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Bloomberg on Pabrai-now he won't say returns-normally does, doesn't he?


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Guest kawikaho

AHA!  In my other thread, Trapeze Asset management, I failed to mention that they used to post a line chart that showed their returns over the past 10 years.  Sometime in Dec, that graphic disappeared.  I suspect it's because the graph would be an embarrassment. They at least mention their performance #'s.  I have been suspecting that Pabrai got demolished in the past year.  I've been tracking several of his investments, and they got destroyed: PNCL, CCRT, Delta Financial, etc...  He mentions his return for the past two years as being low.  Would a negative return be a return at all? 

 

This financial crisis has been a lesson in humility for lots of people. 

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Yes,

I remember telling this to certain people before the dot.com bubble had exploded.

 

I said something to the effect of "if your going to advert your returns in good times, you're going to have to be congruent and do them all the time - not just when its convenient".

 

Yes, many many people leard humility real fast.

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It's a little unfair to criticize Pabrai at this point.  His investment vehicle typically doesn't short, usually doesn't use options or derivatives and mostly invests in equities.  So, knowing those constraints, it's expected that he is down.  There aren't too many people that have those constraints that made money last year.  

 

Besides, he has still performed beautifully since the inception of his fund and I expect him to do so in the future.  

 

I agree.

 

Mohnish's letter dated January 16 2009 is at large on the internet.  It contains his performance numbers and some of his reflections on 2008.

 

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Mohnish had a very tough year, but he's always been honest about his performance.  For many years now, he's always warned his investors that the large outperformances can't continue.  He doesn't short, hedge or use any sort of derivative.  He's also never shut down redemptions from his fund. 

 

So, while he's had a bonecrushing year, he's never compromised his principles.  He also remains the single-largest investor in the fund.  His own personal networth went from over $50M down to $17M, so he suffers in exact proportion to his investors.  What more can you want?  I'm sure there are many, many managers who would like to do 2008 all over again, but you can't.  You learn from your mistakes, become a better investor, and stay true to your partners.  That's all you can really do.  Cheers!

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Guest kawikaho

If from 1999-2006 the return was 28% per year and it dropped 60% in 2008 and let's say it stayed flat in 2007, the return drops to 21% per year, still pretty good.

 

Well, from 99-2006 (7 years) the return is 28% CAGR.  If it was flat in 2007, CAGR would drop to 24.1% .  In 2008, with a 60% drop, CAGR would have dropped SUBSTANTIALLY.  His returns, based on your assumptions, would now be a little over 9.4% CAGR.  Nowhere near 21% CAGR.

 

BTW, 9.4% is nothing to scoff at.  In a time where the S&P has broke even for 13 years, and even the best have whittled their returns to just 1-2 percentage points above bonds, I'd take 9.4% any day. 

 

 

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Guest kawikaho

So far, this past year has devastated countless of money managers: Bill Miller, Heebner, Nygren, Pabrai, Trapeze, Ken Fisher, ZPRIM, and even Warren Buffet (to a lesser extent).  Does anyone know who sidestepped 2008?  Soros?  Berkowitz?

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If from 1999-2006 the return was 28% per year and it dropped 60% in 2008 and let's say it stayed flat in 2007, the return drops to 21% per year, still pretty good.

 

Well, from 99-2006 (7 years) the return is 28% CAGR.  If it was flat in 2007, CAGR would drop to 24.1% .  In 2008, with a 60% drop, CAGR would have dropped SUBSTANTIALLY.  His returns, based on your assumptions, would now be a little over 9.4% CAGR.  Nowhere near 21% CAGR.

 

BTW, 9.4% is nothing to scoff at.  In a time where the S&P has broke even for 13 years, and even the best have whittled their returns to just 1-2 percentage points above bonds, I'd take 9.4% any day. 

 

 

 

You're right, I forgot to deduct the 60% loss!

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Since dengyu is no longer here to talk about traders, I'll fill in.

 

Ray Dalio at Bridgewater (a quant fund), did quite well in '08:

http://money.cnn.com/2009/03/18/news/economy/okeefe_bridgewater.fortune/

Last year, when 70% of hedge funds lost money and the average fund fell 18%, Pure Alpha generated a gross return of 14%.

 

Jim Simons' Renaissance, another quant heavyweight, also returned 84% (!) after fees of 5/44

http://www.forbes.com/2009/04/08/wall-street-highest-earners-business-wall-street-earnings.html

The exception was his Medallion fund, which grew a staggering 84%, even after deducting its steep fees--44% of profits and 5% of assets (the industry standards are 20% and 2%).

 

Of course, not all of us are smart enough to do this kind of fancy math and programming, so those results may be of limited value to the value investor.

