Mohnish Pabrai was an entrepreneur who later switched to investment management and founded Pabrai Investment Funds in 1999. He has high regard for Warren Buffett. Pabrai once paid $650,100 for lunch with Warren Buffett and he admits that he is trying to imitate Buffett’s investment style. He even set up a fee structure the same way Buffett did over 50 years ago: he does not charge any management fees and takes 25% of returns that are great than a 6% threshold. Pabrai is a value investor and he follows other great value investors such as Buffett and Joel Greenblatt, founder of Gotham Asset Management. Pabrai’s fund lost approximately 60% in 2008, indicating that his fund had very limited downside protection at that time. However, Pabrai made about 120% in 2009, a complete reversal compared with his performance in 2008. Overall Pabrai returned around 18% annually since 2000. This should be enough reason to follow his latest moves in his 13F portfolio.
Pabrai slightly reduced his portfolio value from $274 million at the end of the second quarter to $259 million at the end of September. The number of positions in the fund remained 15. Pabrai sold out his position in Posco (PKX), an integrated steel production company in Korea. Pabrai had $7.7 million invested in PKX at the end of June. The stock returned 10.85% since the end of September, higher than the 7.92% of SPY. PKX was the only position sold out by Pabrai in the third quarter.
Pabrai largely increased his position in Wells Fargo & Co (WFC). His fund reported to had $29.5 million invested in WFC stocks at the end of September, up 181% from $10.5 million at the end of June. WFC was up 23.29% since the end of the third quarter, beating the market by over 15 percentage points. In addition to WFC stocks, Pabrai also increased his holding of the warrants of WFC. His fund disclosed to own $274,000 worth of WFC warrants at the end of June and reported a 220% increase to $876,000 at the end of September. Pabrai seems to be following Buffett on this position as Buffet had nearly 20% of his portfolio invested in WFC.
During the third quarter, Pabrai opened a new position in Bank of America (BAC). This is also the only new position Pabrai opened over the third quarter. He initiated a brand new $43.2 million position which is a very bold move. BAC is now the largest position of the fund. Unluckily, BAC lost 5.23% since the end of September. But the company reported third-quarter net income of $6.23 billion, up from a loss of $8.83 billion in the second quarter and a loss of $7.30 billion for the third quarter last year.
Pabrai’s other large positions are Brookfield Infrastructure (BIP), Potash Corp (POT), Goldman Sachs (GS), CapitalSource (CSE), and Horsehead Holding Corp (ZINC). It is clear that Mohnish Pabrai thinks financial stocks are dirt cheap and he is betting most of his assets on financials.
We like Pabrai. He is a smart guy who knows to learn from mistakes and never make them again. He also shares his investment philosophy with the public. He has published two books: Mosaic: Perspectives on Investing, and The Dhandho Investor: The Low Risk Value Method to High Returns. We believe that by focusing on Pabrai’s best stock picks, investors are more likely to beat the market in the long term.