Mohnish Pabrai blog

[randomep]

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.

 

He is a master at milking publicity.  People can report this returns when things are rosy, but when it is bad, he threatens to sue every Joe who tries to disseminate his letters, using some BS regulation about hedge fund secrecy as excuse.  If you are going to publicize yourself publicly like a snake salesman, then the world will shine the microscope on you, that's the downside of free speech.

 

[randomep]

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.

 

The one thing that sticks out to me is: from jun 07 to now, his returns are basically zero, nada, while the SP500 TR has doubled...... smh.......

[AzCactus]

The one other thing I would say is that the vast majority of investors break down their returns over 1,3, 5,10 and since inception time horizons.  While I find Mohnish entertaining, he does not do that. 

[nikhil25]

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

 

Pabrai is the biggest advocate for "Shameless cloning" so, this piece goes against what he preaches.

 

Also, for the record, I'm not hating on Pabrai. I have a lot of respect for his philanthropic efforts and his marketing skills.

[Vish_ram]

Pif4 vs QQQ

 

just speechless;

 

$74MM fees paid to GP for such under-performance across the board.

[Jurgis]

Pif4 vs QQQ

 

To be fair almost anything (over 90%? over 95%? of active managers) vs QQQ is a loser.

[stahleyp]

Pif4 vs QQQ

 

To be fair almost anything (over 90%? over 95%? of active managers) vs QQQ is a loser.

 

I agree with Jurgis. If something like 80%-90% of active managers don't beat SPY...I can only imagine that maybe like 1-8% have beaten QQQ after fees.

 

With that said, he's the one that prompts the QQQ comparison.

[coc]

Pif4 vs QQQ

 

To be fair almost anything (over 90%? over 95%? of active managers) vs QQQ is a loser.

 

I agree with Jurgis. If something like 80%-90% of active managers don't beat SPY...I can only imagine that maybe like 1-8% have beaten QQQ after fees.

 

With that said, he's the one that prompts the QQQ comparison.

 

Yes not to mention the return on QQQ is only 11%/yr, not some impenetrable bogey for a person with 26% CAGR as his license plate.

 

One way to look at this is that he’s currently at a low point.  But even if PIF4 is up 75% in the year following Q1 2020, the return since inception will be 7.5% p.a. over an almost 19 year span.

[rijk]

seems like something is not right when you can make 74 million by under performing the s&p 500 by nearly 40% per year (5% vs 8.1%) for nearly two decades while there is a 6% hurdle rate with high watermark.........

[stahleyp]

seems like something is not right when you can make 74 million by under performing the s&p 500 by nearly 40% per year (5% vs 8.1%) for nearly two decades while there is a 6% hurdle rate with high watermark.........

 

That's the beauty of capitalism! And great marketing/salesmanship. :P

[nspo]

I like the guy for the fact he takes time to educate others, including myself. However, he needs to reevaluate. I see it all the time, especially with pro fighters. Guys/girls get too self-promotional, focus on giving interviews/pleasing the media and end up neglecting basic training. It's unfortunate that he's having a tough go and hope both him and everyone invested in his fund see a turnaround.

[LC]

I like the guy for the fact he takes time to educate others, including myself. However, he needs to reevaluate. I see it all the time, especially with pro fighters. Guys/girls get too self-promotional, focus on giving interviews/pleasing the media and end up neglecting basic training. It's unfortunate that he's having a tough go and hope both him and everyone invested in his fund see a turnaround.

 

So Mohnish is the Ronda Rousey of asset management  ;D

[nspo]

haha Lc, I didn't want to be the one to say it!  :D

[buffetteer1984]

Interesting that Francis Chou bought the insurance company from Mohnish.  Good listen all in all

 

[randomep]

 

That's the beauty of capitalism! And great marketing/salesmanship. :P

 

What you are saying is that a person without much investing talent can convince the world that he is one of the world's greats. So it works great for him but at the expense of his investors.  His investors agree to his fees in the hopes that it is a mutually beneficial partnership, it just didn't turn out that way.

 

Myself being a little guy without his talents for marketing I cannot replicate his self-promotional success, but I can learn from the mistakes of his investors.  And  I would think that most are on this site in part to learn.  We want to learn to be above average investors.  Imagine I have N rules for being an above average investor, one of them is definitely:

 

Do not confuse good manners, good tailoring, and above all, an impressive bearing and speech with integrity and intelligence.

 

The people who forked over $74 M or whatever learned this lesson the hard way.  My advice to myself and whoever is reading this: don't be that guy!  Do try to get inspiration from his writings on Japanese net-nets and Horsehead and potash mining.

