Mohnish Pabrai blog

[Parsad]

For 2019 first half: PIF2 3.8%.  PIF3 2.2%.  PIF4 14.6%.  S&P 500 was 18.5%, NASDAQ 21.3%.

 

PIF2 Annualized return since October 2000 is 12.2%.  S&P 500 is 6.0%, NASDAQ 5.3%.

PIF3 Annualized return since February 2002 is 10.0%  S&P 500 is 7.8%, NASDAQ 9.7%

PIF4 Annualized return since October 2003 is 8.5%  S&P 500 is 9.3%, NASDAQ 11.3%.

 

quote from the letter "These last twenty years have been filled with tremendous learning and fun. I have taken plenty of arrows in the back. Made a zillion mistakes. I can honestly say that today I am at the top of my game. I am the best I have ever been as an investor."

 

I'm not going to defend Mohnish like I normally do, because I think it's rhetorical at this point.  Last time I talked to him, I agree with him that he hasn't gotten any dumber!  And every time the markets have outperformed him and he's looked like a fool, it usually indicated a bottom in his fund with massive outperformance shortly thereafter. 

 

So let's revisit these numbers 3-5 years down the road, because usually at these times, he's reducing his portfolio to the bare bones cheapest stocks he owns with the greatest upside and the spring usually gets heavily loaded.  Cheers!

[stahleyp]

Sanj,

 

Shouldn't 15+ years be enough time to outperform? This includes a full market cycle (and more).

 

I'd guess that if you looked at PIF2 and PIF3  since 2003, they would have also unperformed (though I certainly can be wrong about that).

 

With that said, I do enjoy watching his talks and I like that he didn't close his fund when performance was bad just to reopen another one.

[Parsad]

Sanj,

 

Shouldn't 15+ years be enough time to outperform? This includes a full market cycle (and more).

 

I'd guess that if you looked at PIF2 and PIF3  since 2003, they would have also unperformed (though I certainly can be wrong about that).

 

With that said, I do enjoy watching his talks and I like that he didn't close his fund when performance was bad just to reopen another one.

 

Just a quick chart...not accurate in terms of each years swings, but it explains what I'm talking about.  If a fund manager's portfolio is volatile, then you could have huge swings of underperformance and outperformance...even for very long stretches.  Their numbers start to drop and look bad, but it's really just a result of the beta of how they manage their portfolio over long-periods of time.  It's why so many managers look stupid right now, including even Buffett over the last 5 years. 

 

And this has been exaggerated due to index investing, ETF's, hedge fund competition, etc which are causing distortions in valuation...alot of people are pushing prices of overvalued or the same assets.  We saw a similar thing with internet stocks in the late 90's, financial stocks before the housing crash...now it is ETF and index investing.  Cheers!

[stahleyp]

Sanj,

 

With the chart, why would most folks take marginally better returns for way more volatility? Most investors can't handle that.

 

Further, if one has very long stretches of underperformance how do you know if their strategy is no longer effective, if their outperformance was just luck, or if they'll ever make a come back?

[Parsad]

Sanj,

 

With the chart, why would most folks take marginally better returns for way more volatility? Most investors can't handle that.

 

Further, if one has very long stretches of underperformance how do you know if their strategy is no longer effective, if their outperformance was just luck, or if they'll ever make a come back?

 

I'm not saying they should.  I'm saying that is what is happening with Mohnish's management style...huge swings because it is so concentrated...and whenever the fund goes down, it becomes even more concentrated.  If you form an opinion at any point in that cycle, you are either going to be overly optimistic or overly pessimistic.  Cheers!

[nickenumbers]

Great Q&A going on here.  I have enjoyed reading it and following your conversation.

 

I am a fan of Mohnish. And I read and listen to a lot of his content.

 

I am also surprised that his returns are not better than they are, but then again, most people think they are above average drivers..  [Math proves otherwise.]

 

I recall that Mohnish purchased an insurance company, only to reverse course and sell it.  I love his appetite, courage, and his willingness to admit when he is wrong.

 

But, I hear WEB, CM, Howard Marks, Seth Klarman whispering "Patience, move only when you have an advantage, look for the 1 foot hurdles not the 8 foot high hurdles, etc."  Mohnish seems to over reach a bit.  In order to win you must first finish, and multiplying by 0.0, or by 0.75 significantly harms long term performance.

