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Pabrai Funds Meet In Chicago


Parsad
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Hi Folks,

 

I emailed Joe Koster last week, and he suggested that everyone that is attending the Pabrai Funds AGM in Chicago meet at the lobby/lounge of the Marriott Suites O’Hare around 2pm, which is right next to Carlucci’s.  I’ll confirm with Joe when he gets back home on Tuesday or Wednesday, and if there are any changes, I’ll make a subsequent post.

 

For those interested in hitting a Steak’n Shake, Sardar told me that this week is a great time, as they will have new products out.  He’s also interested in any feedback we can offer after visiting the restaurants.  I’ll be hitting three, so anyone who wants to go to one let me know and we can go as a group.  I’ll be hitting the one in Rosemont late Thursday night after my flight arrives, another on Friday around 3-4pm and probably one Sunday around noon…and yes, I’m going to take it very easy at each visit!  I’ll also try and hit one of the HI-owned Hooter’s in down town Chicago, as I have a meeting there Friday morning…not at Hooter’s, but somewhere else.

 

If you plan on coming to the Marriott, let me know (sanjeevparsad@shaw.ca) so that I can get some nametags printed up.  If there are any changes, I'll update as necessary here.  Hope to see you guys there!  Cheers!

 

 

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Hi Folks,

 

So after talking to Joe, it's all set for Saturday in Chicago.  We will meet at 2pm at the Marriott Suites O'Hare (6155 North River Road, Rosemont, IL (847)696-4400).  From there, we'll just walk over to the Pabrai Funds AGM at Carlucci's around 4pm.  See you all there!  Cheers! 

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I'm still working on my notes, but Mohnish mentioned the following article during his presentation.

 

http://www.newyorker.com/reporting/2007/12/10/071210fa_fact_gawande?printable=true

 

Some of you might already be familiar with it, but if not it's worth reading.  Mohnish has actually spoken with Gawande and it has helped establish his checklist that he uses for investing.

 

I also found this Gawande article to be interesting as well.

 

http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?printable=true

 

It was really nice having a chance to meet some members on this board and some new people as well.

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Mohnish was very funny!  I told him in another life he was either a very well-liked professor or a stand-up comedian, as his ability to transfer knowledge with terrific analogies and humor is very good.  A few things he said:

 

- They are net sellers of stocks presently, and he feels retail and consumer spending will be tough for a few years.

- Pabrai funds have done over 100% this year, but have a bit more to do to get back up to the peak levels.

- On the question of how to raise capital for a fund:  You have to convince your partners that it is their sole purpose in life to raise money for you!  I was cracking up laughing after hearing that one.

- On a question regarding one of his mistakes...I believe Compucredit:  I was stupid!  Again the audience roared in laughter.

- As dcollon mentioned, checklists have become important to the Pabrai Funds...but they don't decide on an investment.  They just give an overview of how deficient or acceptable the idea is.

- On the idea of a less concentrated portfolio when he brought it up with Munger, who interrupted him and said:  You are going in the complete opposite direction of my thought process on this matter.  He said Munger accepted his proposal once he explained that it was because he was managing other people's capital, rather than his own money.

- Mohnish experiments with strategies in his own portfolio.

- Believes Berkshire’s value should be calculated in the most conservative manner possible at this point, as the range has widened significantly due to the long-term and incalculable investments Buffett has made recently…primarily the derivatives bets.

 

Anyone who has read “The Snowball” knows that one of Buffett’s strongest characteristics is his ability to make others feel better about themselves.  Mohnish seems to be learning this little philosophy, because regardless of the questions asked, he always made the individual feel as though that question was the best one asked yet. 

 

His presentation skills have become incredibly polished, as is his delivery.  He also recalls name after name of people coming up to him without having to look at their nametags.  Pretty impressive stuff considering how many people he meets these days all over the world!  Even Mohnish’s wife Harina remarkably keeps up with all the names and faces, and greets everyone so warmly with great interest. 

 

The atmosphere at Carlucci’s is very intimate, so it is easier to move from table to table than say the meeting in California which is in a gigantic ballroom.  About 200 people or so came to the Chicago meeting, whereas California has around 300-350 people attend.  We had about 15 people or so show up to the lounge before the meeting, and it was nice to meet them all.  I really enjoyed my brief time in Chicago…beautiful architecture, restaurants, people, sights…very nice!  Plus I hit three Steak’n Shakes in 48 hours!  Cheers!   

