New Graham & Doddsville Issue: Pabrai, Moroz, Carr, Peterson & More

Columbia Business School is out with the Fall 2019 issue of its Graham & Doddsville newsletter.  It features interviews with Mohnish Pabrai (Pabrai Investment Funds), Paul Moroz (Mawer Investment Management), Ellen Carr (Weaver C. Barksdale), and Matthew Peterson (Peterson Capital).

These managers talk about names such as Wolters Kluwer, Alphabet (GOOG), Constellation Software (CSU.TO), GrafTech (EAF), DailyJournal (DJCO), and more.

The issue also features student investment pitches from the Pershing Square Challenge, including long Aramark (ARMK), long ServiceMaster (SERV), long US Foods (USFD).


Embedded below is the Fall 2019 issue of Graham & Doddsville:



You can download a .pdf copy here.

Mohnish Pabrai's Recommended Reading List

Investor Mohnish Pabrai recently recommended a few books at his talk at Google which we just highlighted.


Mohnish Pabrai's Recommended Reading List

  Am I Being Too Subtle? by Sam Zell.  Pabrai said it was great and personally preferred to listen to the audiobook.


  Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe. The other biography on Charlie Munger that Pabrai said included interesting tidbits not seen before.


  The Beak of the Finch: A Story of Evolution in Our Time by Jonathan Weiner.  Mohnish said he was fascinated by it.  "Unrelated to investing but a great read."


And in the past, Pabrai has also frequently recommended books such as:

  Poor Charlie's Almanack by Charlie Munger.  The classic text that any follower of his should read.


  The Essays of Warren Buffett by Warren Buffett.  Another classic.


And while he didn't recommend his own book, it's worth noting Pabrai has authored The Dhando Investor: The Low-Risk Value Method to High Returns.


For more book recommendations from top investors check out the right sidebar of Market Folly as we've posted many lists.

Mohnish Pabrai's Talk at Google on Entrenched Biases

Fund manager Mohnish Pabrai recently gave a talk at Google on how intensive stock research can be injurious to financial health. 

The video's description is "how the plethora of deeply entrenched biases and flawed evolutionary brain wiring makes us prone to make plenty of mistakes when picking stocks.  Specifically, the more time we spend analyzing a given business, the more likely we are to like it and invest in it. 

But if we don't spend time studying a business, how are we expected to understand its prospects and likely future?  This strong commitment bias is an important reason why most investment managers have trouble beating the index. 

Mohnish will lay out the origins of this bias problem and a few hacks to get around it."

Embedded below is the video of Mohnish Pabrai's latest talk at Google:



For more from this investor, we've posted Pabrai's talk on value investing as well.

For other investor talks at Google, we've posted many of those presentations and you can scroll through that link.

Mohnish Pabrai's Presentation at Boston College on Value Investing

Value investor Mohnish Pabrai of Pabrai Investment Funds recently spoke at Boston College on the topic of value investing.  He visited Professor Arvind Navaratnam's class on Applied Fundamental Analysis & Behavioral Value Investing.

In it, he addresses valuing businesses, talks about a bank in India, answers questions and more.

Embedded below is the video of Mohnish Pabrai's presentation:



For more from this investor, head to our post on Mohnish Pabrai on checklist investing: learning from mistakes.

Mohnish Pabrai on Checklist Investing: Learning From Mistakes

Value investor Mohnish Pabrai sat down for an interview with The Motley Fool to talk about his approach and how he uses checklists in his investment process.


Checklist Investing & Learning From Mistakes


Pabrai had an epiphany after learning from concepts discussed in Atul Gawande's book The Checklist Manifesto.  Essentially, he tries to learn from his mistakes by figuring out what went wrong with certain investments and how he could have prevented losses/a specific outcome.

But he also looked at some of the best investors in the world and incorporated their mistakes as well (looking at Warren Buffett, Charlie Munger, LongLeaf Partners, Third Avenue, etc).


Pabrai's Investment Checklist

Pabrai says that, "And what was stunning to me is that in almost all cases where I could figure out the reason for the loss, it was very apparent before the investment was made, number one. And the second is the reason was very basic. It wasn't some esoteric reason that you had to do some higher math to the fifth decimal to figure out this wasn't going to work. It was very basic."

While Pabrai has never revealed his checklist, he notes that there's about 98 questions on it that examines before making an investment.  He does drop a few hints as to what he looks for though:

"So for example, we have a set of questions which relate to leverage. Debt covenants, how levered and all kinds of different issues related to leverage, because that has caused a lot of investments to go south.  We have another set which relates to moats, the lack thereof, right? And so all kinds of things. There's another set of questions which relate to things like unions and labor relations. There's another whole set of questions on management and ownership. Just all kinds of nuances of whether they own stock, do they act like owners and all those sorts of things that come up. And then there are a few miscellaneous ones."

Since applying the checklist, Pabrai feels that his investment error rate has dropped significantly.  Embedded below is the video of Pabrai's interview on checklist investing:




For more from this value investor, be sure to also check out what Pabrai learned from lunch with Charlie Munger and Warren Buffett.

Charlie Munger & Warren Buffett's Secrets To Investing Success

Value investor Mohnish Pabrai recently sat down for an interview with The Motley Fool and he talked about what he learned from his lunches with Charlie Munger and Warren Buffett.


