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Summary

  • Mohnish Pabrai is a respected value investor that has a record of outperforming the market.
  • Pabrai's investment fund generally holds very few positions, and often holds stakes for a long period of time, making any changes worth noting.
  • Pabrai reduced exposure to large financials, while increasing more defensive positions during Q1 of 2014.

Mohnish Pabrai's investment fund, Dalal Street, is a small hedge fund that uses an investment methodology inspired by Warren Buffett. Pabrai has written books on his attempted low-risk value method of investing, and his funds have a long-term record of outperforming most money managers, though they often underperform in the short-term. Like Buffett, Pabrai is not one to over-diversify, and usually holds just a handful of concentrated positions. On May 15, 2014, the Pabrai Investment Fund filed its 13F-HR, which details its holdings at the end of 2012. This is a discussion of Pabrai's changes.

Pabrai's Reductions:

Pabrai did not wholly exit any positions, but did reduce a few. Pabrai cut the position in Bank of America (NYSE:BAC). Pabrai entered the bank during Q3 of 2011, at prices far below its present valuation. Pabrai had cut the position before, but not in over a year. The 2,526,000 shares that Pabrai sold account for about one-third of the position the fund held at the start of the year. Given BAC's recent performance, it is likely that the shares sold were divested at prices above BAC's present trading range.

Similarly, Pabrai reduced the fund's position in Citigroup (NYSE:C). Pabrai initiated the Citigroup position in Q4 of 2011, or one quarter after the fund's BAC stake. The 140,000 shares of C sold last quarter account for just fewer than ten percent of the position Pabrai held at the end of 2013. Both financials appreciated significantly since Pabrai obtained the shares, making these stake reductions appear sensible. The recent weakness in the market only furthers the logic.

The only other reduction made by Pabrai's fund last quarter was to Chesapeake Energy Corp (NYSE:CHK), which the fund initiated in Q2 of 2012. Last quarter, Pabrai sold 5,600 shares, which is less than one quarter of percent of the fund's position in CHK. This may indicate that the fund began selling shares near the end of the quarter, and that it may have continued selling shares in the second quarter.

Pabrai's Increases:

The only stake increase for Pabrai's fund was to its General Motors 2019 warrants, which the fund has held since 2012. Pabrai has been increasing the fund's position in these warrants over the last few quarters, and the warrants now make up about one-fifth of Pabrai's publicly traded security positions. The 5,486 additional warrants that Pabrai acquired during the first quarter is an exceptionally small stake addition, with the fund now holding 5,935,015 warrants. These warrants, which expire on July 10, 2019, have a strike price of $18.33.

New Positions:

Beyond just acquiring some more warrants, Pabrai's fund also initiated a position in General Motors (NYSE:GM). Pabrai has bought and sold GM shares over the last several years, while generally increasing the fund's exposure to the company through the 2019 warrants. The 23,305 shares of GM that the fund acquired in the first quarter work out to be less than one percent of the position it holds in the warrants, and are likely more of a shorter term position than are the warrants and many of Pabrai's other holdings.

Pabrai also initiated a small stake in Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). Like GM, Pabrai has bought and sold Berkshire shares in the past, and appears to do so as more of a short term position than most of the fund's investments. The position may be a cash alternative at a time where interest rates are so low, because Berkshire generally has a low beta and is likely to outperform other equities in a correction.

In total, Pabrai's 13F listed a mere eight holdings, with two of them being GM (both common stock and warrants), making this one of the smallest lists among all 13F filers.

Disclosure: I am long C. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Family members own BRK.B

Source: Mohnish Pabrai's Position Changes During The First Quarter