This series of articles is an ongoing analysis of the changes made to Mohnish Pabrai's U.S. stock portfolio on a quarterly basis. The quarter saw Pabrai's U.S. stock portfolio decreasing by around 9% in size from ~$258.6M to ~$235.5M. The number of holdings in the portfolio fell from 16 (Q3 2011) to 13. Pabrai adopted a "2-5-10" model of diversification in 2008 for his position size (sometimes 2% - typically 5% - on the odd occasion 10%). The size of the current positions vaguely adheres to this model but there are many that are well outside the recommended size - Wells Fargo (NYSE:WFC) is at 16% while Brookfield Residential Properties (BRP) and Pinnacle Airlines (PNCL) are both less than 1%.
Citigroup (NYSE:C): C, a 5.7% position purchased this quarter when the price-per-share varied between $23.11 and $34.16, currently trades at $32.71. Pabrai is bullish on the financial sector - C included. He has large stakes in Bank of America (NYSE:BAC), CapitalSource (NYSE:CSE), Goldman Sachs (NYSE:GS), and Wells Fargo and these positions combined make up over 40% of the portfolio.
Terex (NYSE:TEX): TEX, a large 13% position established this quarter when the price-per-share varied between $9.61 and $17.86, currently trades at $25.11. The position is a huge short-term win and is a classic Pabrai bet - he tends to favor small companies susceptible to wild swings.
The Direct TV (NASDAQ:DTV): DTV, a 7.2% position established this quarter when the price-per-share varied between $40.60 and $47.87, currently trades at around $45. Pabrai modeled his portfolio around Warren Buffett's philosophies and has freely admitted of shadowing some of Buffett's trades as well. The DTV acquisition seems to be one such trade, given Buffett established a position in the stock in Q3 2011 and it is now at a significant ~1.5% position. For investors attempting to follow Pabrai or Buffett, DTV is still a good option as it is trading within the range they could have bought it at.
Brookfield Infrastructure Partners (NYSE:BIP) and Brookfield Office Properties (NYSE:BPO): Combined, these very large stakes accounted for close to 30% of the overall US stock portfolio value. The BPO position was established in Q2 2009 when the price-per-share varied between $4.86 and $7.64. In Q4 2011, the stock traded between $13.39 and $16.75. Even at the worst-case-scenario, Pabrai enjoyed handsome returns with this pick. The BIP position was established in Q4 2010 when the price-per-share varied between $19.63 and $22.56. In Q4 2011, the stock traded between $23 and $28. The elimination of both these large positions this quarter clearly indicates a bearish bias.
Air Transport Services Group Inc (NASDAQ:ATSG), Harvest Natural Resources (NYSE:HNR) and Wells Fargo Warrants: The stocks accounted for less than $1 million each in the portfolio. ATSG, a long-term holding was slowly trimmed from 2010 onwards. Pabrai still held a minute position in the stock as of Q3 2011 which was finally disposed off this quarter. The relatively large stake disposal in the last two years clearly indicates Pabrai's bearish bias on ATSG. HNR, a large long-term holding, was exited in Q1 2011. A very small stake (<$1M) was reestablished in Q2 2011 but was disposed off this quarter.
Berkshire Hathaway (NYSE:BRK.B): BRK.B position was increased from an insignificant amount to a whopping 14.5% of the portfolio this quarter. As Pabrai is known to hold BRK.B as a substitute for cash, despite the large position, the trade does not indicate a true bullish bias.
Horsehead Holding (NASDAQ:ZINC): ZINC is a long-term holding that has been in the portfolio since Q4 2008 when the price-per-share varied between $2.47 and $6. The position was increased by ~37% this quarter when the price-per-share varied between $6.47 and $9.52. The stock trades currently at $10.82. Pabrai is a long-term bull on ZINC and continues to be so. The stock is well outside the range Pabrai could have bought it at and hence those attempting to follow Pabrai will have to wait for a better entry point.
Wells Fargo & Co : WFC, a large ~16% stake, was increased by 13.2% this quarter. A 4% stake was established in 2010 and was increased to a huge ~15% stake in Q3 2011. The price-per-share varied between $22.88 and $29.38 during the 2nd half of 2011 and it currently trades at $30.37. The size of the position and the stake increase confirms Pabrai's very bullish stance on WFC.
Bank of America , CapitalSource Inc and Goldman Sachs : Pabrai was extremely bullish on BAC during Q3 2011 and purchased over seven million shares of BAC for a whopping 17% stake. This was well outside the maximum allocation recommended in "2-5-10" portfolio diversification model which he is known to adhere to. The position was trimmed to 5% of the portfolio this quarter. The share price varied between $6.12 and $10.96 during Q3 2011 and it traded in the $4.90 to $7.35 price-range during the quarter. The significant stake reduction in BAC indicates a bearish bias. CSE and GS are smaller stakes (~6% and ~8% respectively) that were trimmed by 22% and 26% respectively. The stake reductions along with the fact that Pabrai established a large position in another large financial company (Citigroup) during the quarter indicate Pabrai has a mild bearish bias on CSE and GS.
Cresud (NASDAQ:CRESY): CRESY was trimmed by over 70% this quarter and it now accounts for less than 2% of the portfolio. The bulk of the position was established in 2009 when the price-per-share varied between $5 and $10. The stock traded between $10 and $12.32 this quarter and currently trades in the $13 price-range. The significant stake disposal indicates a clear bearish bias.
Brookfield Residential Properties : BRP is a very small (<1%) position trimmed slightly this quarter. Given the small size and the minor trimming, the trade does not indicate a bearish bias.
The other two positions have remained unchanged during the quarter: Potash (NYSE:POT) is a very large 14% stake that was held steady in the quarter. The position was established in Q3 2008 and doubled in Q3 2009 in the $28 to $70 price-range. The stock currently trades around $45. Pinnacle Airlines is a very small (<1%) stake that was held steady during the quarter. It is a long-term holding that has been in the portfolio since 2005.
The spreadsheet below highlights changes to Pabrai's US stock holdings in Q4 2011:
Please visit our Tracking Stocks In Mohnish Pabrai's Investment Funds series for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q3 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.