat, or down, you basically have to be a stock picking genius to get Amazon/Facebook type returns from picking from the basket of stocks that are not expensive FANG/unicorns.

 

Having said all that, if people want to have a go at Pabrai then I think he's fair game for other reasons. In my opinion, the extreme concentration of his portfolio is just crazy. 65% of the equity portfolio is in auto's, 30% of it is in Fiat alone. If you're not rich and running your own money, then you could maybe understand why someone is going to bat for the bleachers like this. But for a fiduciary like Pabrai, I think this is a mistake. I don't know when, but at some point we'll enter another bear market for autos. If Pabrai is still in auto's to the same extent, then his career is toast. For all the eulogising of Buffett and Munger, I find it kind of crazy that he has forgotten the first and most important rule.

[Oreo]

When you look at how the market has become so heavily weighted to the likes of Amazon, Netflix, Google, Facebook, etc. if you are not in those stocks, then your chances at meeting the S&P average are incredibly difficult. Think about it.

 

Why is owning Amazon (or Netflix or Google or Facebook) so bad?

 

 

you basically have to be a stock picking genius to get Amazon/Facebook type returns from picking from the basket of stocks that are not expensive FANG/unicorns.

 

Has it been firmly established that 'FANG/unicorns' (your language) are 'expensive', in the context of their remaining growth opportunities and the quality of their business models?

 

P.S. I believe Mohnish also owns GOOGL.

[dyow]

 

It's also my beef with popular blogs and investment books.  If you wants lots of eyeballs or to reach the mass investor market, you need a watered down regurgitation of simple concepts that come from old Munger or Buffett quotes.  It's difficult to find someone who can add something truly insightful that we haven't already read in Berkshire letters or whatever.  It makes me want to start a blog, but I think it would be a waste of time.

 

 

Also I'm not sure Buffett knew he was going to be the richest person in the world.  He just knew he was going to be rich.  Unless I'm wrong about that.

 

I would read your blog. 

 

As far as Prabai, this rule of 72 thing is a salesman pitch (like tombgrt said) to get an emotional reaction from people. "Hey i doubled my money in 3 years and you can too!!!"  It has no substance and it is superficial, but it works, and Prabai knows it works.  They teach this in marketing/sales, get people emotionally invested, suppress their rational thoughts, and they will be more likely to part ways with their money. 

 

But any serious value investor knows this is pure nonsense.  How can you at any given point really know when you will double your money (or care really).  You buy cheap when the opportunities come, and you never know when these opportunities come along,and you never know exactly how it will play out.  Imagine a situation where the DOW is at 30K and you got some bum coming into the market trying to double their money in 3 years bc of this 72 rule.  We can all guess how that would play out.

 

Also lol at buffett knowing he was going to be the richest man on the planet when he was 10 years old.  I mean monish common, i mean really common.   

 

Lastly, zinc. #neverforget 

 

   

[InelegantInvestor]

After the Dhando investor, Pabrai blew up(Pinnacle Airlines, anyone). He changed strategy and developed a checklist based on Buffett's mistakes(mentioned in Gawande's The Checklist Manifesto). How has his strategy changed as a result of big failures like ZINC?

 

I don't know, but not going to get the answer from a link to Mr. Money Mustache, and a description of how to quickly figure out how many years it will take to double your money given a CAGR.

 

I happen to like a lot of things about Mohnish, but ultimately he is a speculator at heart.

[Ballinvarosig Investors]

When you look at how the market has become so heavily weighted to the likes of Amazon, Netflix, Google, Facebook, etc. if you are not in those stocks, then your chances at meeting the S&P average are incredibly difficult. Think about it.

 

Why is owning Amazon (or Netflix or Google or Facebook) so bad?

 

 

you basically have to be a stock picking genius to get Amazon/Facebook type returns from picking from the basket of stocks that are not expensive FANG/unicorns.

