In the ancient world of India, a disciple would sit at the feet of his guru for a transmission, a way of learning something priceless that goes way beyond book-learning. Today the same sort of guru-disciple relationship happens between elders and next-gen investors who admire not only what a mentor does, but how he or she does it. After studying Mohnish Pabrai’s successful hedge fund performance, the art of imitating the world’s greatest investor reveals itself as the ultimate fast track.
The managing partner of Pabrai Investment Funds, Mohnish Pabrai often pays respect to his guru Warren Buffett. In managing his successful hedge fund, Pabrai’s concentrated value investing philosophy boils down to Buffett’s two investing rules: “Rule No.1 is never lose money. Rule No.2 is never forget rule number one.”
Pabrai also developed the ten investments portfolio theory, based on the idea that to build a proportioned portfolio, use ten stocks, each one comprising ten percent of a portfolio. His super-concentrated portfolio tends to reflect that discipline.
Starting by himself with his own cash, and the support of friends and family, Pabrai emulated Buffett’s style of investing in his hedge fund, noting how Warren Buffett invested at Berkshire Hathaway (BRK.A)(BRK.B) for many years. Sounding a lot like his guru, Pabrai’s style is to look for moats and long operating histories. He says, “Bet heavily when odds are in your favor.” Pabrai has also advised investors to “Understand the business,” and “Clone, clone, clone.”
The portfolio of Mohnish Pabrai lists six stocks, none of them new, with a total value of $460 million and a quarter-over-quarter turnover of 9%. The portfolio is heavily weighted with financial services at 43.9% and ETF, options, preferred at 37.7%, followed by energy at 18.4%. The stocks bought by Pabrai have averaged a 12-month return of 35.14%.
Imitating his guru’s investing style as well as charitable outreach, Pabrai once commented that “humans have a tendency to reciprocate.” Following in the philanthropic footsteps of Warren Buffett and the Bill & Melinda Gates Foundation, Pabrai donates around $1 million per year through his Dakshana Foundation, founded in 2005. The word “dakshan” means “ sacred gift” in Sanskrit. Through his foundation, Pabrai’s mission is to circulate wealth back into society and to help educate India’s youth.
Here’s a review of the two lowest P/E stocks in the Pabrai portfolio, as of Sept. 30, 2013.
Goldman Sachs Group Inc. (GS, Financial): P/E 10.70
Shares: 141,863
Value: $22,444,000
Weightings: 4.9%
Up 41% over 12 months, Goldman Sachs Group Inc. has a market cap of $79.97 billion; its shares were traded at around $176.323 with a P/B ratio of 1.10. The dividend yield of GS stocks is 1.16%.
GuruFocus rated GS with one out of five stars for business predictability.
The GuruFocus analysis of the company shows five warning signs and one good sign.
Goldman Sachs Group Inc. is a global investment banking, securities and investment management firm that provides a range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. The company's activities are divided into three segments: Investment Banking, Trading and Principal Investments and Asset Management and Securities Services.
Goldman Sachs Group Inc. is a bank holding company and a financial holding company regulated by the Board of Governors of the Federal Reserve System under the U.S. Bank Holding Company Act of 1956 (BHC Act).
The company reported financial results for the third quarter of 2013 with earnings of $2.88 per common share. Goldman Sachs reported net revenue of $6.72 billion and net earnings of $1.52 billion for the third quarter, along with an increase of its quarterly dividend to $0.55 per common share.
Guru Action: As of Sept. 30, 2013, Mohnish Pabrai gained 9.6% on 141,863 shares at an average price of $160.99 per share.
Here’s his trading history:
Over a five-year trading history of gains, he has averaged a gain of 20% on 141,863 shares bought at an average price of $147.38 per share.
Tracking historical share price, revenue and net income:
Citigroup Inc. (C, Financial): P/E 13.10
Shares: 1,560,000
Value: $75,676,000
Weightings: 16.5%
Up 34% over 12 months, Citigroup Inc. has a market cap of $158.78 billion; its shares were traded at around $52.33 with a P/B ratio of 0.80. The dividend yield of C stocks is 0.08%.
Incorporated in 1988, Citigroup Inc. is a global financial services holding company, whose businesses provide consumers, corporations, governments and institutions with a range of financial products and services, including consumer banking, credit cards, corporate and investment banking, securities brokerage and wealth management. The company has more than 200 million customer accounts and does business in more than 160 countries.
GuruFocus rated C with one out of five stars for business predictability.
The GuruFocus analysis of the company shows four warning signs.
The company reported financial results for the third quarter of 2013 with a net income of $3.2 billion and quarterly revenue at $17.9 Billion. Citigroup had net credit losses of $2.4 billion, marking a decline of 38% over the same quarter last year. The company’s book value per share Increased to $64.49, and tangible book value per share increased to $54.52. In the third quarter of 2013, Citigroup had deposits of $955 billion and $658 billion in loans.
Guru Action: As of Sept. 30, 2013, Mohnish Pabrai gained 3.6% on 1,560,000 shares at an average price of $50.56 per share.
Over a six-quarter trading history of gains, he has averaged a gain of 20% on 1,560,000 shares at an average price of $43.48 per share.
Tracking historical share price, revenue and net income:
Here’s the complete portfolio of Mohnish Pabrai.
In addition to being an investor and a philanthropist, Mohnish Pabrai is also an author. His first book “Mosaic: Perspectives on Investing” reveals a new investment model that combines classic value tenets with a holistic approach to analysis. In “The Dhando Investor” Pabrai distills the wisdom of his formative gurus, Warren Buffett, Benjamin Graham and Charlie Munger. The Indian word “dhandho” means “efforts that create wealth.”
If you are not yet a Premium Member, we invite you for a 7-day Free Trial.
Use the GuruFocus Value Screen to find 52-Week Lows and discover potentially deep value stocks held by billionaire Guru investors.
GuruFocus "Real Time Picks" reports the stock purchases and sales that Gurus have made within the prior 2 weeks. The report time lag can be as short as 2 days after the date of the transaction. This feature is for Premium Members only.