 

WEB and CM are often lamenting how difficult investing is and most helpers/fund managers like Mohnish are going to fail after accounting for the fees.  Beating the market is harder than putting socks on a rooster.

 

Perhaps Mohnish is a better teacher than practitioner.  But, I am cheering for him!

[mcliu]

Wow I'm surprised these are his results. I thought it would be a lot better.

 

I remember watching one of his lectures where he says he only buys stocks that go up 2x/3x in 3 years.

 

:o

[Saluki]

Wow I'm surprised these are his results. I thought it would be a lot better.

 

I remember watching one of his lectures where he says he only buys stocks that go up 2x/3x in 3 years.

 

:o

 

Well, due to the randomness of the stock market (and life) it's hard to judge if a person is doing something right by the outcome, you have to look at the process.  I thought his long term performance would be better, but I still enjoy and learned a lot from his videos.  For example, the Blue Chip Stamps video lecture (few bets, big bets) was very informative.  I learned about Blue Chip because the case was studied in law school (can't favor one group of shareholders over another) and a little more about it in the Snowball, but that video filled in all the missing pieces. 

 

I think his videos and books are a help to investors to learn the process he goes through and what he looks for. Someone could have way better results by "following my gut" but that won't help me because 1) the results might be just luck and you'll never know if they don't show the process and 2) if it's not teachable then it can't be repeatable, so it won't help me.

 

But I'm probably biased.  When I met Mohnish I asked him to autograph my copies of both his books.  #fanboy

[investmd]

Sanj,

 

Shouldn't 15+ years be enough time to outperform? This includes a full market cycle (and more).

 

I'd guess that if you looked at PIF2 and PIF3  since 2003, they would have also unperformed (though I certainly can be wrong about that).

 

With that said, I do enjoy watching his talks and I like that he didn't close his fund when performance was bad just to reopen another one.

Stahleyp: Completely agree that 15 years and probably even 10 years is enough to judge results. The numbers are adequate but do not show significant outperformance. I respectfully disagree with Prasad's comment about where in the cycle one is - over 10 & 15 years there should be enough ups and downs to balance.

 

However, what I really do like about Pabrai is that it looks like he genuinely tries to learn from mistakes (checklist he develops) and admits them. Can't learn and avoid it next time, if you don't admit it was a mistake.

 

In summary, over long periods of time the Fund has not lost money for investors and  has marginally outperformed the market. As Pabrai says he is a better investor today than he ever has been. Looks like a great time to be invested in the Fund. Hopefully, Prasad's comments about outperformance over the next 3-5 years are on the mark.

[eclecticvalue]

I think he needs some outside help and I am sure there will be many people who would like to work for him.

[EricSchleien]

Here are some thoughts I have about this.

 

If you look at the worst-performing stocks they have been "deep value". Here's an interesting blog post that a close friend of mine shared with me that goes deeper into that: https://alphaarchitect.com/2019/07/18/value-investing-concentration/?fbclid=IwAR00KS1q4Y0dTbJarvhZJy2KFQO4sFaQtnAboNCisdXMsRdcC0Tr_RZYOBE

 

Furthermore, Pabrai has been heavily concentrated in India which hasn't done so well recently.

 

When you take into account that we've had a much longer than average bull market + longer than average growth stocks (by valuation metric) outperforming lower p/e, p/b stocks as well as non-indexed companies underperforming companies traded on an index - you could say Pabrai has been invested in one of the worst sectors of the stock market over the past 10 years (deep value, non-indexed companies) and now recently in Indian securities.

 

So I believe this is one of those times where it may be the absolute worst time to measure how good he is over results alone based off what I shared above.

 

Also - the fact that he's kept up with the market while investing in some of the worst-performing segments of the stock market over the past decade says a lot as well.

 

Of course, only time will tell.

[coc]

If you’re going to discount periods in which “value” is not performing as well as you deem appropriate, you’d have to also take out the periods in which “value” performed better than it should have - if you’re going to be intellectually honest. Right?

 

And if someone has a track record covering multiple “cycles” of good and bad, when are you allowed to judge their performance?

 

It’s sort of like companies that blame the weather for their performance. Have you ever seen them discount their good performance due to unusually good weather?

[mcliu]

Wow I'm surprised these are his results. I thought it would be a lot better.

 

I remember watching one of his lectures where he says he only buys stocks that go up 2x/3x in 3 years.