 

Has it been firmly established that 'FANG/unicorns' (your language) are 'expensive', in the context of their remaining growth opportunities and the quality of their business models?

 

P.S. I believe Mohnish also owns GOOGL.

I don't want to derail this thread, perhaps you are correct and the growth stocks will all work out well. I am just making the point that if you're a value investor that doesn't want to invest in that area, then it's really, really difficult to outperform the index.

[InspireByReason]

Damn there's some straight up cynicism being thrown around here hahaha. I understand why people are sensing a cheap marketing ploy but do you really think that some of these more successful value investors want to give up the tightly held secrets of the trade?

 

I think the best way is a compromise. Share some true insight but don't hand it out on a silver platter so that the determined investors can figure it out. That way people will see you as genuine and giving without having to give up the whole pie.

[LC]

do you really think that some of these more successful value investors want to give up the tightly held secrets of the trade?

The buffett/buffett-disciple pitch is "simple philosophy, hard work sifting through each company". These aren't people who are engaged in building complex arbitrage algorithms. What tightly held secrets are you envisioning?

[valcont]

Shit I think I might be shadowbanned.

 

I am probably guilty of that. Its just that I usually open the editor for writing right away and it takes me a while to put it all together before I post. After that I only pay attention to the posts after mine.Gotta change that habit. We stated exactly the same thing at the same time. Sometime I feel like a lone voice attacking this celebrity cult.

 

 

 

[LR1400]

 

 

That tells me he is getting good results not knowing why to some extent. I still can't figure out what Pabrai' strategy/framework is other than cloning the greats. Well that is just race to the bottom.

 

Are you really serious? Pabrai has blown away the indexes over 15+ years, managing $500M+.

 

You call that a race to the bottom?

 

You chalk it up to blind luck?

 

Give me a break.

Reread what I have said. I said that I haven't gotten any insight listening to his lectures/presentations other than his reference to cloning. As an investor,

I am interested in finding new frameworks and strategies and learning from people who have a unique way of looking at things. Some good examples are WEB's capital allocation in a conglomerate, Henry Singleton's buy back strategy at Teledyne, Tom Murphy's use of leverage in a capital intensive business with predictable returns, Bezos focus on customer experience, Greenblatt's special situations, Richard Dennis's strategy of capturing fat tails.

 

Now think about Pabrai. What is his strategy? From what I gather its cloning and parroting Buffet and Munger ad nauseam . Essentially he is screening 13F and apply some value investing principles. I have to check on his returns but I doubt he has "blown away" the indexes. You need to explain what that means first. His trajectory should be no different than other value investors. Great returns initially because of low AUMs and then averaging towards the index over period of time.

 

Man, you guys can be hard on a guy.

 

A lot of these people COPIED Graham, maybe not in specific stock picks, but definitely in process. Many, many people. Buffett, Guerin, Kahn, Browne, the beach bum guy that went to Tweedy, Zell, et al.

 

Why does something need to be "original"? Who gives a shit as long as it is effective. Outside of specific areas, most of the people listed weren't really original. They had balls, capitalized on circumstances, and had some luck. I have learned from all of the people you have listed, and I consider most of them to be exceptional, however, there are others in their domain. I am not saying Pabrai is exceptional, I honestly don't think he is a superinvestor, but I also don't think he deserves the extreme criticism he receives.

 

 

[LC]

Why does something need to be "original"? Who gives a shit as long as it is effective.

 

I think people are arguing it has NOT been effective, at least over the last 5 years, including some memorable blow-ups (Horsehead).

 

I think people need to develop their own investing philosophy, because only then will they truly understand it and be able to apply it most effectively. If that philosophy happens to coincide with graham/buffett, so be it, but you have to develop it yourself. Just my 2 cents, not even related to Pabrai as I have never even met him.

[Vish_ram]

I've analyzed and posted about Pabrai's returns year or so back.