Charlie Munger's 3 Secrets To Investment Success

Pabrai talked about how Munger revealed 3 things investors can do to be successful:

1. Carefully watch what other investors are doing
2.  "Look at the cannibals" - look at businesses buying back huge amounts of stock
3. Carefully study spin-offs

Point number one is quite interesting as Munger flat out tells you to watch other investors (i.e. 13Fs, 13G's, public appearances, etc), something Market Folly's expanded on in our premium newsletter.  Rather than blindly copying their picks, we'd assume Munger means to use this as a source of idea generation and a starting place to do more work.

The second point (stock buyback) is something that numerous hedge funds take into consideration when evaluating ideas.  Steve Mandel of Lone Pine Capital is said to be a fan of 'share count shrinkers'. 

Lastly, the third point (spin-offs) is an excellent place to source ideas and Joel Greenblatt talks about spin-offs in his book.  In fact, many hedge funds buy companies that announce a spin-off and then once the split is complete, hold onto one piece of the company that they like most. 

An example that many hedge funds played was Expedia (EXPE) spinning off TripAdvisor (TRIP).  We'd assume Charlie also meant 'split-ups' and a recent example of that would be Tyco splitting up into PentAir (PNR), Tyco (TYC), and ADT (ADT).  


Warren Buffett's Words of Wisdom

Pabrai relayed a story Warren Buffett told him about his former partner Rick Guerin, who fell off the map so to speak.  Buffett, Guerin, and Munger used to all invest together but Guerin was in a hurry to get wealthy whereas Munger and Buffett weren't.  Buffett's outlined two lessons:

1. Avoid leverage
2. Be patient

Guerin was levered with margin loans in the 1973/74 downturn and received tons of margin calls, so he was forced to sell his Berkshire Hathaway (to Buffett).

So Pabrai described the lesson from Buffett as, "if you're even a slightly above-average investor who spends less than they earn, over a lifetime you cannot help but get rich if you are patient.  And so the lesson was, don't use leverage, right?  And be patient.  These are attributes he's talked about plenty, but I would say that it got seared in pretty solidly after hearing the format in which he put it."



Embedded below is the video of Pabrai sharing what he learned:



For more from these great investors, head to Warren Buffett's recommended reading list as well as Charlie Munger on the psychology of human misjudgment.

Notes From Mohnish Pabrai's Annual Meeting

A reader sent in notes from Mohnish Pabrai's annual meeting that recently took place.  He runs Pabrai Investment Funds and tries to emulate Warren Buffett with his value approach.

Pabrai currently has around $540 million under management and detailed a post mortem on some of his past holdings, revealing his mistakes were: 1) permanent loss of capital, 2) mistakes of omission and 3) selling something to buy something else and the exited business does better.  Pabrai has seen 13.3% annualized returns since inception.


Question & Answer Session

Q: You don't use explicit leverage but you have lots of leveraged investments in the portfolio?

A: Munger says 4 stocks is diversified.  If you owned the best apartment building in town, the highest quality business, Ford dealership, and other, you will do pretty well.  Bet in financials is around 25% of fund.  Munger says you can't invest in financial services companies without understanding ethos of management.


Q: Sectors to avoid?

A: Avoid what you can't understand and he doesn't like industries with rapid change (like technology or biotech).


Q: Life's 3 most important decisions?

A: Person he married, father started and bk'ed 15 companies in 15 industries.  Father identified gap but then he was eternal optimist.  Mohnish went from engineering to marketing.  Then his father pushed him out to start an information company.  Read Buffett by Lowenstein in 1994 and a light went on.  Leverage time using investing in businesses and let other guys run the business.


Q: Other idea generation tools besides 13F filings?

A: Cloning is a powerful concept.  Reverse engineer trades.  Third Avenue, Long Leaf Partners, Leucadia, Fairfax, Manual of Ideas are all places to look.


Q: Number of portfolio positions expanded after 2008 and now back to concentrated, why?

A: His natural tendency is to be concentrated.  He was shell shocked and there were a ton of big ideas available back then.  Good ideas are now scarce so better off making a good sized bet rather than 1% or 2% positions.  He holds cash now - any money put to work in late 2008 could have been a 4x.


Q: If things are cheap, why hold so much cash?

A: Not a flood of great ideas.  If he finds more he'll put it to work.  He's looking for 4x or 5x return to get interested with muted risk.


Q: QE3 how does it change what you do?

A: Bernanke doesn't need to announce QE4... it is 500 billion per year.  Not a macro guy but fairly in favor of what Bernanke has done.  Fed good at breaking ability but better than fixing things.  Don't see inflation currently but do see signs of significant unemployment.


Q: Do you model businesses, such as discounted cashflow?

A: Entrepreneurs don't use spreadsheets.  3 or 4 factors are important to each business: just focus on those factors.  Spreadsheets give you an imprecise guess of precision.



For more on this investor, we've posted up Pabrai's thoughts on investment checklists as well as his take on how you can invest like Warren Buffett.

Mohnish Pabrai Sells Pinnacle Airlines (PNCL) Shares

Value investor Mohnish Pabrai just filed a Form 4 with the SEC regarding shares of Pinnacle Airlines (PNCL). Per the filing, Pabrai has just sold 158,464 shares on April 3rd at a price of $0.70.