 

:o

 

Well, due to the randomness of the stock market (and life) it's hard to judge if a person is doing something right by the outcome, you have to look at the process.  I thought his long term performance would be better, but I still enjoy and learned a lot from his videos.  For example, the Blue Chip Stamps video lecture (few bets, big bets) was very informative.  I learned about Blue Chip because the case was studied in law school (can't favor one group of shareholders over another) and a little more about it in the Snowball, but that video filled in all the missing pieces. 

 

I think his videos and books are a help to investors to learn the process he goes through and what he looks for. Someone could have way better results by "following my gut" but that won't help me because 1) the results might be just luck and you'll never know if they don't show the process and 2) if it's not teachable then it can't be repeatable, so it won't help me.

 

But I'm probably biased.  When I met Mohnish I asked him to autograph my copies of both his books.  #fanboy

 

I think the market randomness is only over the short-run. So you can have a great process and underperform in a year or two or five. But how do you reconcile a great investment process with underperformance over a 15 year period?

 

Berkshire has outperformed S&P since 2003 and that's with way more capital..

[Tim Eriksen]

For 2019 first half: PIF2 3.8%.  PIF3 2.2%.  PIF4 14.6%.  S&P 500 was 18.5%, NASDAQ 21.3%.

 

PIF2 Annualized return since October 2000 is 12.2%.  S&P 500 is 6.0%, NASDAQ 5.3%.

PIF3 Annualized return since February 2002 is 10.0%  S&P 500 is 7.8%, NASDAQ 9.7%

PIF4 Annualized return since October 2003 is 8.5%  S&P 500 is 9.3%, NASDAQ 11.3%.

 

quote from the letter "These last twenty years have been filled with tremendous learning and fun. I have taken plenty of arrows in the back. Made a zillion mistakes. I can honestly say that today I am at the top of my game. I am the best I have ever been as an investor."

 

For 2020 first quarter: PIF2 -33.7%.  PIF3 -27.7%.  PIF4 -40.4%.  S&P 500 was -19.6%, NASDAQ -13.9%.

 

PIF2 Annualized return NET since October 2000 is 9.6%.  S&P 500 is 5.1%, NASDAQ 4.9%.  (even with market since June 2002)

PIF3 Annualized return NET since February 2002 is 8.2%  S&P 500 is 6.8%, NASDAQ 9.1%

PIF4 Annualized return NET since October 2003 is 5.0%  S&P 500 is 8.1%, NASDAQ 10.5%.

 

For informational purposes.  I am not trying to pick on the guy. 

 

 

 

[Vish_ram]

Tim

 

your post doesn't cover the full picture.

 

Date NAV PIF2 total returns (Life to Q1-2020) "Total S&P 500 returns

(life to Q1-2020)"

1 10/1/2000 $10.00 503% 176.12%

2 6/30/2001 $11.74 413% 215.69%

3 6/30/2002 $15.89 279% 314.72%

4 6/30/2003 $21.32 183% 270.87%

5 6/30/2004 $29.58 104% 227.52%

6 6/30/2005 $36.52 65% 191.32%

7 6/30/2006 $41.99 43% 177.53%

8 6/30/2007 $56.25 7% 125.96%

9 6/30/2008 $38.01 59% 167.90%

10 6/30/2009 $28.45 112% 249.37%

11 6/30/2010 $40.84 48% 196.60%

12 6/30/2011 $55.46 9% 137.22%

13 6/30/2012 $43.36 39% 126.43%

14 6/30/2013 $61.68 -2% 80.70%

15 6/30/2014 $78.13 -23% 49.85%

16 6/30/2015 $74.64 -19% 38.45%

17 6/30/2016 $52.26 15% 32.06%

18 6/30/2017 $86.17 -30% 13.33%

19 6/30/2018 $106.77 -44% -2.28%

20 6/30/2019 $86.30 -30% -10.63%

21 9/30/2019 $82.56 -27% -10.51%

22 12/31/2019 $90.81 -34% -19.09%

23 3/31/2020 $60.25 0%

 

 

When you look at the results from the investor's point of view, any investor after June 2002 has massively underperformed S&P 500. Dont even mention Nasdaq, the underperformance will be much worse.

 

In the early days of dot-com aftermath, he was lucky to get some good returns in the first two years. When performance is shown, it shows the $1 of returns that was in the fund from day 1.