 

[tng]

The way someone underperforms matters too. I think a lot more people are willing to accept Berkshire's underperformance, which is due to holding too much cash, rather than someone swinging for the fences and striking out time after time. Buffett's Apple investment is one of the greatest wins in his career, so if Buffett were forced to run a 100% long fund, it would have done well.

 

Munger talks about young people who want to get rich quick instead of get rich slowly in a boring way. Maybe Pabrai should have cloned Buffett (he always says to clone people smarter than you) and put money into Apple, because a $35 billion investment from Buffett is a serious move that is probably worthy of being cloned. Apple won't get you 26% annualized in the long run though. It's getting rich "slowly" in the largest cap stock on the world. Unfortunately, you can't differentiate yourself and prove you are smarter than everybody else by investing in the stock that everybody else invests in.

[mattee2264]

Agree with you. While unobservable it is risk adjusted returns that matter and Pabrai and Mecham have under performed in recent years while taking on a lot of risk. Quality seemed to be the missing element in a lot of their picks. You can get away with that in a bull market but in a bear market it can hurt you.

[Cevian]

Not specifically toward Pabrai but more generally for all investment managers:

 

When I usually take a quick glance at any multi-year performance records, say 5-15+ years, my first instinctual response when comparing the annual performance (and volatility) compared to the S&P500 is that it almost always looks horrible.

 

However, whenever I look at the bottom "Annualised" or "Cumulative" performance it looks like they've skilfully beat the index. Is this a mathematical smoke and mirror which doesn't really take into account AUM? For example, if I started managing money and had $10,000 first year which I turned into $20,000, that 100% return would always be in my recurring tally even if, in year 10 say, I was managing $10mil. and had lost 10% ($1mil). I wish there was a way to force investment managers to show the $ returns.

 

But I'd also add that if there had been no real performance, then how can an investment manager with a high-watermark performance fee with no management fee, have made money personally. Surely they must have performed?

[Vish_ram]

Listened to the interview; just amazed that once he bought the insurance co , he wanted to exit out of it the next day. Where is the DD?

 

Also looks like Dhandho junoon etf funds were all shutdown. With pif going poof, has anyone made $ with him in the last 7 years?

 

There are lots of lessons to learn for all parties involved

 

1) For the money manager: Just because you think you are practicing value investing, it doesn’t mean you wont lose your shirt. Probably more $ has been lost in the name of value investing than any other strategies. value traps abound. In words of Munger, the assets are questionable and liabilities are solid. A 4-5 bagger mixed with dozen 90% losses is just terrible. Again to quote Munger, tasty raisins mixed with a giant turd is just a turd.

 

2) For learners & watchers: Just because a person quotes Buffett verbatim and quotes Buffett’s past successes, doesn’t mean the person quoting them has superior investing prowess. A historian covering war time Presidents doesn’t become a great General. The more promotional they are, less is their integrity and investing acumen. A horse that can count to 10 is a remarkable horse, but not a remarkable mathematician.

 

The classic example was Tilson. Don’t put any Mofos on a pedestal. In the Very Very long run all famous investors underperform the major market indices.

 

3) For investors: Past results doesn’t guarantee future results. The returns made by a manager managing 250K is vastly different from managing 250MM. Unfortunately the way returns are shown, the $1 of compounding from day 1 is highlighted, not the returns of each period.

 

The oft repeated quote about “our long term track record is intact” is only showing the returns when the person was managing less than a million. This is like the scores of the professional baseball player only displays the averages when he/she played minor league. Watch out if anyone talks about 2X, 3X , 4X etc. Look out for dozen turds (HNR, Horsehead, compucredit,....) for every 2X that makes average look poor.

 

4) Also this stupidest concept of cloning. Any great investors (including Buffett, Klarman..) have 7 successes and 3 failures. What if you clone two of these investors and manage to clone their failures?

 

The moment you clone, you psychologically outsource the DD to that investor. You are willing to discount the company’s shortcomings much more. On face value, it looks great. A lazy way to invest, but mostly bites you in the rear eventually.

 

Have you seen the movie Multiplicity? The perils of cloning, you end up cloning the retard Steve.

[Artha158]

+1

[ASTA]

let's hope he learns from his mistakes :D in know from his last communication he talks about picking winners(AXP 2008-2009) ;D let's hope that's true in 3 years

[Munger_Disciple]

 

But I'd also add that if there had been no real performance, then how can an investment manager with a high-watermark performance fee with no management fee, have made money personally. Surely they must have performed?

 

If a fund has very high volatility, GP can earn high fees for sub-par performance.

