This series of articles will be ongoing updates that analyze changes to Mohnish Pabrai’s US stock portfolio from quarter to quarter. Please check out our series on Tracking Stocks in Mohnish Pabrai’s Investment Funds for an idea on how his holdings have progressed over the years.
The quarter saw Pabrai’s US stock portfolio decreasing by around 5.5% in size from ~$274.3M to ~$258.6M. The number of holdings in the portfolio has remained steady at 16. Pabrai historically ran a very concentrated portfolio following the “10x10” model of diversification (10% position in each of the ten most compelling ideas) until 2008 when he switched to a slightly less concentrated “2-5-10” model of diversification (typically holds 5% positions, sometimes holds 2% positions, and once in a while holds 10% position).
Bank of America (BAC): Pabrai purchased over seven million shares of BAC this quarter and the stake is valued at over $43 million. Bank of America is a very unusual holding, as it does not conform to his newer “2-5-10” portfolio diversification model - it is a very large stake, accounting for almost 17% of the total portfolio, thus exceeding the 10% value the model recommends by a large margin.
Pabrai must be extremely bullish on the prospects of Bank of America. The share price varied between $6.12 and $10.96 during the quarter and is trading slightly below that price currently. For investors attempting to follow Pabrai, BAC is a good option, as the stock is currently trading below the lowest price Pabrai could have purchased the stake.
Posco (PKX): Posco was a 7% stake initiated in the 3rd and 4th quarters of 2010, when the price per share varied between $95 and $120. About two-thirds of the stake was disposed off in the first quarter of 2011, when the price per share varied between $100 and $115. The stake was increased slightly in the 2nd quarter of 2011, but was disposed off during the 3rd quarter when the price per share varied between $76 and $108.
Goldman Sachs (GS), Wells Fargo & Co (WFC) and WTS Wells Fargo & Co: Pabrai increased his stake in Goldman Sachs from around 231,000 shares to around 290,000 shares. It is a very large stake, accounting for more than 10% of the total portfolio. Wells Fargo is another financial stake that was increased substantially in the quarter, from around 374,000 shares to over 1.2 million shares. That stake accounts for around 13% of the overall portfolio. Pabrai’s portfolio is heavily tilted towards financial companies. These two stakes along with the very large stakes in Bank of America and CapitalSource Inc (CSE) together account for a whopping 45% of the total portfolio. Pabrai has turned increasingly bullish on the financial sector.
Potash Corporation (POT): Potash is a very large stake initated in the 3rd quarter of 2008 and more than doubled in 3rd quarter of 2009. The market price of POT varied between $28 and $70 during those periods. Potash stake was trimmed by around 20% during the quarter, from around 995,000 shares to around 796,000 shares when the price per share varied between $43 and $61. The POT stake accounted for over 20% of the total portfolio in the 2nd quarter of 2011; after the disposal, the stake still accounts for around 13% of the portfolio. But given the large size of the disposal, it is clear that Pabrai has a bearish bias on POT.
Cresud (CRESY): CRESY is a large stake initiated in 2008 and more than doubled in 2009, when the price per share varied between $5 and $10. About 20% of the shares were disposed off in 2010 for a very large gain, and the stake had since been held steady. The stake was reduced by around 20% this quarter when the price per share varied between $10.82 and $16.68. The remaining stake accounts for a little more than 4% of the total portfolio value.
Brookfield Infrastructure Partners (BIP) and Brookfield Office Properties (BPO): These are very large stakes that were trimmed by very small amounts during the quarter. The stakes together still account for ~30% of the total portfolio value, and so it is clear that Pabrai is still very bullish on these two holdings. The trimming probably has to do with raising cash to meet redemptions.
Berkshire Hathaway (BRK.B), Air Transport Services Group Inc (ATSG) and Harvest Natural Resources (HNR): Each of these stocks currently account for less than $1 Million in the portfolio. Pabrai has previously mentioned that BRK.B position is a store of cash, and as such, the trimming of that position means Pabrai found it easier to find investment ideas during this quarter. Harvest Natural Resources (HNR) was a large long-term holding that peaked at around 5.7 million shares in 2007. It was trimmed slightly in 2009 and was disposed off by the first quarter of 2011. Pabrai re-initiated a very small stake (less than $1M) in the 2nd quarter of 2011, and the stake was trimmed slightly this quarter. Air Transport Services Group (ATSG) is another long-term holding that is being slowly trimmed from 2010. Pabrai held around 5.4 million shares in the first quarter of 2010, but the stake was trimmed to around 1.2 million shares by the 2nd quarter of 2011. About 90% of the stake was disposed off this quarter. The relatively large stake disposal in the last two years clearly indicates Pabrai’s bearish bias on ATSG.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I have written cash-covered puts on WFC (Apr 2012 22) and BRK.B (Jan 2012 75).