 

He hasn't made even $1 of returns for any clients who joined june 2013 and later. I know this is value investing and there are swings, but boy oh boy, Good luck waiting to breakeven. Dont even think of beating S&P 500.

 

Here is my free advice. Please email Pabrai at mp@pabraifunds.com

 

1) you've assembled the greatest collection of financially illiterate dumb HNW investors. Please own good quality companies and earn some returns for those poor folks. Just put your money in APPL GOOG CRM JNJ ABT MCD and few others.

2) Don't invest in pump and dump Indian schemes (look at Rain industries, Suntech etc) where stock goes up 400% and drops 80%

3) Forget value investing crap, it doesn't suit you. 99.999% of value investors underperform market indices. For every Buffett, Klarman there are billion value investors who lose money

4) you are doing a great disservice to your clients. Dont cherry pick FCAU and portray a rosy picture. Buffett would never do that.

5) Most indian companies are fraud. they own 3 books, one for owners, one for public investors and one for tax purposes

 

PIF2 is the best performing fund of all 3. I dont want to compute these for others.

[stahleyp]

His license plate says compounding by 26%. Again people underperform but acting like you're getting 26% is simply unethical. Perhaps he should get a license plate that says COMLB 26*.40 or something like that. There are things I like about the guy but this is highly misleading.

 

He had those types of returns for a few years (perhaps luck) but still markets himself as if he does. I don't like that.

[Vish_ram]

To compensate for lack of perf, you've to constantly engage in salesmanship & marketing.

 

that harvard degree thing, license plate, pictures with munger, million talks in various forums, puff pieces in forbes, lunch with buffett etc etc

 

I guess you can fool some all the time.

 

Contrast this with Mecham, the dude underperformed S&P for 3 years and just quit the biz. what an ethical and morally upstanding person!!!!

 

I just feel sad. It is not too late to pivot. Someone needs to do an intervention.

[jeffsreng]

There's nothing wrong with shooting for billionaire amount at 26% a yr in 30 yrs.  He will donate 99% back to society anyways.  I've learn a lot from him.  I'm rooting for him. Once a business investor will always be a business investor.  I think he will make his goals.

 

You have to think long-term and learn to be patient.

[stahleyp]

There's nothing wrong with shooting for billionaire amount at 26% a yr in 30 yrs.  He will donate 99% back to society anyways.  I've learn a lot from him.  I'm rooting for him. Once a business investor will always be a business investor.  I think he will make his goals.

 

You have to think long-term and learn to be patient.

 

I agree. There is nothing wrong with that as a goal. There is a lot of things that I like about Pabrai but this isn't one of them (though no one's perfect). There is no real reason to think that's 26% is realistic. If you haven't hit it with $500 million and a huge bull market over the past 11 years, I don't think it's going to happen during a tough market stretch and more assets under management. I could be wrong but it seems unlikely.

 

Personally, I just feel like I was mislead by his messages. I'm sure many others have been too.

[LC]

jeffsreng, is 18 years not long-term enough? a quarter of a lifetime?

 

I agree with Paul's final statement. I was lucky in that the only thing I got burned on was Horsehead and it was a tiny loss.

[jeffsreng]

Investing is a lifetime game. You should always do your own research. It’s your mistake to clone him. 

[stahleyp]

If it's a lifetime game, then managers should only be paid when they retire. I like Pabrai's pay scheme better than the vast majority of hedge fund managers. With that said, you can't be like "it's a lifetime game...pay me for sucking for now. If I don't stop sucking I still get paid! You don't know the end result until...my retirement. Good luck!"

[jeffsreng]

It's easy.  Just invest your own money.  Why give it to someone else if you think you're smarter.

I don't see anyone talking shit have their own fund with fund's letters so others can criticize.

Step up to the plate if you think you're smart.

[stahleyp]

It's easy.  Just invest your own money.  Why give it to someone else if you think you're smarter.

I don't see anyone talking shit have their own fund with fund's letters so others can criticize.

Step up to the plate if you think you're smart.

 

The thing is I'm not stepping up to the plate. I don't claim that I compound by 26%. Since having kid a large pot of my money is indexed. I don't write articles for Forbes or go speak to business students. If you're gong to play that game, you should be able to back it up - and not mislead people.

 

I don't think I'm that smart. What's your point?

[jeffsreng]

All talk and no action.