Pabrai Funds Annual Meeting Notes 2009: Huntington Beach California

[AJB96]

Here some notes on the meeting: http://alexbossert.blogspot.com/2009/09/pabrai-funds-annual-meeting-notes.html

[Zpoly]

Thanks for posting.

[Parsad]

Great notes Alex!  Thanks very much and welcome to the board.  Cheers!

[Guest kawikaho]

Thanks for posting that.  The thing I like about Pabrai is his willingness to expose all of his mistakes and faults.  That's a humbling process that requires lots of humility.  Good to hear he's focusing a bit more on the macro picture.  I don't know how or why he didn't see the impending failure of the housing bubble.  There were lots of gurus talking about it.

 

And I like where he's going with diversification.  I like being concentrated, but if you can't handle the volatility and uncertainty, I think being highly diversified can also work just as well.  I've come to this conclusion after hearing about several very successful investment managers holding hundreds, if not thousands, of positions.  I thought about it, and done some research, and I think it can work out very well and reduce risk and uncertainty. 

[rranjan]

Well chosen 100 bets over 20 years will be more volatile but not risky if you don't need to take your money out before 20 years. It becomes risky the moment you need the money at random times because your need for money (real or due to fear) might happen when market is quoting very low price for your businesses.

 

Volatility, uncertainty and risk are three different things.

 

I am comfortable with concentrated personal portfolio which is by nature volatile but when you manage money for others you can't feel comfortable with same volatility level due to many reasons. I feel that’s the reason Mohnish is going for less volatility by diversifying more. But over long term I feel you can do better with concentrated portfolio because I find it difficult to make too many good decisions each month.

 

One thing I agree, people should stick to what they feel comfortable with else you tend to make wrong decisions at exactly wrong time which will reduce performance over long term.

 

Like Kawikaho, I admire Pabrai willingness to share new information even if it’s not consistent with his earlier approach. We have inborn bias to appear consistent to others and that’s the reason many fund manager don't want to talk about their current holding because it makes it difficult to change the thinking even if they find that they made the mistake. 

 

[bookie71]

I believe that there are two old addages:

1 - Don't put all your eggs in one basket;

2 - Put your eggs in one basket and watch it very closely.

#2 works best for me and has for quite some time - Schwab says I'm too concentrated, but they have given LUK an F rating for quite some time  ;D

[mpauls]

This is a blind post so I have no idea what he has said recently, nor do I know what his actions have been mid-term.  But from what I understand he got burned last year and as a consequence went from a focused portfolio to a broader number of holdings.  Had he changed prior, I'd have nothing to say, but if he changed as a consequence, there are unanswered questions. 

[rranjan]

I am not defending Pabrai but other way to look would be -  he went more diversified after realising that he overestimated the volatility tolerance level of his clients. This realisation could have come only after portfolio was down by big margin. Other words , he got burned but I don't agree with this wording even though some of his picks were questioanable due to being too dependent on money being available freely in the market. Now we can argue that he should have realised it without going through this experience but we all make mistakes and I do admire his willingness to share his thoughts and mistakes both so openly.

[T-bone1]

I believe at one point he also said that he was willing to be more diversified because entire sectors, like mining and oil/gas were cheap as opposed to individual companies that were unloved/misunderstood.

 

This doesn't account for his decision to permanately run a more diversified portfolio, but I agree this may be partly do to clients' emotions.

[CruiseTown]

Hi AlexBossert,

 

Thanks for your notes.  I always appreciate it when someone on the board shares with the others, particularly for us who live too far away/ overseas to attend the meeting.

 

When Mohnish asked Charlie about his down years in 73 and 74, you wrote most of it is family confidential.  What does that mean?  Did Mohnish decline to tell the crowd politely? Or did Charlie decline to tell Mohnish?

 

 

Thanks!

 

[sswan11]

Current (ETrade) quote for Level 3 bonds mentioned in quote (sold too early?):

Price  Yield

78    13.524

83 10.966

       

Level 3 Communications In  Trade History

3.5 06/15/12 Caa3/CCC 52729NBK5

Convertible - Call 06/15/10@101.17

[AJB96]

CruiseTown, Mohnish said that overall the majority of their discussion was mutually agreed to be family confidential.  Charlie probably answered the question but Mohnish declined to discuss what Charlie said.

 

sswan11, Thanks for the quote on the bond price.  I was trying to find it the other day but couldn’t.  Where did you get the current quote?

 

---

 

I would also say that Mohnish is still fairly concentrated around a handful of central ideas.  If he thinks commodities are cheap and give him inflation protection he will invest in a few players instead of just one. 

 

Those focusing on a short period of underperformance are likely to miss the bigger picture of very good average returns over the ten years since he started the fund.  The original fund is up 185% verse negative 25% for the S&P since inception.  Mohnish’s checklist and evolving portfolio structure is likely to continue to drive outperformance. 

 

Its very likely of the long run that he makes his goal of outperforming the index by over 3%.

 

-Alex Bossert

www.alexbossert.com

 

[rranjan]

 

Its very likely of the long run that he makes his goal of outperforming the index by over 3%.

 

 

Over long run, 3% outperformance is more than likely due to very high outperformance of early years .Closing the fund before 1B will also help with this.

[indirect]

Steve,

 

My guess is that he sold the lvlt bonds to buy some undervalued equity. credit markets improved before equity markets.

 

indirect.

[GaliPart]

 

sswan11, Thanks for the quote on the bond price.  I was trying to find it the other day but couldn’t.  Where did you get the current quote?

 

 

Alex,

 

For people without access to services like Bloomberg, I think that the best way to get current market info for US bonds is to get the TRACE data from FINRA:

 

http://cxa.marketwatch.com/finra/MarketData/Default.aspx

 

You can select the company name / ticker and then voila.  For example, to see the LVLT bonds, look at:

 

http://cxa.marketwatch.com/finra/BondCenter/SearchResult.aspx?q=LVLT

 

You can click through for more info on each bond, and also get trading history.  You can also set up watch lists....

 

Enjoy!

 

GaliPart

[Grenville]

Thanks for the info GaliPart! Very nice.

[AJB96]

Thanks GaliPart.