Mohnish Pabrai’s story is a true story of fulfilling the American dream. He came to the U.S. in pursuit of knowledge and managed to reroute his career. He did it impressively. Moving from mechanical engineering to becoming a successful investor is a story in itself. He focused on value investing and he is reaping benefits back from 1999. Mohnish Pabrai’s portfolio is tightly packed into three holdings with a lot of potential.
The majority of his portfolio is currently in Alpha Metallurgical Resources. The other two holdings are Consol Energy and Arch Resources. He is fully invested in the energy sector, and it is currently working for him.
He did sell the rest of his holdings during 2023 so we are seeing his rehauled portfolio. It still has to show what it can achieve, but we think that we will see even more from Pabrai in 2024. For more about Mohnish Pabrai’s life story and investment strategies, stay with us.
Mohnish Pabrai’s Current Portfolio
The current Mohnish Pabrai portfolio consists of three holdings valued at $232 million. Although he did sell 4 major holdings, he increased his remaining positions. His current portfolio consists of:
- Alpha Metallurgical Resources Inc (NYSE:AMR) with 76.51% of the portfolio
Currently, the biggest holding is a major part of Pabrai’s portfolio. He started trading it in 2023, and he bought shares on two occasions. The first time he bought 363 thousand shares at $152.90, and the second time, an additional 79 thousand shares at $195.33. Since then, the stock price skyrocketed to a current value of $402.46. This new holding brought him so far a gain of 151%.
- Consol Energy Inc (NYSE:CEIX) with 16.38% of the portfolio
A coal-focused energy company based in Pittsburgh, Pennsylvania is another new holding that Pabrai started in 2023. He currently owns 397 thousand shares, which cost him $28.2 million. Since the purchase, the value of stocks has increased and Pabrai’s stake has been raised to $38.1 million, netting a gain of 35%.
- Arch Resources Inc (NYSE:ARCH) with 6.26% of the portfolio
Pabrai invested in another coal mining giant after he sold other major holdings in 2023. He bought 78.2 thousand shares for $10.5 million. Pabrai’s stake is currently valued at $14.5 million, which means that he currently netted a gain of 39%.
Breakdown of Holdings by Industry Sectors
Currently, all three holdings in the Pabrai portfolio are from the energy sector. This is a major shift in his sector allocation from the earlier focus on financial services and the tech industry.
Mohnish Pabrai’s Background
Early Life and Education
Mohnish Pabrai was born in Mumbai, India. He earned a bachelor’s degree in mechanical engineering from University in Mumbai in 1981. Soon after he moved to the United States and obtained a Master’s degree in mechanical engineering from Stanford University in 1983.
Career Journey and Notable Achievements
At the beginning of his career, Pabrai was focused on mechanical engineering, and he founded an aircraft engineering company called Titan Group. The company under his management trived, and at the right moment, he decided to sell it in 1994. That showed his hunch for investing and soon after, he moved to the finance sector.
After the sale of his company, he left $1 million in savings, so he had some seed money for his first investment jobs. In that time, he got acquainted with the genius of Warren Buffett, and how he managed to constantly deliver at least 31% annual returns.
In 1999 he founded Pabrai Investment Funds intending to turn his $1 million to $1 billion in 30 years. He studied the strategies of both Buffett and Munger and tried to clone their approach to investing.
He managed to do just that and during the period between 2000 and 2018, his hedge fund returned a massive 1,204%. When compared to the S&P 500 159% return in the same period, it is an understatement to say that he succeeded.
He was one of the first that openly talk about using other investors’ ideas. On several occasions, he called himself a copycat, but his reverse engineering approach yielded results. Throughout his career, he showed great focus, and once he found an idea that drew him in, he was ready to dissect and analyze it to the last detail.
This tenacity in work resulted in two well-received books. His first book “The Dhandho Investor: The Low-Risk Value Method To High Returns” was first published in 2007. He coined the phrase Dhandho from the Gujarati word for business. In it, Pabrai discussed his view of value investing principles, and how he adopted the Warren Buffett method for his style. Also, he emphasized the importance of patience, due diligence, and thorough research.