After the transaction, Pabrai Investment Fund II LP now owns 777,868 shares of PNCL. At the end of 2011, all of Pabrai's entities filed owning a collective 1,985,902 shares.

Shares of Pinnacle Airlines have plunged from $5.50 in 2011 down to where they currently trade at around $0.31. The company recently filed for bankruptcy protection to help tackle its debt and costs.

We've highlighted Pabrai's activity since it's a rare glimpse at his movements. As of the end of 2011, PNCL was his smallest US equity long allocation. His largest stakes were in Wells Fargo (WFC), Berkshire Hathaway (BRK.B), Potash (POT), and Terex (TEX).

For more on this investor, head to Pabrai on his checklist on how to approach an investment.

Per Google Finance, Pinnacle Airlines "an airline holding company based in Memphis, Tennessee. It is a parent company of three wholly owned subsidiaries: Pinnacle Airlines, Inc., Colgan Air, Inc. and Mesaba Airlines. The company's operating platforms include Regional Jet Operations and Turboprop Operations."

Notes From the Value Investing Congress: Einhorn, Bass & Pabrai (Day 2)

Today is the second day of our coverage of the Value Investing Congress including presentations from Kyle Bass (Hayman Capital), David Einhorn (Greenlight Capital), and Mohnish Pabrai (Pabrai Investment Funds). Their latest ideas are outlined below and be sure to check back frequently as we will be updating this post throughout the day.

We've already posted a wealth of information from the event, including:

- Presentations from John Burbank, Lee Ainslie, & Francisco Parames
- Further notes from day 1 of the Congress
- Bill Ackman's Q&A session

Let's now dive right into day two's presentations from the Value Investing Congress:

David Einhorn ~ Greenlight Capital

Three years ago, Einhorn pitched a short of Lehman Brothers at the Value Investing Congress. We all know how that turned out. This year, he doled out his latest short sale: a 139-slide presentation against the St. Joe Company (JOE). In essence, Einhorn believes Joe's whole portfolio of land is incredibly overvalued. He joked that he'd be wrong if JOE discovers oil on its land. After news got out of Einhorn's short, shares of St. Joe plunged more than 9%.

He highlights that the company should have impairments from their riverfront properties but that they have taken none. JOE is counting untouched land as 'developed'. He believes St. Joes's rural land is worth somewhere around $900 million, or between $7-10 per share (JOE shares are currently trading in the low $20's). Einhorn argues that if the company continues current practices, it will eventually be worth $0 in 10-15 years.

In his presentation, the Greenlight Capital fund manager went through specific properties of JOE. He highlighted Windmark Phase II which JOE carries as $165 million on their 10K while Einhorn argues its only worth $18 million or so. He also believes an impairment should be taken on their Rivertown property that is selling lots below cost. Overall, he takes issue with the fact that St. Joe only writes down an investment when they exit it.

Market Folly readers will recall that Bruce Berkowitz (Fairholme Fund) is on the other side of this trade, long the stock. And 'long' is an understatement; he owns almost 29% of JOE. In the question and answer session, Einhorn mentioned that he reached out to Berkowitz but is awaiting his response. Berkowitz started buying JOE in late 2007 and purchased additional shares in February 2009. This is the beauty of markets and the dichotomy of opinion. For a counter-argument, we've also posted up the bullish case for St. Joe from Broyhill's Affinity hedge fund.

Lastly, in Einhorn's Q&A session, he said he is excited about Vodafone (VOD) and that the market is still not giving the company credit for their stake in Verizon Wireless. We've previously covered Einhorn's Vodafone thesis here.


Kyle Bass ~ Hayman Capital

Bass' presentation, 'Does Debt Matter?' is by far the gloomiest of all the speakers thus far. He immediately cites the high levels of US credit market debt and not only the staggering amount of unemployment, but the fact that we are seeing permanent job loss. Bass notes that there's now $200 trillion in total credit debt throughout the world and this amount has tripled over the past 8 years.

He is very concerned about Ireland and says they're very likely to default. Bass is also 100% certain that Japan will default. It's not a matter of 'if', but 'when.' In fact, we've covered how Bass is betting against Japanese Government Bonds (JGBs). Bass mentioned that he is using out of the money interest rate call options to play the potential (or in his mind, inevitable) Japanese default. Should he be correct, he will make 50x to 100x his original investment.

Additionally, Bass says Greece and Iceland are the two other countries in peril here. Greece's default is inevitable and people's reaction will be to buy US dollars. Lastly, the Hayman Capital manager shifted his focus to Australia where he believes the country is due for a housing crisis.


Mohnish Pabrai ~ Pabrai Investment Fund

Pabrai's presentation centered on his 'checklist,' a system of questions/guidelines on how to approach an investment. Pabrai's presentation at the Value Investing Congress West back in May also focused on his checklist. Pabrai will tell you about the checklist, why he created it, and how you can create your own. However, he seemingly does not tell you what is on his checklist as he must regard it as proprietary.

He says the best way to craft an investment checklist is to look at crashes and hone in on others mistakes. By learning from them, you can ensure you don't make the same ones. His checklist is an ongoing process and he's had around 97 questions on the list broken down into categories such as management, ownership, moat, and leverage. While no company can give him the green light by successfully answering all 97 questions, it helps him decide how he should allocate position sizes. This has led to a change in his portfolio allocations. He was previously more concentrated and now is more diversified. A 2% position is a basket trade, a 5% bet is baseline, and a 10% position would be considered a 'home run.'