 

He is an A+ marketer and B- investor. As others have posted above, he made good money when is AUM was < 1/100the current size. The issue with looking at 15 years returns is that 99% of his investors wont be enjoying it. When the AUM ballooned, the returns went negative. Ignore the outliers of first two years, you get 12+ years of underperforming S&P.

 

I'm not a critic of his performance. I'm a critic of Pabrai as a person. He may be great to interact with, but I think he is a phony.

 

1) He associates himself with Buffett to create an impression with potential clients in every single opportunity. He spent 1/2mill to have lunch with Buffett, but knows that is worth 100 times in terms of marketing. He writes about how he made 10X returns in his personal portfolio by saying Thanks to Buffett. A majority of his investments have nothing to do with Buffett;s methodology, or his value approach. Just go through his 13F and you'll know what I mean. A gambler who utters Buffett's sayings is still a gambler.

 

2) When something doesn't work out, he comes up with a new approach. When he got smacked hard in 09, he came up with his diversified approach. That quickly fell by the way side with his huge concentrations in auto companies. Then came the checklist manifesto.

 

3) His letters are full of offering a glimpse of the promised land, in a way that is not honest. You don't own a stock and tell clients that it is worth X times. No one knows the future, a good recession will kill a cyclical stock.

 

4) You don't focus so much on the returns of $1 that walked in the firm when it was setup. What about the millions that followed the first $1 and got whacked.

 

As an Indian, I just feel so sad. The $ value he has lost is much more than the $ he made in the market. The big returns came when his AUM was < 5MM

[DooDiligence]

The Junoon ETF seems a bit questionable to me.

 

Bucket 1 concentrates roughly 75% on companies with aggresive share buybacks but do these companies buy back shares just because they have the cash or because it's actually a good use of capital?

 

That's like something I thought would be a good idea 10 years ago until I learned that all buybacks are not the same (maybe someone will smack me down with a "he only buys the ones which are value enhancing.")

 

Bucket 2 is spinoffs (meh...)

 

Bucket 3 is an index based on 22 hedge funds (so he aligns you with Einhorn, Ackman & Icahn among 19 others without the 2/20 - big deal...)

 

I know I'm being a bit pithy here so getting schooled in a similar tone will be fine (I joined this board to learn & inquiring minds are frequently offensive in their new found ideas.)

[Picasso]

I think Pabrai is still very much in a positive $ return even though the past several years have been mediocre.  At least according to his recent investment letters. 

 

But perhaps someone could explain the composition of the ETF.  50% in AutoZone, AIG, Travelers, Six Flags, and Lear is really strange security selection.  Then a bazillion small holdings.  Why even have all those small holdings when you are 50% in those five stocks?  30% of which are AutoZone and Travelers.

 

Might need to rename this thread.  "Everyone vent about Mohnish Pabrai."

[LR1400]

Why does something need to be "original"? Who gives a shit as long as it is effective.

 

I think people are arguing it has NOT been effective, at least over the last 5 years, including some memorable blow-ups (Horsehead).

 

I think people need to develop their own investing philosophy, because only then will they truly understand it and be able to apply it most effectively. If that philosophy happens to coincide with graham/buffett, so be it, but you have to develop it yourself. Just my 2 cents, not even related to Pabrai as I have never even met him.

 

I mean that in a broad sense, original doesn't mean effective and being effective doesn't need to be original. The post I replied to will explain why I commented as I did.

[DooDiligence]

I think Pabrai is still very much in a positive $ return even though the past several years have been mediocre.  At least according to his recent investment letters. 

 

But perhaps someone could explain the composition of the ETF.  50% in AutoZone, AIG, Travelers, Six Flags, and Lear is really strange security selection.  Then a bazillion small holdings.  Why even have all those small holdings when you are 50% in those five stocks?  30% of which are AutoZone and Travelers.

 

Might need to rename this thread.  "Everyone vent about Mohnish Pabrai."