 

Example:

Let us say GP raised $500M to start a fund. Let us assume no management fees and 6% preferred return to LP, split of profits (calculated yearly): 75% to LP, 25% to GP. Fund posts +100% gross return in its first year and -50% gross return in its second year. Cumulative gross return for the fund over 2 years = 0%. The GP earns a very nice pay check ($117.5M incentive comp in year 1) while LP return over 2 years =-11.75% cumulative.

[Vish_ram]

Good example.

 

Also as older disillusioned investors quit, for the scheme to continue you need new investors. The new investors have water mark set at their cost. So any accidental returns for the short time period gives the GP some money. Hence the pressure to be optimistic, constant media presence, puff pieces etc.The cycle can continue ad infinitum.

The other ways to keep old horde from bolting is to talk about new super secret 3 bagger investments, irrationality of Mr. Market (high IV of current investments compared to market quoted prices), terrible actions of the Fed, how value investing always come back with a vengeance etc.

 

You periodically announce re-opening of the exclusive fund.

 

This reminds me of a comedic piece in my local language movie. There was this ace marketing guy who put posters all over the small town. It says “How to make $1,000,000 in one day?” It was an exclusive offer and entry price was $1000. Only 1000 people were selected for this offer. It was oversubscribed. The excited small town folks attended it. The pitch basically was that each person can go to a different town and make the same pitch and make $1MM.

 

Eventually you run out of towns to give this pitch.

 

You make enough and then diversify into other ventures.

[Cevian]

 

But I'd also add that if there had been no real performance, then how can an investment manager with a high-watermark performance fee with no management fee, have made money personally. Surely they must have performed?

 

If a fund has very high volatility, GP can earn high fees for sub-par performance.

 

Example:

Let us say GP raised $500M to start a fund. Let us assume no management fees and 6% preferred return to LP, split of profits (calculated yearly): 75% to LP, 25% to GP. Fund posts +100% gross return in its first year and -50% gross return in its second year. Cumulative gross return for the fund over 2 years = 0%. The GP earns a very nice pay check ($117.5M incentive comp in year 1) while LP return over 2 years =-11.75% cumulative.

 

Thanks. Very good point. I hadn't taken into account the "new money" coming in at different entry points. Good example.

[Nomad]

 

There are lots of lessons to learn for all parties involved

 

1) For the money manager: Just because you think you are practicing value investing, it doesn’t mean you wont lose your shirt. Probably more $ has been lost in the name of value investing than any other strategies. value traps abound. In words of Munger, the assets are questionable and liabilities are solid. A 4-5 bagger mixed with dozen 90% losses is just terrible. Again to quote Munger, tasty raisins mixed with a giant turd is just a turd.

 

2) For learners & watchers: Just because a person quotes Buffett verbatim and quotes Buffett’s past successes, doesn’t mean the person quoting them has superior investing prowess. A historian covering war time Presidents doesn’t become a great General. The more promotional they are, less is their integrity and investing acumen. A horse that can count to 10 is a remarkable horse, but not a remarkable mathematician.

 

The classic example was Tilson. Don’t put any Mofos on a pedestal. In the Very Very long run all famous investors underperform the major market indices.

 

3) For investors: Past results doesn’t guarantee future results. The returns made by a manager managing 250K is vastly different from managing 250MM. Unfortunately the way returns are shown, the $1 of compounding from day 1 is highlighted, not the returns of each period.

 

The oft repeated quote about “our long term track record is intact” is only showing the returns when the person was managing less than a million. This is like the scores of the professional baseball player only displays the averages when he/she played minor league. Watch out if anyone talks about 2X, 3X , 4X etc. Look out for dozen turds (HNR, Horsehead, compucredit,....) for every 2X that makes average look poor.

 

4) Also this stupidest concept of cloning. Any great investors (including Buffett, Klarman..) have 7 successes and 3 failures. What if you clone two of these investors and manage to clone their failures?

 

The moment you clone, you psychologically outsource the DD to that investor. You are willing to discount the company’s shortcomings much more. On face value, it looks great. A lazy way to invest, but mostly bites you in the rear eventually.

 

Have you seen the movie Multiplicity? The perils of cloning, you end up cloning the retard Steve.

 

This is a truly excellent post - I wish I had been able read this at the start of my investing career. I would have lost far less money. As it stands, I had to learn many of these lessons myself.

 

Do your own work - never outsource your thinking to somebody else. At least if you're wrong, you can do a post-mortem. If you outsource your thinking, you maintain the deceptive psychological comfort of saying, "Oh, well [Legendary Investors] were wrong too, so it's OK." But it's not OK - you lost money, and it was your fault.