In his presentation this time around, Pabrai addressed the mistakes that famous value investors have made in order to learn from them. Currently, he is seeing opportunity in Japan and he's building a basket of high quality Japanese stocks. It's interesting to see Bass pound the table on Japan's demise one minute, and the next to see Pabrai recommending the country. Lastly, Pabrai echoed the sentiment from yesterday's presenter Zeke Ashton as he also likes Fairfax Financial (FRFHF). For more from this value investor and Warren Buffett emulator, we've highlighted notes from Pabrai's annual meeting as well.


Michael Kao ~ Akanthos Capital Management

Kao invests across the capital structure including equity and debt. While he usually takes around 40 positions, his top ten positions typically comprise up to 50% of his portfolio. Giving a case study, Kao in particular liked GM convertible bonds. He mentioned he was long the convertible bond and short the stock. Overall, he thinks we're close to a bottom in vehicle sales.

Speaking on GM, Kao highlights their 13% market share in China and consolidation of car brands. The current iteration of the trade would be long GM convertible bonds and then short Ford (F). We've detailed in the past how Jim Chanos is short Ford as well, although his does not seem to be a pair trade. The Akanthos manager thinks GM debt has around 50% upside. He says that GM convertible debt is trading at 2x EBITDA while F is over 4x EBITDA.


That wraps up this set of presentations. To see what top hedge funds are buying and selling on a daily basis, receive our free updates via email or our free updates via RSS reader.

Notes From Mohnish Pabrai's Annual Meeting

Mohnish Pabrai of Pabrai Investment Funds recently held his annual meeting and thanks to Alex Bossert we're able to get a peek as to his latest thoughts. Pabrai is a value investor and our quote of the week featured his thoughts on emulating Warren Buffett, something he strives to do. Here are some selected excerpts from the question and answer session of the annual meeting:

"What are your views on position sizing?

His allocation policy changed in 2008 to reflect slightly elevated investment risks of his investment baskets and prior mistakes. If he has 10% positions it’s very hard to recover from a mistake. He discussed his new allocation framework with Charlie Munger who disagreed at first. After Mohnish explained it further, Charlie agreed that Berkshire Hathaway has achieved success with a more diversified portfolio. Mohnish talked about basket bets. When the risk is slightly elevated he will buy a basket of companies with small weightings. For example, he said he is currently researching companies in Japan. If he ends up buying companies there, he will buy a basket of companies each with small weightings in the portfolio. He said stocks there are very cheap.

What attracts you to a business?

When he finds a company that looks interesting he starts by thinking as a skeptic. He looks for something that will prove him wrong. He looks for areas of extreme mispricing. It has to be very undervalued but he also has to be able to understand it. He thinks there may be value in Coke bottlers in Japan. The Nikkei has done nothing for 27 years.

Can you name some great companies that you’d love to own at the right price?

Ikea, In and Out Burger, Costco, the low cost mines owned by BHP and Rio Tinto. Great companies are all over the place across the world. There are great companies in India and China but and ownership issues exists over there. Pricing is also an issue. Ben Graham’s approach was to go to the store and buy what was on sale and Charlie Munger’s approach is to go to the store and wait for quality items to go on sale. He likes Charlie’s framework."


The fact that Pabrai changed his stance on position sizing is intriguing as there are essentially two different schools of thought on that front: build concentrated positions and monitor them closely, or diversify risk among smaller positions. Value investors are usually firmly planted in one camp or the other and the debate as to which one is 'right' wages on. In a sense, it's a matter of personal preference and investing style. Pabrai noticed an inefficiency with his position sizing strategy during the crisis and sought to correct it to reduce risk.

Of the companies he'd most like to buy (at the right price of course), it's intriguing that he'd be most interested in companies that are low cost providers in their industry and that could possibly be a function of the economic environment we're in. Those of you trying to get a better grasp on the amount of research he does on any given company will be interested to know that for his previous investment in Teck Cominco (TCK), he read the last 8 years worth of annual reports to understand the business as he spends a lot of time focusing on the balance sheet. Head to Alex Bossert's summary for the full meeting notes. And if you want to hear Pabrai's latest investment ideas, he'll be speaking at the Value Investing Congress (sign-up fast, only 17 seats remain).

Mohnish Pabrai on Investing Like Warren Buffett ~ Quote of the Week

Value investor Mohnish Pabrai has long emulated the ways of the legendary Warren Buffett. When he was asked about how Buffett found so much success and how to follow in his footsteps, Pabrai had this to say:

"In fact there are a couple of professors in Ohio, who studied any stock that Warren Buffett bought, if you bought on the last day of the month, when it was public that he owned that stock, and you sold it after it was public that he had started selling it, you would have generated north of 20% annual rate of return.

I would say that we will never see another Warren Buffett. Just like we will never see any Albert Einstein or another Mahatma Gandhi. Buffett is a very unique individual. His skillsets outside of investment are phenomenal but they get dwarfed by his investing skills. The main thing that makes Warren Buffett Warren Buffett is that he is a learning machine who has worked really hard for, let’s us say seventy years, and is continuously learning every day.

