Mohnish Pabrai is well known in value circles around the world. His impressive investment performance over the years is testament to his rigorous process and commitment to value few hedge fund managers still follow.

Between inception (June 2000) and June 2015, a $100,000 investment in Mohnish Pabrai’s leading fund would have turned into just under $800,000, an annualized return of 16%. Unfortunately, Mohnish Pabrai’s returns have suffered over the past year and a half thanks to one investment that blew up, costing the fund more than 30%. At year-end 2016 the leading Pabrai Investment was up 5.3% after a loss of 30% during the first half and a gain of 27.9% during the second half.

Also see 2016 Hedge Fund Letters

Mohnish Pabrai
Image source: YouTube Video Screenshot

In a lesson of how detrimental one significant loss can be to long-term returns, after the first half’s poor performance the fund’s annualised return since inception has dropped to 12.4%, although this still means the fund has easily outperformed the S&P 500 which has achieved an annualised return of 4.8% over the same period.

Mohnish Pabrai Up 5.3% In 2016: A Year He’d Rather Forget

Mohnish Pabrai’s losses can be attributed to one main investment mistake, which began to unfold during 2015 and then completely blew up during the first half of 2016. The company in question is Horsehead Holdings, a company I have written about several times before. For more information on how Horsehead rose to fame and then spectacularly collapsed, check out the links below for other ValueWalk coverage published over the past year.

The Horsehead scenario and subsequent losses inflicted on the Pabrai funds led to investors putting a total of $100.4 million from the various Pabrai funds during the year pulling assets under management down to $438 million (about a 20% AUM drop in just one year), down from a high of just under $700 million at the end of 2014 or about 36 percent since the peak. It seems 2016 really was a dismal year for Mohnish Pabrai, but ever the optimist he remains excited about the prospects for the funds and their holdings. Specifically, in his year-end letter to investors, Mohnish Pabrai writes:

“The recent redemptions were used by me to convert these redemption lemons into lemonade. I used the outflows to trim or exit our lowest conviction ideas. I love what we elected to keep. The gap between market value and intrinsic value continues to be large for all three funds, and this bodes well for all of us.”

Some of the positions held back and increased are already producing handsome returns. According to the letter, during the first 10 calendar days of 2017 the leading Pabrai fund gained 10.5%:

“It is par for the course for equity markets to go through long periods of low returns coupled with short periods of spectacular changes in value. Predicting these near-term movements in the markets is a fool’s errand. Our concentrated portfolio can magnify these effects…I had mentioned last year that our portfolio was like a coiled spring – deeply undervalued. The spring is beginning to uncoil.”

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