Mohnish Pabrai: How To Build Wealth Copying 9 Other Value Investors

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Mohnish Pabrai: How To Build Wealth Copying 9 Other Value Investors
<a href="https://pixabay.com/users/DasWortgewand/">DasWortgewand</a> / Pixabay

One of our favorite investors at The Acquirer’s Multiple is Mohnish Pabrai.

Earlier this year he wrote a great article called, Beyond Buffett: How To Build Wealth Copying 9 Other Value Investors. The article illustrates how you can build a successful portfolio by cloning other successful value investors.

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Here's an excerpt from that article:

Here’s what Charlie Munger had to say at the Daily Journal meeting

Charlie MungerCharlie Munger spoke at the Daily Journal Corporation's Annual Meeting of Shareholders today. Although Warren Buffett is the more well-known Berkshire Hathaway chief, Munger has been at his side through much of his investing career. Q4 2020 hedge fund letters, conferences and more Charlie Munger's speech at the Daily Journal meeting was live-streamed on Yahoo Read More


I co-wrote this article in Forbes on an investment strategy called the “Shamelessly Cloned Portfolio.”

The shameless portfolio comprises of five of the highest conviction ideas of 9 value managers whom we shamelessly clone. Like the Small Dogs of the Dow and Uber Cannibals, we set it and forget it. I will publish the list of the top Shameless Cloned Ideas for a particular year on my blog on January 1 each year.

For 2017, even though it’ll be a partial year, one can buy the 2017 picks anytime. After that, rebalancing should occur right after January 1.

The Shameless Portfolio for 2017 contains:

  1. Oracle (ORCL)
  2. Berkshire Hathaway (BRK-B)
  3. Apple (AAPL)
  4. Microsoft (MSFT)
  5. Charter Communications (CHTR)

We’ve laid out all our algorithm rules below.

One can begin testing this strategy with a small portion of one’s networth and do it through a great broker like Interactive Brokers with commissions under $3/trade for small quantities. We hope you’ll join our merry band of shameless cloners.

You can view the article here:

https://www.forbes.com/sites/janetnovack/2017/02/22/beyond-buffett-how-to-build-wealth-copying-9-other-value-stock-pickers/#7645cf00eaf9

I co-wrote the article with Fei Li, a talented quant at Dhandho Funds.

Enjoy!

Note, anyone who invests in any strategy needs to do their own research/due diligence and are themselves fully responsible for the outcome.

Appendix: Shameless Cloning Portfolio Rules

Selection Criteria:

  1. No utilities, no REITs, no oil and gas exploration, no metals and mining and no multiline retailers.
  2. Positive trailing-12-month net income

Rebalance Methodology:

  • Rebalance on Dec 31st of each year.
  • The old companies that are not in the new portfolio are sold. The “sell money” is accumulated and distributed equally among all new entrants.
  • If the same company is present in our portfolio for another year, then we leave it unchanged i.e. no rebalancing trades.
  • Dividends are reinvested into the same company that paid it.
  • If there is an involuntary removal through acquisition/delisting/bankruptcy then the cash is distributed equally among the remaining cloners.
  • If there are any spin-offs, the shares are sold and reinvested in the parent.?

This article was originally posted at The Acquirer's Multiple.

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

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