So the thing is if you want to be like Buffett, there is no short cut. First of all, you have to be deeply interested in investing and you have to be very willing spending tens of hours, hundreds of hours, reading the minutiae. There is a very famous value investor called Seth Klarman. He is into horse racing. And his famous horse is called Read the Footnotes."

~ Mohnish Pabrai

You can hear Mohnish and many hedge fund managers present their latest investment ideas at the Value Investing Congress on October 12th in New York City. There are only 23 seats left at the event and Market Folly readers can save $300 off admission here.

Last Chance For Substantial Discount to the Value Investing Congress

Just a reminder that this is your last chance to benefit from substantial savings for the Value Investing Congress. The event takes place on October 12th & 13th in New York City. Market Folly readers can save $1,700 with discount code N10MF6. Register in the next six days before the price increases by $400. Click here to receive the discount.

Also if you haven't heard, Bill Ackman of Pershing Square Capital Management has confirmed he will also be presenting investment ideas at the event. Here's the full list of hedge fund managers speaking:

- John Burbank (Passport Capital): Has returned 23.6% annualized. Predicted & profited from the subprime crisis.

- David Einhorn (Greenlight Capital): Has returned 22% annualized. Predicted the demise of Lehman Brothers & profited from it.

- Kyle Bass (Hayman Capital): Predicted both the subprime crisis as well as sovereign defaults.

- Bill Ackman (Pershing Square): Bought shares of General Growth Properties for around $0.40 and the stock now trades for more than $13 per share.

- Lee Ainslie (Maverick Capital): At the end of 2009, his hedge fund had returned 14.2% annualized since 1995.

Other speakers include Mohnish Pabrai, J. Carlo Cannell, Zeke Ashton, and Whitney Tilson.

Take advantage of the substantial discount while it lasts. The price increases in six days, so receive your discount to the Value Investing Congress.

Lee Ainslie, Kyle Bass, David Einhorn & John Burbank To Speak At The Value Investing Congress: Exclusive Discount

The upcoming Value Investing Congress has an absolutely fantastic group of speakers lined up. We're pleased to announce that both Maverick Capital's Lee Ainslie and Hayman Capital's Kyle Bass have committed to speak at the event. This joins an already heavy-hitting list of Greenlight Capital's David Einhorn, Passport Capital's John Burbank and more. We're also pleased to announce that as usual, Market Folly readers can receive over a 40% discount to the Value Investing Congress by clicking here with code: N10MF1. This discount expires on June 30th so act quickly!

The event takes place in New York City at the Marriott Marquis in Times Square on October 12th & 13th. The list of speakers at the Value Investing Congress is just packed with prominent names:

- David Einhorn (Greenlight Capital)
- Lee Ainslie (Maverick Capital)
- Kyle Bass (Hayman Capital)
- John Burbank (Passport Capital)
- Mohnish Pabrai (Pabrai Investment Fund)
- J. Carlo Cannell (Cannell Capital)
- Whitney Tilson & Glenn Tongue (T2 Partners)
- Amitabh Singhi (Surefin Investments)
- Zeke Ashton (Centaur Capital Partners)

... with many more to come. If you want actionable investment ideas from some of the most prominent managers out there, then this is the event to attend. The potential profits from one good idea would easily cover the cost of your admission. If you work for an investment firm/fund, get your employer to cover your registration because you don't want to miss this event. Not to mention, it's a fantastic opportunity to network given all the investment managers that will be in attendance. The over 40% discount to the event expires soon so take advantage of the code: N10MF1.

If you're unfamiliar with Lee Ainslie, we've covered him numerous times on the site. He is the managing partner of Maverick Capital, a long/short equity focused hedge fund that has returned 14.2% annualized from 1995 through 2009. He founded the firm in 1993 with $38 million and today manages over $9 billion.

Additionally, Hayman Capital's Kyle Bass will be speaking at the event. Bass of course is most well known for predicting the collapse of the subprime mortgage market. He was shorting those securities as early as 2006. Not to mention, we had also detailed his past notion that sovereign defaults were impending. As dominoes start to fall there, it appears as though he has been correct yet again.

Click here to receive your discount to the Value Investing Congress. Act quickly because the discount expires June 30th. The event takes place in NYC at the Marriott Marquis on October 12th & 13th.

Mohnish Pabrai's Investment Fund: Latest Portfolio (13F Filing Q1 2010)

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up in our series is Mohnish Pabrai and his Pabrai Investment Fund. He is a value investor in the true sense of the word and has followed in the footsteps of Warren Buffett in numerous ways. Firstly, his fund is structured similarly to Buffett's Partnerships where he charges no management fee and then no incentive fee until the fund gains at least 6%. Once Pabrai clears this hurdle, he charges a 25% incentive fee. Typical hedge funds charge a 2% management fee and a 20% performance incentive. Pabrai has in the past won an auction for lunch with Warren Buffett as well.

For 2009, Pabrai's funds performed well after having a poor 2008. Last year, his PIF2 finished up 122.5%, PIF3 up 125%, and PIF4 up 118.8% as noted in our hedge fund performance numbers post. Pabrai recently presented at the Value Investing Congress and you can read in-depth notes from the event here.

