Mohnish Pabrai on Bank of America, Citi, Google, and Hyundai by John Kimelman, Barron’s
In seeking out the advice of professional stockpickers, it’s best to avoid the so-called closet indexers.
Portfolio managers that fit that bill hold 40 or more stocks — many hold hundreds — with each comprising a small percentage of the portfolio. They collect active-management fees for performance that, at best, matches the index.
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That’s not the way hedge fund manager Mohnish Pabrai rolls. The Indian-born Pabrai, who runs the $700 million-asset Pabrai Investment Funds, puts big money behind his convictions. In the investment world, that translates to holding a small basket of stocks and watching them closely.
“I have heard [Warren Buffett’s business partner] Charlie Munger more than once say that a well-diversified portfolio needs four stocks,” says Pabrai, in a phone interview from his office in Irvine, Calif.
Pabrai’s portfolios aren’t quite that concentrated. But the value hound is OK with buying a stock that makes up 10% of his fund house’s assets, and even letting it run a bit higher than that. He takes a go-anywhere approach, seeing opportunities ranging from the U.S. to South Korea.
A former information technology consultant, Mohnish Pabrai is a serious student of Warren Buffett’s approach to investing. In 2008, he and a friend, value investor Guy Spier, paid $650,000 in a charity auction to have a two-and-a-half-hour lunch with their investment idol at a famous New York steakhouse.
It’s hard to know the full extent of Mohnish Pabrai’s performance over the years. By law, as a hedge fund manager, he is not allowed to publish or disclose numbers for noninvestors, including inquiring reporters, since that constitutes marketing the fund. According to BarclayHedge, an Iowa-based fund-tracking firm, Pabrai Investment Fund 3 returned an annualized 9.68% over the past 10 years through Oct. 31 net of fees, outpacing the total return of the Standard & Poor’s 500 index by about 1.5% a year. That said, the fund has sharply underperformed the broader stock market this year.
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