In his second book “Mosaic: Perspectives on Investing”, published in 2004 he presented his view on Benjamin Graham and Warren Buffett’s principles. In it, he also adopts his new modernized and holistic approach to company analysis and value investing.
Investment Principles
Pabrai based his investment principles on Graham and especially Buffett. He is, in core, a value investor who is looking for stocks in undervalued companies. After thorough research, once he knows the company has potential, he buys stock and keep them for the long term.
Pabrai named his investment approach the Yellowstone Factor, named after the National Park with a supervolcano in it. The point he is trying to make is that even the most resilient businesses are sometimes impacted by nature.
That is why fundamental analysis is crucial – by conducting it, an investor can try to find all the possible factors that can harm the business. Minimizing downside risk is the first investment principle Pabrai abides by.
Like all other value investors, Pabrai invests in the long-term horizon. His take on this is “Why would I risk a short-term bet that could earn me 100%, with an unlimited downside potential?” He also points out that the shorting approach demands a lot of constant work, minding the market, and all other factors. Playing in the long run doesn’t require an investor to constantly check his investments.
Another point that we can take from Pabrai’s books and interviews is that he doesn’t think that retail investing is a good way to work. He mentioned that rarely do retailers identify arbitrage and right gaps in the market. Until they reach a possible chance to do something, they usually do not have a plan. He finishes by thinking that in one successful retailer story, there are a thousand unsuccessful ones.
As a lesson that he learned from other value investors, he avoids investing in highly valued businesses. To explain this view, he created a so-called “Pabrai’s law of large numbers”. By it, he wants to explain that investing in companies that have an annual cash flow of 3 or 4 billion dollars is not a good investment. Why? Because their winning streak cannot last forever. That is why he is on the constant lookout for undervalued companies that can deliver long-term returns.
When he looks at the company, he aims to “understand its DNA”. By DNA, he means the first 90 days of conducting business. These days are crucial in determining the way the company will handle any challenges in the future.
By those 90 days, he says that he can also identify innovators and clones. Based on his perception, he put Microsoft in the clone company group, while Apple was marked as an innovator.
This understanding of the DNA is one of the crucial factors when he chooses where he will invest. If you find a company with good DNA and well below its intrinsic value, you should not miss that kind of opportunity. Invest, and look at how the investment will grow over time.
Influences and Inspirations
Pabrai was influenced from several sides, starting from his Indian heritage. Through it, he learned the value of hard work, patience, and focusing on long-term goals. Next in line of big influences was Benjamin Graham, the father of value investing. Graham’s books on investing had a big influence on Pabrai’s investment strategy and philosophy.
But, he knew that Graham’s approach was a bit outdated and that it needed improvement. There comes his biggest single inspiration – Warren Buffett. Mohnish Pabrai’s greatest influence is Warren Buffett. A story about winning a lunch with Buffett for charity is still a topic even 17 years after it happened. He competed with Guy Spier for lunch with a value investor bigshot, and Pabrai was ready to pay $650,000 for it.
Pabrai went so far as to take Buffett’s strategy apart and analyze all the details. He aimed to understand all the cornerstones that made Buffett the most successful investor of the era. He and his partner Charlie Munger were always his role models, and he often stated that he copied their approach.
Notable Investments
Due to his Indian background, he had extensive data and knowledge about the investment opportunities in that emerging economy.
He saw the potential in Tata Consultancy Services. When they were still a relatively small company, he decided to invest in them. Later, they went ballistic, and their potential was out of the charts. His investment helped them to succeed, and he and his investors got a major gain from selling the shares held.
Another IT company from India, Infosys, with the help of Pabrai’s investment, solidified its position. Today they are a giant, and Pabrai’s hunch for undervalued companies with potential again proved him right.
Other notable investments that would rarely take place were investments in General Motors and Chrysler in the middle of the 2008 economic crisis. He bought shares of these then highly undervalued companies. He risked and waited for the companies to bounce back, and reaped massive returns.