The positions listed below were their long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
International Coal Group (ICO)


Increased Positions
Fairfax Financial Holdings (FFH): Increased position by 0.34%
Terex (TEX): Increased by 0.02%


Reduced Positions
Teck Resources (TCK): Reduced position by 99.5%
Harvest Natural Resources (HNR): Reduced by 14.74%
Potash (POT): Reduced by 2.03%
Pinnacle Airlines (PNCL): Reduced by 0.25%
Air Transport Services Group (ATSG): Reduced by 0.24%
CapitalSource (CSE): Reduced by 0.18%
Berkshire Hathaway (BRK.B): Reduced by 0.02%


Positions They Sold Out of Completely
n/a


Pabrai's Portfolio (by percentage of assets reported on 13F filing)

1. Potash (POT): 11.89%
2. Brookfield Properties (BPO): 10.89%
3. Harvest Natural Resources (HNR): 10.80%
4. Fairfax Financial (FRFHF): 9.28%
5. Berkshire Hathaway (BRK.B): 7.81%
6. Cresud (CRESY): 7.20%
7. Leucadia National (LUK): 5.90%
8. Goldman Sachs (GS): 5.68%
9. Air Transport Group (ATSG): 5.42%
10. Horsehead Holding (ZINC): 4.83%
11. CapitalSource (CSE): 4.72%
12. Pinnacle Airlines (PNCL): 4.48%
13. Terex (TEX): 3.62%
14. Wells Fargo (WFC): 3.50%
15. International Coal Group (ICO): 3.45%
16. Interactive Brokers (IBKR): 0.46%
17. Teck Resources (TCK): 0.07%


As you can see, Pabrai favors many natural resource type plays and has held some of them for quite some time. Potash (POT) is the most notable as it is his largest position. However, he has essentially sold completely out of Teck Resources (TCK), as he only has a tiny part of his position left. Pabrai also started a brand new stake in International Coal Group (ICO). Given that he is a true value investor, you won't see as much turnover in his portfolio to begin with so that wraps up the major moves. For more on Pabrai, head to his recent insight at the Value Investing Congress.

Assets reported on the 13F filing were $332 million this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 30 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, and David Tepper's Appaloosa Management. Be sure to check back daily for new hedge fund updates.

Value Investing Congress: In-Depth Summary of the Presentations

A big hat tip again to the Inoculated Investor who has been cranking out very in-depth notes from the latest investment conferences. Earlier, we posted up his summary of Berkshire Hathaway's annual meeting and today we're posting up his 18 page summary of the Value Investing Congress.

From the VIC, we've already posted up Whitney Tilson's bearish presentation on housing, as well as a set of notes from the event. But if you really want the investment ideas drilled down to the specific thesis, then this is the set of notes for you.

Embedded below is the Inoculated Investor's summary of the Value Investing Congress:



You can download a .pdf here.

For more great hedge fund commentary and investment insight, we've covered a ton of great investor letters as of late. Be sure to check out Louis Bacon's letter from global macro giant Moore Capital, the Q1 letter from Ricky Sandler's Eminence Capital, market commentary from David Einhorn's Greenlight Capital, as well as Jay Petschek's latest commentary from Corsair Capital. Make sure to also check out the Inoculated Investor's site.

Value Investing Congress: Notes From Day One

The Value Investing Congress has been posting updates of the first day of the event on Twitter (make sure to follow us as well) and we wanted to aggregate their brief updates into a comprehensive post here on Market Folly. Yesterday, the Congress heard investment presentations from the likes of Mohnish Pabrai (Pabrai Investment Fund), Bruce Berkowitz (Fairholme Fund), Paul Sonkin (Hummingbird Value), Richard Vogel (Alatus Capital), Lloyd Khaner (Khaner Capital), Amitabh Singhi (Surefin Investments), Carlo Cannell, Guy Spier (Aquamarine Capital), and Patrick Degorce (Theleme). We'll start first with Mohnish Pabrai's presentation:


Mohnish Pabrai of Pabrai Investment Funds: His presentation was entitled "Leveraging Checklists to Dramatically Improve Investing Results." He has developed this list based on mistakes other value investors have made and thus far he has 80 mistakes on the list. Pabrai notes that no companies will pass all of the 80 questions on his checklist but that his list has helped him determine position sizing. He also mentioned that had this checklist been in place before some of his prior investments, some of his decisions would have been different. In terms of investment ideas, Pabrai feels that the property & casualty market is very soft but that there is value to be found there. For those interested, we've also detailed Pabrai's portfolio in the past.


Bruce Berkowitz of Fairholme Fund: The main thing to take away from Berkowitz's talk is that he is now long Goldman Sachs (GS) in size. It's not exactly clear what type of investment he made, but we do know he has a new position now. Turning to his stake in General Growth Properties (GGP), he mentioned that he is not raising his bid. On his new position in AIG (AIG), he noted that GAO has terrific reports on the company (we previously detailed Fairholme's new AIG stake). Lastly, Berkowitz jokingly mentions that the only 'perfect hedge' is a Japanese garden as everything is correlated when things turn sour. You can view the rest of our coverage on Berkowitz here.


Richard Vogel of Alatus Capital: Vogel is focusing on companies with 8-10% free cash flow yields that also have an "inflection point" with some sort of catalyst (a new product launch or tapping into a new market, etc). His presentation focused on Europe as all the countries are 'in a sea of red ink' because they all have budget deficits, except for Switzerland. Vogel focused on a Swiss based company: Valora (SWF: VALN). It has an estimated free cash flow yield of 11% and is the largest kiosk operator in Switzerland and Luxembourg with 1,175 outlets. He mentions that new management is taking positive steps as they improve margins and restructure.