 

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Hi Sreenr,

 

Basically, Mohnish was saying that the value of certain investments like the S&P puts contracts will not be known for many years, thus that is a question mark.  So when you are doing intrinsic value calculations, make sure you are very conservative in your estimates, as that remains an underlying risk.  I think everyone assumes that it will work out ok, but to protect yourself as an investor, you need a signficant margin of safety.  Cheers!

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what i remember about mohnish's response on berkshire is that some of the subs such as borshiems, shaw etc are more exposed to the economy than say the insurance or the utilities. His current thought process is that the essentials (example given was costco v/s tiffany) are likely to do better than the others.

 

In view of this, mohnish felt that the uncertainity regarding these subs is high and hence his advise was to estimate the fair value of berkshire on the lower side.

 

I was completely blown away by the analogy of aviation checklist with investment checklists. mohnish had slide on how FAA analyses each crash and tries to come up a procedure or checklist to prevent it in the future. In a similar fashion, mohnish has looked at his and other's mistakes to develop an investment checklist (each investment loss is akin to an airplane crash)

 

it was a great meeting for me as i had a chance to meet up with several of the board members and there is always a lot to learn from mohnish's presentation

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Hi Sreenr,

 

Basically, Mohnish was saying that the value of certain investments like the S&P puts contracts will not be known for many years, thus that is a question mark.  So when you are doing intrinsic value calculations, make sure you are very conservative in your estimates, as that remains an underlying risk.  I think everyone assumes that it will work out ok, but to protect yourself as an investor, you need a signficant margin of safety.  Cheers!

 

Thats funny because these contracts are no different than any long tail insurance contract which I"m sure no one really bothers to pull apart and just figures if Berkshire is doing it must be smart.  These people have been doing smart things for a very long time.

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I'll let someone else come up with the full details of the meeting, but I just thought I would my thoughts.  I'm not invested with Pabrai, but have been strongly considering it, and really enjoyed reading the Dhandho Investor.  This was my first Pabrai meeting.

 

Overall, I wasn't impressed.  He got hammered last year, which isn't news to anyone.  What was news to me is that happened for someone who wrote a book with the mantra "Heads I win, tails I don't lose much."  His answers to some very good questions were not great.  Specifically, he was asked about his investment in Harvest National Resources, a Venezuelan company, and whether he was concerned about the risk of nationalization.  He seemed to circle around the question.  "Heads I win, tails I get nationalized" isn't that appealing of a situation.  He described himself as "not a macroeconomist" but then mentioned some very macro reasons for his investments (the world is going to eat more, inflation is on the horizon, and one other reason I can't remember).  He also had a slide about selling out of his investment in Fairfax and how that came at the right time as his decision to increase his positions to 20.  It struck me as a lot of handwaving, especially when he discussed that the 18% of redemptions allowed him to get rid of the "riff-raff" in his portfolio.  You have 10 stocks - what the hell are you doing with "riff-raff" in your portfolio? 

 

He spent much of his presentation discussing his use of checklists and the inspiration behind it.  This all sounds wonderful.  However, you are running a portfolio of 10 stocks with 500 million in AUM.  In my opinion (I have never managed money professionally, so I may thinking too idealistically), when you're throwing $50m into a stock that represents 10% of your portfolio, how have you not done the equivalent of a checklist already?  How have you not agonized over every single detail of this company before deciding to invest in it?

 

I just feel like he got surprised badly last year and is scrambling.  A year ago, he referred to BRK as his cash equivalent (ridiculous when your cash equivalent can drop 50%, which lessens your cash amount when you could use it most).  Now he's put it into the "too difficult" pile??  And as oldye mentioned, what Buffett is doing isn't that out of the ordinary.

 

He mentioned the plan to close at $1b in assets, and later said that the change to 20 holdings would be good because having 5% of his assets in a position would prevent him from having to file some of the paperwork that having 10% would require him to do.  Again, handwaving.  The solution to this isn't to diversify - it's too close well before you get to the point that your asset size reduces your investment universe.

 

I know I'm being incredibly harsh on Mohnish.  But I came away from this meeting incredibly disappointed in his investment process. Essentially, I worry that he's swimming naked.

 

Most of the people on this board have MUCH more knowledge about the investment business than I do.  Again, I have never professionally managed money.  I know that it's a harsh and incredibly humbling business.  So, please let me know if you think my criticisms are unfounded.