 

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Guest kawikaho

No, Berkowitz was down 30% in 2008.  Prem not only side-stepped, but made a huge profit.  My friend Peter Lindmark of Lindmark Capital also crushed the market in 2008.  Cheers!

 

Ah, right, forgot about the guru.  Prem definitely outperformed.  I can only hope FFH heads back to the 210 so I can buy 20% under book.  Hmmm... never heard of Lindmark, but thanks for mentioning it!  I'll have to go check them out.

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Also, his 10x10 approach was a mistake. He is changing.

 

An investor has to do what he's comfortable with, but I don't think that was the problem.  In fact, I think it's probably a mistake to now switch to a less concentrated portfolio, since such dramatic losses have already happened.  Now going forward, he has to find 20-30 positions, each will have less of an impact and he has to focus on far more businesses.  It's less efficient than what he was doing. 

 

I think the real problem was the correlated risk of various businesses that could be impacted by a severe economic downturn and the leverage utilized by a couple.  Normally, without hedging or shorting, he probably would have fallen on par with the markets.  Because of some of the indirect, but correlated risk from businesses like DFC, CCRT, PNCL, HNR and SHLD, he suffered worse than the markets.  If he stuck to his strategy, going forward the gains would be commensurate with the losses over time.  Cheers! 

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In a way, it makes sense for everybody to always learn and improve his investment strategy.

On a second note, I believe Pabrai self confidence got dammaged these last couple years.

 

Overall, Pabrai has lost a lot considerable money (even more so adjusted for taxes/inflation) for investors since his spectacular returns were concentrated the last few years.

 

Pabrai and Trapeze (on another thread) show how hard it is to beat the market long term by more than a few percentage points.

 

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From a previous post on the talk given by Mark Sellers, he pointed out that mathematically a 2% position using the Kelly Formula is like saying 51% I win, 49% I loss. This is quite a different take on Mohnish's "Heads I win, Tails I don't lose that much." With 30 positions, one would appear to be approaching this banality of 51% propositions.

 

From the FFH annual meeting this year, Prem quoted Templeton as saying "All you need is two out of three" or to paraphase -- you need 70% I win, 30% I lose propositions.

 

 

Cheers

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I think the mistake was to be adamant about choosing ONLY 10 stocks and allocating 10% each. When you are dealing with wide array of companies with various risks and rewards, how can you justify allocating almost exactly 10% of your capital in each?

 

Ah Kumar, I see what you are saying.  You mean putting exactly 10% in one idea regardless of the quality of the idea.  You don't have an issue with the concentration itself.  Cheers!

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My point was not about Pabrai in specifics - mine was just piggy back on a previous post in general on money management. I dont own any Parbai funds, never really followed him too much - dont even know his historic numbers.

 

On the general subject, I will say there are quite people here who did extremely well in 2008. Finding what you think makes sence and not worrying about concentration if you can stomach it.

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I agree with Sanjeev, I don't think more diversification will help Monish.  His problem seemed to be some bets on financials combined with not seeing the reset that was coming in the stock market, economy, bond market and housing and all of those interacting.  So what I would do instead is to first understand what has happened at the macro level and what that implies for the economy/asset values going forward and whether the implication is something different relative to a normal business cycle/asset cycle.  That was probably the deficient area so that area needs to be studied for its implications going forward.  Once that is done, and he seems like a smart guy so its probably already done, then I agree, based on that and based on standard Buffet/value investing principles find ideas that will work well given the macro but also using value principles and then concentrate, don't diversify.

 

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Munger says you just need 3 good stocks and I agree with him.  In 2008, I had essentially one good stock (ORH) I was 100% or sometimes more long using in the money call options such that even if it went to zero I could only lose 20 percent of my principle.  I was 100% short the Russell and long the US dollar more or less all the way through the year. 

 

Bought Berkshire and GE on the dips and sold promptly.  Bought KO and JNJ and held on as they should perform reasonably well in any economic scenario.  ORH is down a lot in 2009 but book is going up almost guaranteed this year and it is selling below book.  And if book does not go up because of further declines in stocks and bonds, then the competitors will be wiped out and its hard market time.  What more could you ask for?

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One key learning for me is to try to know when to be in the market, and when not to be - not exactly, but approximately. Buffet does this - 1969, 2007 (in personal portfolio). He cant in BRK because of size, so he can do only incrementally by hoarding cash, which he did.

 

Also, distressed investing is better in industrials rather than financials. Financials have too much leverage on smaller equity, and only real asset is trust - which is more easy to loose than hard assets. Buffet checked this in case of Amex by personally seeing that people were still using Amex cards even after the scandal.

 

I agree with the comments on 10x10, which is a good startegy but only for high quality companies. I also have 10% positions but only long-term high quality companies, rest are 3%-6%. 

 

Cheers

 

 

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