Lloyd Khaner of Khaner Capital: Khaner gave a presentation entitled, "Why Some of the Best Value Investors Own Gold." He mentioned that he had formerly 'shunned gold' until the mid 2000's but obviously has had somewhat of a change of heart. He mentions that the gold to oil ratio has typically been "1 oz of gold to 15 bbl of oil." In terms of rationale for owning gold, Khaner cites that gold supply is decreasing as production is around 2,500 tons per year and consumption bests that at 4,000 tons. Central Banks have also been net buyers of gold for the first time since 1980. Khaner specifically highlights gold as a safe haven because it holds value even if it does not appreciate. It is the last currency standing as you cannot print more.

If you were to use the same inflation trajectory as the last gold bubble and apply it to current times, the price would be near $5,000 an ounce. There is one main reason value investors own gold: currency devaluation. While not a value investor, this is exactly the reason that John Paulson launched his gold fund. He is using gold derivatives and gold mining stakes as a proxy for his wager on the US dollar being devalued.

Khaner did not specifically cite the best way to play gold (whether it be via exchange traded funds, physical gold, or mining companies). John Burbank's hedge fund Passport Capital prefers physical gold and David Einhorn's Greenlight Capital does as well. In fact, at the previous Value Investing Congress in October 2009, Einhorn's presentation centered on gold.

Khaner did say that if you go the mining companies route, you have to focus on good management teams that have skin in the game, a company with a good history, and one with low production costs. Back in the 1930's when deflation was prevalent, gold mining stocks were the place to be. Both John Paulson and George Soros bought a stake in the same gold miner recently as well. In the past we've posted up copious amounts of hedge fund research on gold so definitely check that out if you're looking for more insight on the subject.


Carlo Cannell of Cannell Capital: Focusing on small cap value plays, Cannell founded his firm in 1992. He has 18 years of investing experience and will take on an activist role when needed. During his talk, he mentioned that all of his funds are named after islands. The were not many updates posted about his talk but he did mention that Research in Motion (RIMM) does not particularly interest him as he prefers to buy companies trading at 1x EBITDA. He gave one example of a gem: Core-Mark (CORE).


Patrick Degorce of Theleme Partners: Degorce recently launched Theleme (his new firm) with $200 million and he was previously co-founder of The Children's Investment Fund. Investment timeframe is very important to Theleme as they typically focus on 4-5 year timelines. Degorce echoed Warren Buffett by noting that you should invest in businesses/companies that you understand and not pay attention to short-term gyrations in the market. In particular, Degorce values companies based on discounted cash flows. Turning to his specific investment idea, Degorce recommended Deutsche Boerse (ETR:DB1). He notes that they earn 45% of EBIT from European equity derivatives and fixed income. They recently announced cost cutting measures to the tune of $150 million and have a growing cash horde of 6.5 billion euros. In 2009, they generated 3.40 in free cash flow and it currently trades around 10 times FCF.


Amitabh Singhi of Surefin Investments: Singhi focused on opportunities in India and noted that while many industries are mature, some have exploded like real estate, telecom, and pharma. He thinks there is more opportunity in small cap names as there is little research coverage. In particular, he buys 'cigar butts' as he prefers contrarian plays, special situations, and even some GARP plays (growth at a reasonable price). One such 'cigar butt' play is Cheviot (BOM:526817), a producer of Jute (vegetable fiber) that is trading at cash and below its net current asset value. Additionally, it has a return on equity of 26% over the last 10 years. Overall, when investing in India, Singhi likes to have 'assets on the ground in (the) country.' He typically avoids the metals and oil & gas sectors.


Guy Spier of Aquamarine Capital: Spier focused on Fortescue Metals Group (FMG) and notes it could be trading at 1x EBITDA if the market starts to take a hit. He also noted an idea from Passport Capital's John Burbank: 'go long what China is short.' Spier also mentioned something that Warren Buffett has in his office: 'invest like a champion today.' Guy also recommends to increase productive relationships and reduce toxic ones in order to associate yourself with people who are better than you so that you may become better. In essence, that is one of the main goals here at Market Folly. By tracking successful and talented investment managers, we strive to learn from both their successes and their mistakes.


Paul Sonkin of Hummingbird Value: Sonkin focuses on micro and nano cap value plays and looks for a discount to intrinsic value. He seeks internal and external catalysts and notes that certainty of outcome and timeline are essential as well. Interestingly enough, he sometimes competes with companies buying back their own stock due to the low liquidity. Sonkin's investment idea was Steinway Musical Instruments (LVB) citing three assets: real estate, piano business, and band business. Like many other companies, he anticipates growth in Asia over the next ten years as well as a recovery in the US for their piano business. He estimates their properties in New York might be worth $50-75 million. Additionally, Sonkin feels LVB has pricing power as they've raised prices on pianos 4% each year for quite some time. Lastly, a fun fact from Sonkin: he feels the Proxy statement is the most underrated tool out there and he also won't invest in a company if a CEO wears a lot of jewelry (guess he won't be investing in rapper mogul "Birdman's" new oil company).


