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Collection: Mohnish Pabrai - #121 'Position Sizing'


Video Link: https://youtu.be/qxM4ip6e5YI


In this episode, Mohnish Pabrai was asked when he is weighing up a decision to make an investment how large of a position is he willing to put into a certain investment as it relates to his entire portfolio?


In this episode, you’ll learn:

  • Mohnish Pabrai on his portfolio position sizing.

To check out all Collection: Mohnish Pabrai <click here>

 

[Transcript]

(Source: https://youtu.be/jfxOvdiac94)

AUDIENCE MEMBER 00:00

Can you share with us a little bit about your thoughts as relates to opportunity cost. And when you’re weighing up a decision to make an investment how large of a position you’re willing to put into a certain investment as it relates to your entire portfolio?


MOHNISH PABRAI 00:18

Yeah, that’s a great question.


Well, I think that – I used to run Pabrai Funds with a very simple model that if we’d make a bet, we’d make it 10% of assets. You know, kind of a 10 stock portfolio – 10-12 stocks makes kind of sense to me.


And what I found is that during the financial crisis, we were finding lots of companies where they were kind of entire classes of businesses that were really cheap and we could get some diversification by buying a basket. And I also found sometimes it was better to not always do 10, sometimes a smaller bet was justified.


So now what I do is I’ll either do a 2% or 5% or 10% bet, just depending on what the – what it looks like, you know, so if I ever get to the point where, you know, you think very high discounts to underlying value at the same time, very low probability of a loss then you can, you know, step up and otherwise you can pull back. But I would say that the less bets the better and the more you know about the business and the greater the conviction the better.


You know, so Jeff is in the real estate business, he does very well and specifically in single family homes, renting and flipping, both. And so the thing is if you ask someone like Jeff, you know, you might question what he’s doing because he’s everything is in one asset class, it’s in almost one geography maybe a couple of geographies.


And so you might say there’s a lot of concentration there, but at the same time the degree of knowledge is very deep and I sense they know what they’re doing. So in fact looking at the two of us, you know, I would think that I'm maybe too diversified and you might actually have it right because you’re – you are very close to what you’re doing. And you know what you’re doing, you’ve been in that space for a long time.


So there’s a lot to be said for the depth of knowledge and such.

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