 

The Dhando volcanic vent...

[CorpRaider]

In fact, I'd add that this is one of my main issues with popular investment books today. The authors are all so high on mental models and frameworks but all they can manage to scribble down 95% of the time is a rehashed quote by Munger, Sun Tzu or some other intelligent being that actually had something insightful to add.

 

It's also my beef with popular blogs and investment books.  If you wants lots of eyeballs or to reach the mass investor market, you need a watered down regurgitation of simple concepts that come from old Munger or Buffett quotes.  It's difficult to find someone who can add something truly insightful that we haven't already read in Berkshire letters or whatever.  It makes me want to start a blog, but I think it would be a waste of time.

 

But going back to Pabrai and his fee arrangement.  I've thought about this topic a lot (thinking about how I want to approach it for myself going forward) and I understand the comparisons he's drawing back to the Buffett Partnership by copying that incentive structure.  But 1) interest rates were a lot higher back then.  I think Buffett set the hurdle at the Treasury rate. 2) The opportunity set was much, much better than today. 3) Buffett put himself on the hook for 25% of potential losses.  4) He stopped taking in new capital/closed shop when opportunities dried up. 5) He didn't have a proven record yet.  People were really taking a shot on him.

 

The 0/6/25 model probably works if you take in a moderate amount of capital and stop taking in money or eventually close up.  I don't think it's something that would work indefinitely if you keep bringing in new investors.  Your returns will inevitably decline closer and closer to the "market" returns and market returns are probably close to or lower than 6%.  Which means Pabrai has to work much harder than Buffett to beat the hurdle.  He's probably better off returning 50% of his capital and focusing really hard on getting past that hurdle.  Otherwise he'll likely end up with 100% of nothing, incentive fee wise.  But at least he's not closing up and starting a new fund to reset the hurdle.

 

Also I'm not sure Buffett knew he was going to be the richest person in the world.  He just knew he was going to be rich.  Unless I'm wrong about that.

 

Start a blog man.  I would check it out daily.

 

Thanks for sharing Mohnish's blog OP.  I look forward to checking it out.  If he's right about the autos he's going to look like a genius again.

 

The genesis for the ETF, as I understand it, was a conversation with Munger where he said if you focused on those three areas you would outperform.  Of course he likely didn't say whom he would use for the "great investors." 

 

Based on Mohnish's book he probably thought "head's I win a lot (ETF IP/great freaking business), tails I don't lose much" (he has like no money in the ETF....or rather the ETF has like no money in it).  I like the cannibals and spin off portion but not sure about the mechanics.  Pass.  I'm waiting for someone to launch a total market fundamental weighted index using net buybacks and dividends.  I think Wisdomtree might do it.  they publish netbuyback stats for their us indices and of course they have the dividend weighted already.

[oddballstocks]

I've analyzed and posted about Pabrai's returns year or so back.

 

He is an A+ marketer and B- investor. As others have posted above, he made good money when is AUM was < 1/100the current size. The issue with looking at 15 years returns is that 99% of his investors wont be enjoying it. When the AUM ballooned, the returns went negative. Ignore the outliers of first two years, you get 12+ years of underperforming S&P.

 

I'm not a critic of his performance. I'm a critic of Pabrai as a person. He may be great to interact with, but I think he is a phony.

 

1) He associates himself with Buffett to create an impression with potential clients in every single opportunity. He spent 1/2mill to have lunch with Buffett, but knows that is worth 100 times in terms of marketing. He writes about how he made 10X returns in his personal portfolio by saying Thanks to Buffett. A majority of his investments have nothing to do with Buffett;s methodology, or his value approach. Just go through his 13F and you'll know what I mean. A gambler who utters Buffett's sayings is still a gambler.

 

2) When something doesn't work out, he comes up with a new approach. When he got smacked hard in 09, he came up with his diversified approach. That quickly fell by the way side with his huge concentrations in auto companies. Then came the checklist manifesto.