Investment Strategies
Like all value investors, he prefers buying fundamentally good companies with growth potential. He utilizes the margin of safety as a safety blanket from sudden market twists.
From the example when he invested in automotive companies in 2008 when everybody else gave up on them, Pabrai showed real contrarian thinking. He understood that if he wants to succeed as a value investor he must adapt to this approach. Going against all odds is often the only way to find hidden gems.
Pabrai often pointed out the importance of patience. He regards it as a crucial element for a successful investor. He would rather wait out the investment that tosses it a first sign of a downward price trend.
Take A Look At Mohnish Pabrai’s MASSIVE Investment:
Risk Management
Pabrai’s take on risk management is to base your investments on the circle of competence. This practically means that you should understand how the company works, and what it can manage. That comes in line with other value investor thinkers. Knowing the fundamentals of the company is the best way to lower the investment risk.
By knowing the cash flow of the company, its competitive landscape, and advantages regarding competition, you already have half of the job done. He also prefers companies with simpler management that are easier to run.
His take on risk management through diversification is a step in the other direction when compared with the majority of investors. He doesn’t prefer high diversification. His thought is that a portfolio with 10 different companies from different industry sectors is all the diversification you need.
Once you start increasing the number of holdings to more than 50, you start losing your grasp on the investments. You do not know the companies, and you cannot get a glimpse at both their potential and limitations.
Mohnish Pabrai Performance Analysis
Since he founded Pabrai Investment Funds, Pabrai has managed to achieve 25% annual returns. When compared to the performance of the S&P 500 of 10% in the same period, that is a major overperformance. His fund recorded maximum returns of 120% in 2009.
Recent Developments
During 2023 Pabrai sold entire stakes in 4 of his former holdings:
- Micron Technology Inc (NASDAQ:MU). In this holding, he had 1.859 million stocks, and he sold them in 2023 on two separate occasions. The first time, he sold 269 thousand shares at an average closing price of $58.60. The second time, he sold the remaining 1.59 million shares held at $64.28 average closing price. He bought the majority of shares between Quarter 4 2018 and Quarter 4 2019 and paid for them on average $41.52
- Brookfield Corp (NYSE:BN). Pabrai stacked in this holding a total of 772 thousand shares. First, he bought 712 thousand shares at $39.91, and then he bought an additional 60 thousand shares at $33.78. He sold the entire holding at an average closing price of $31.79, resulting in losses for the investor
- Seritage Growth Properties Class A (NYSE:SRG). During 2021 and 2022, Pabrai sold 4.7 million shares at an average price of $12.97. He bought these shares when they were valued at $10.06 so they brought him a 29% gain
- Brookfield Asset Management LTD (NYSE:BAM). Pabrai acquired stocks in Brookfield on two occasions. The first time, in Q4 2022 he bought 712 thousand shares at $39.91. The second time, he bought an additional 60 thousand shares at $33.78. In Q2 2023 he sold the entire holding at $31.79, which resulted in significant losses for the investor.
FAQs
What Are Pabrai Investment Funds’ Top Holdings?
Pabrai currently has three holdings:
- Alpha Metallurgical Resources Inc (NYSE:AMR) with 76.51% of the portfolio
- Consol Energy Inc (NYSE:CEIX) with 16.38% of the portfolio
- Arch Resources Inc (NYSE:ARCH) with 6.26% of the portfolio.
Is Mohnish Pabrai a Billionaire?
Yes, he is. In 2023 his estimated value was about $2 billion.
Final Thoughts
If you are thinking of going down the road of value investing, Mohnish Pabrai’s approach can be a good cornerstone to get a grasp of things. He implemented some of the core values of other legends like Benjamin Graham and Warren Buffett, but he added his personal touch to adapt the strategy to current trends.
His investment approach is based on a concentrated portfolio that he keeps in the long run. He avoids having a highly diversified portfolio and keeps up to 10 holdings. From his current portfolio, we saw that he began a new investing cycle. He currently holds three fresh holdings that are showing promise. They are already delivering positive returns, but it is expected that he will continue buying through 2024.