 

One highlight of the evening (which won't be nearly as funny in written form):  During dinner, Mohnish told the story of when he told Charlie Munger about Atul Gawande (the brilliant surgeon who wrote two excellent books and the essay "The Checklist").  Mohnish asked Gawande whether Munger had contacted him:

 

Gawande: "He did.  He said he really liked my books and what I was doing.  Interestingly, a couple weeks after I talked to him I got, in the mail, a handwritten envelope from him.  I opened it up and inside was a check addressed to me for $20,000.  I called him up and said 'Mr. Munger, I got your envelope.  Thank you for the check, but I can't accept this.'"

Munger: "No, no, use it for something good." 

Gawande: "Sir, I'm a surgeon.  I'm seeing patients all the time.  I can't really just spend $20000 to do 'something good.'" 

Munger: "No, no, you're smart.  You'll figure something out." 

Gawande: "Okay, if you really want me to do something with it, I can give it to the Harvard School of Public Health."

Munger: "You fool!  If I wanted to give it to the damn Harvard School of Public Health, I would've written a damn check to the Harvard School of Public Health."

 

Gawande then decided to send it back.  A week later, he opens his mail to find another envelope from Munger.

 

Inside were two checks for $20000.  One to Gawande, and one to the Harvard School of Public Health.

 

-M

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Mdhousa,

 

Your criticisms seem valid, or at least sound valid.  The problem is, that if an investment manager utters one thing, then investors view it as fact.  There is no room for modification, editing, context or even evolution of the idea...the manager said it, therefore it is a fixed idea.  I have one investment partner who will absolutely fixate on one comment and act on it.  I don’t know how many times I’ve had to corral his impulses, and his family knows that too, but he has a heart of gold and I’ve learned to deal with this.

 

For example, you went and made a post, now some other fellow can come over to it and critique your comments, and it doesn't matter the context of what you said, or perhaps you didn't even complete your thought or discussion on the matter.

 

- you said you were considering investing with Mohnish, yet you say that he is doing a lot of handwaving and is now swimming naked

- you attended the meeting, yet you didn't ask him all the same questions you just discussed with the board

- you listened to him tell a story about Munger, but did not ask any questions at that point

 

You obviously have explanations for the three points above, and it isn't fair if I jump to a conclusion is it?  Buffett talks about derivatives being weapons of mass destruction, yet he went and invested Berkshire in them.  How many investors suggested that was hypocrtical?  And it probably was in most respects.

 

I don’t agree with a few of Mohnish’s ideas…for example, I absolutely believe in concentrated positions…ten or less…even if managing other people’s money.  I think magic formula investing is akin to an investor looking at P/E, P/B and some other metric, and thinking they’ve necessarily got something here…phhhppphhttt!  I use a mental checklist, and don’t do written ones…I probably never will.  But these are my personality flaws or perhaps benefits…I don’t know yet!  

 

An investment manager has to manage capital in the best interest of their partners.  There are certain restrictions in the way they can operate and things that they can do, and that has to be counterbalanced with the emotional constitution of their partners.  Mohnish suffered a tremendous loss last year, and that will automatically make an investment manager look for new and better ideas.  That is Mohnish’s evolution as a manager.  Some things may seem hypocritical today, because he believed them yesterday.  And some of the current ideas may evolve again in the future.  That is the business, that is learning, and that is making mistakes and earning your stripes.  

 

The end result is that he lost a fortune last year, and he’s made a fortune this year.  The question is, where will Mohnish be relative to the indices ten years out.  I’m betting he’ll do better than them, but not nearly as well as in the first ten years…simply because of size and more diversification.  Cheers!

 

 

 

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I have never met Mohnish but he does have quality to explain seemingly complex issues in simple way. Mohnish investment framework was shaped up by whatever he encountered when he started investing (e.g. -  easy money available in market which helped many of his earlier picks to come back) and assumed that it will continue. Some of his picks were too dependent on that assumption but I feel he would have done even better by sticking to concentrated portfolio during recovery.

 

Having said that I don't think his framework was flawed or current framework is not good. Both approaches have pros and cons. As Sanjeev mentioned , its a continuous improvement which I believe every investor goes through based on evolving circumtances. He is not buffet and even only recently we hear thoughts from buffet so freely.Having benefitted from listening Mohnish, I will be dissapointed if he can't express his thoughts just because he has to stick to it in future even if his approach changes little bit.    

 

I am not defending him but I do think he definately had mental checklist like most investors who might not have written checklist. I don't think anyone should form an opinion without getting the whole story and I do agree with Sanjeev that you can ask him same questions you have and get the whole story then make up your mind.

 

 

I did find Gawande story very funny and interesting. Thanks for sharing it.