 

3) His letters are full of offering a glimpse of the promised land, in a way that is not honest. You don't own a stock and tell clients that it is worth X times. No one knows the future, a good recession will kill a cyclical stock.

 

4) You don't focus so much on the returns of $1 that walked in the firm when it was setup. What about the millions that followed the first $1 and got whacked.

 

As an Indian, I just feel so sad. The $ value he has lost is much more than the $ he made in the market. The big returns came when his AUM was < 5MM

 

This is dead-on.  Money weighted returns are very poor.

 

I could vent on Pabrai as well, I have some anecdotal stories that have left sour tastes, but instead of doing that I want to do something different.  I want to talk about two positives.  I've learned two things from him that I appreciate:

 

1) How to market/sell.  The guy could sell snow to eskemos and make them rave about how great it was.  He recommended a few sales and marketing books that were A+.  He's mentioned strategies to hook clients that are worthwhile as well.  The guy is a sales machine.  Forget investing.  He could be selling vacuum cleaners, learn from his sales and marketing.  Forget that he's even an investor.  Look at how he targets clients, look at how he sells to them in each letter.  Look at how he keeps them satisfied with an inferior product.  It's fascinating.

2) His Japanese net-nets.  He lost a ton of money on them, but I and others did not.  He didn't have any patience, but others did, and those who did made money.  His idea was sound, he couldn't execute.  The Japanese net-nets helped pay for the house I'm living in now.  A big thanks on that.

 

I'll level one criticism.  The whole discussion of how he only works an hour or two a week and how he's only really worked hard once during the crisis was in poor taste.  Regardless of whether he does that or not it's not the thing you tell your clients in your letter.  To me it's the height of hubris.  He needs to learn from Klarman in this sense.  Klarman's letters gush about how they never leave the office and never stop thinking about new ideas.  What he's saying is "we never stop working for you."  Pabrai has said "I barely work for you, and I only worked once during the crisis.  But I'm so smart it doesn't matter, I can focus on other things."

[gg]

Oddball, which marketing books did he recommend that are great?

[oddballstocks]

Oddball, which marketing books did he recommend that are great?

 

Marketing High Technology

Pricing for Confidence

Influence - Cialdini

 

Non-marketing: The Origin and Evolution of New Business

[KCLarkin]

Here is a longer list of Pabrai's book recommendations:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/pabrai-talk-on-sales-marketing/msg165095/#msg165095

 

[flesh]

Picasso, I would read your blog.

 

Pabrai's returns are mediocre at best. Minus the first two years.... you have a worse record. Subtract 2000-2003 when all value investors out performed, you have a horrible record.

 

I'd prefer to give my money to a half dozen forum members whom all I know about them is their posts.

 

I'd be scared to death if I had a large portion of my net worth with him recently.

[flesh]

Here is a longer list of Pabrai's book recommendations:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/pabrai-talk-on-sales-marketing/msg165095/#msg165095

 

ANyone who's read a good portion of these that could narrow it down to top two or three for me?

 

My queue is already 25 deep.

[indirect]

Picasso, I would read your blog.

 

Pabrai's returns are mediocre at best. Minus the first two years.... you have a worse record. Subtract 2000-2003 when all value investors out performed, you have a horrible record.

 

I'd prefer to give my money to a half dozen forum members whom all I know about them is their posts.

 

I'd be scared to death if I had a large portion of my net worth with him recently.

 

As many longtime members of the board knows, I am a very early investor with Mohnish and have a large portion of my net worth

with him. I am quite ok with stocks in his portfolio. I personally have made money because of him in FFH, BOA, FIAT, GM warrants and many others. I am responsible for all the decisions I make when I follow him into a stock.

 

I think he has put his investors before himself and performance is something where timing is beyond your control.

 

He has been generous with his time and advice with many in Value investing.

 

This thread feels like public lynching, however, time will tell.