That wraps up the summary of the first day of presentations. Thanks again to the Value Investing Congress for posting their Twitter updates and keep in mind you can follow us on Twitter as well. Hopefully readers have found this aggregation useful. Stay tuned as we'll also post up summaries from day two of the event here at Market Folly as well as more in-depth research regarding some of the investment ideas. In the mean time, head to our coverage of the latest hedge fund portfolio movements.

Mohnish Pabrai Adds Capitalsource Equity: 13F Analysis

This post is part of our series on hedge fund portfolio tracking. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is Mohnish Pabrai and his Pabrai Investment Fund. Yesterday we kicked off our series by examining the portfolio of Seth Klarman's hedge fund Baupost Group and today we're focused on another value oriented fund. Pabrai's Investment Funds had a rough 2008 but rebounded well in 2009. His PIF2 finished up 122.5%, PIF3 up 125%, and PIF4 up 118.8% as noted in our 2009 hedge fund performance numbers post. In the past, we've also posted up Pabrai's third quarter investor letter where you can read his insight.

Pabrai is unique in that he has structured his fund similarly to the early Warren Buffett partnerships. Typical hedge funds charge a flat 2% management fee on assets and then a 20% performance fee incentive on top of that. Pabrai on the other hand charges no management fee and then no incentive fee until the fund reaches 6%+. After that threshold is reached, they can then charge a 25% incentive fee. So, his interests are aligned with the fund as he does not make money until investors do. Pabrai will be speaking at the upcoming Value Investing Congress along with numerous other hedge fund managers and Market Folly readers can save 33% with discount code P10MF6.

The positions listed below were their long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. Note that we are only covering the major portfolio maneuvers. All holdings are common stock unless otherwise denoted.


Brand New Positions
Capitalsource (CSE)


Increased Positions
Fairfax Financial (FRFHF): Increased by 17.2%
Cresud SACIFYA (CRESY): Increased by 5.3%
Potash (POT): Increased by 4.45%


Reduced Positions
Pinnacle Airlines (PNCL): Reduced by 4.9%
Berkshire Hathaway (BRK.B): Reduced by 1.54%
Harvest Natural Resources (HNR): Reduced by 1%


Removed Positions (Sold out completely):
Ternium (TX)


Top 15 Holdings by percentage of assets reported on 13F filing

1. Potash (POT): 11.46%
2. Teck Cominco (TCK): 10.98%
3. Harvest Natural Resources (HNR): 9.23%
4. Brookfield Properties (BPO): 8.91%
5. Fairfax Financial (FRFHF): 8.82%
6. Cresud SACIFYA (CRESY): 7.73%
7. Berkshire Hathaway (BRK.B): 6.56%
8. Leucadia National (LUK): 5.87%
9. Goldman Sachs (GS): 5.84%
10. Horsehead Holding (ZINC): 5.40%
11. Air Transport Services (ATSG): 4.44%
12. Pinnacle Airlines (PNCL): 4.31%
13. Capitalsource (CSE): 3.49%
14. Terex (TEX): 3.28%
    
15. Wells Fargo (WFC): 3.15%
    

As you can see, there's really not much turnover in Pabrai's portfolio and that is to be expected given his long-term investment timeframe and Buffett-esque value focus. The most notable activity in his portfolio would be the addition of Capitalsource (CSE) equity. As we detailed yesterday, Seth Klarman's Baupost Group is also fond of CSE.

Some other facts worth noting here: Mohnish Pabrai's top three holdings all represent natural resources and energy and represent a decent chunk of his portfolio. His investment in Harvest Natural Resources is a 16.9% stake in the company. Secondly, Pabrai's exposure to Pinnacle Airlines represents a 11.3% ownership stake in the company. However, that figure included a very small position in call options that were set to expire on January 15th, 2010 with an exercise price of $20 per share. Obviously, those options have already expired, but since this 13F filing details positions as of December 31st, 2009 we won't see what happened with those options until a future disclosure.

For more insight from Pabrai, check his investment ideas out at the upcoming Value Investing Congress with a 33% discount here (code P10MF6). Assets from the collective holdings reported to the SEC via 13F filing were $320.5 million this quarter compared to $322.9 million last quarter. Remember that these filings are not representative of the hedge fund's entire base of assets under management. Therefore, the figures above represent the percentage of their reported 13F assets, not their entire portfolio.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group so check back daily for our updates.

Mohnish Pabrai's Hedge Fund Q3 Investor Letter

Here's the latest investor letter from Mohnish Pabrai and his hedge fund Pabrai Investment Funds. Pabrai is unique in that he has structured his fund similarly to the early Warren Buffett partnerships. Typical hedge funds charge a flat 2% management fee on assets and then a 20% performance fee incentive on top of that. Pabrai on the other hand charges no management fee and then no incentive fee until the fund reaches 6%+. After that threshold is reached, they can then charge a 25% incentive fee. So, his interests are aligned with the fund as he does not make money until investors do. Not to mention, he has 'skin in the game.'

Embedded below is the investor letter with Q3 2009 results and commentary:



You can also download the .pdf here.

Mohnish Pabrai Letter to Investors (Pabrai Investment Funds)

Just wanted to post up Mohnish Pabrai's letter to his Pabrai Investment Fund investors sent out in January 2009 detailing his 2008 year-end summary.

*Update: The letter has been removed per the request of the underlying firm.