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Harvest Natural Resources is not a Venezuelan oil company! Their biggest asset is in Venezuela and if it were nationalized they'd get money for that asset so his thesis really makes sense for this particular position.

 

 

  That said, the company grossly mismanaged capital over the past year and I no longer own it. 

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Mdhousa,

 

Your criticisms seem valid, or at least sound valid.  The problem is, that if an investment manager utters one thing, then investors view it as fact.  There is no room for modification, editing, context or even evolution of the idea...the manager said it, therefore it is a fixed idea.  

 

- you said you were considering investing with Mohnish, yet you say that he is doing a lot of handwaving and is now swimming naked

- you attended the meeting, yet you didn't ask him all the same questions you just discussed with the board

- you listened to him tell a story about Munger, but did not ask any questions at that point

 

You obviously have explanations for the three points above, and it isn't fair if I jump to a conclusion is it?  Buffett talks about derivatives being weapons of mass destruction, yet he went and invested Berkshire in them.  How many investors suggested that was hypocrtical?  And it probably was in most respects.

 

 

An investment manager has to manage capital in the best interest of their partners.    That is the business, that is learning, and that is making mistakes and earning your stripes.  

 

The end result is that he lost a fortune last year, and he’s made a fortune this year.  The question is, where will Mohnish be relative to the indices ten years out.  I’m betting he’ll do better than them, but not nearly as well as in the first ten years…simply because of size and more diversification.  Cheers!

 

 

 

 

Sanjeev,

You make excellent points.  The issue is that Mohnish has put himself out there.  There's a reason that his meetings attract 100s of people, when probably less than half are actually invested with him, and he has about 500m in assets.  He is as close to a "rock star" as it gets in this arena.  He has written two books, one of which you can link to buy from Amazon directly from his website.  He paid hundreds of thousands to have lunch with Buffett.  This all screams, "Pay attention to me.  I know what I'm doing."  It's not like Charles Barkley complaining that NBA players shouldn't be role models.  Mohnish is being paid to manage people's money.  I have every reason to expect thoroughness and consistency of thought in how he does this.  My concern is that his blowups (I'll give him a pass on SHLD, because a lot of people still believe in Lampert for good reasons, but Delta Financial and Compucredit seem entirely avoidable) and his adoption of checklists after the fact indicate that he was not, in fact, thorough or consistent.

 

-M

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DCollon, thanks for introducing me to Atul Gawande. I woke up almost an hour ago but I'm still in my boxers reading his essays. What a compelling essayist!

 

"The Itch" makes for a fascinating morning read.

 

His books are outstanding.  I like "Complications" more than "Better" but you can't go wrong with either.  They are sort of like the medical versions of "Freakonomics" - using science and anecdotes to try to make sense of a field that often makes no sense at all.

 

He had an absolutely brilliant article in the New Yorker a couple months back on why our cost of healthcare is so high, and focused it on a medium-sized town in Texas.  I believe Obama and/or Orzag saw it and invited him to help with their health care plans.

http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande

 

edit: realized my terrible spelling of "Freakonomics"

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His books are outstanding.  I like "Complications" more than "Better" but you can't go wrong with either.  They are sort of like the medical versions of "Freakanomics" - using science and anecdotes to try to make sense of a field that often makes no sense at all.

 

He is also coming out with a book later this year that is specifically on using checklists. The title is "The Checklist Manifesto: How to Get Things Right". Below is the Amazon link:

 

http://www.amazon.com/Checklist-Manifesto-How-Things-Right/dp/0805091742

 

The bestselling author of "Better" and "Complications" explores the significance of the lowly checklist, and how it has revolutionised medical practice and saved lives. Today we find ourselves in possession of stupendous know-how, which we willingly place in the hands of the most highly skilled and hardworking people. Yet avoidable failures are common, and the reason is simple: the volume and complexity of our knowledge has exceeded our ability to consistently deliver it to people - correctly, safely or efficiently. Atul Gawande makes a compelling argument for the checklist, which he believes to be the most promising strategy in surmounting failure. He looks at how the checklist has allowed pilots to fly airplanes with more power and range than possible before; and how taking this idea to the complicated world of surgery produced a 90-second checklist that reduced surgical deaths and complications in eight hospitals around the world by more than one-third. Along the way, he will show how checklists (which cost next to nothing) actually work, and why some make matters worse while others make matters better. "The Checklist Manifesto" is a fascinating exploration on the nature of complexity in our lives - and how we can best overcome it.

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