Video Link: https://youtu.be/K5Y73QFh4pE
In this episode, Mohnish Pabrai was asked how often does he review his position to make sure the thesis is on track?
In this episode, you’ll learn:
How often Mohnish Pabrai review his investment positions?
Under what circumstances will Mohnish Pabrai sell his stocks?
A professors study on investing like Berkshire Hathaway.
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MOHNISH PABRAI 00:07
The question is how often do I come back and review the position?
Well, so one of the things I do just before I pull the trigger is I'll write up a one-paragraph thesis. Usually no more than six or seven sentences of why it makes sense to make an investment in that business. And part of that six or seven sentences is what the business is worth. And why is worth that?
And so, you know, usually every quarter or every second quarter, you know, every 3 months or 6 months. I'll review some of the metrics that are coming out of the company. To see how they line up with what I had assumed or thought might happened.
And as long as that is in your – things don't go in a straight line as long as they generally lineup and they don't seem to egregiously violate. What we might have assumed then, you know, we might update intrinsic value calculations every six months or something.
But once the business gets to being worth around 90% of intrinsic value is a candidate for sale so we know when we're going to sell, before we buy. Not when but we know under what circumstances we'll be selling. something gets to be a 75 or 80 cents to a dollar. And something else shows up on the radar is a 40 cents to a dollar, And sometimes, we might sell even before that if – you know, and we don't have cash then we might make that switch.
So those are some of the – Some of the reasons that it might make sense. And you know, if I can add one more thing. You know, there were these are two professors. I think one was in Ohio State, the other was at the University of Nevada. And they did a study of Berkshire Hathaway for 30 years, I think from the mid 70s to around 2005 or 2006.
And they said that you know, what would be your returns if you bought what Warren Buffett bought after it was publicly known that he had bought the stock. And they made an assumption that you would buy the same stock on the last day of the month that it was publicly known that he had bought that stock.
And you found the worst broker on the planet. And you paid the highest price that the stock trading on the last day of the month. And then you started selling that stock when it was publicly known that Buffett had started selling. And again, you would sell on the last day of the month that it was publicly known that he is selling. Again, you would look for the worst broker on the planet and sell at the lowest price that traded on last day.
And these guys tell if you did this for 30 years, you beat the S&P by more than 11 percentage points a year. You know, so the S&P has done around 10% or so over a long time. You know, this would have done around 20-21% of something over that period.
And you know, if an investment manager just beat the indices after fees, you know, they are already in like top 15% or 20% of investment managers. If they beat the indices by just 3 percentage points a year, they are in the top 0.5% of managers, the top 1 in 200 managers. When you were talking about outperformance of 11 percentage points a year over a period like 30 years.
That is such an outline that you would probably be among you know, one of the best managers out of thousands and thousands of managers. And with due respect, you won't even need a BC degree. You know, in fact you could walk out of the class right now and set up the 'Berkshire Clone Fund' which just does that.
And in fact, every time I talked to students I tell them this particular story, And I always wait for someone to – you know, first to leave the classroom, but secondly start a fund that does that. And after all these years, no one left the classroom. And no one has started such a fund and so that opportunity is still wide open.
And so I just want to let you know, you know, this is not something Arvind is going to tell you. He's going to like – put your nose to the grindstone make it all kinds of, you know, analysis and stuff. And it's all boring stuff. This is the real way you make money and such.
And you know, you can hang out at the beach or on the ideal ski hill on 29 out of 30 days. In fact, you can hang out for 30 days, you can just take a 15-minute break on the last day just to check if Warren done something or not. And you know, after you replicate what he's done which takes you 5 minutes in your Blackberry or iPhone, you can go back to your ski.
And no one [Inaudible] beat the index by you know, 11%. So and in fact, in many ways what Pabrai's Fund is doing is – you know, something similar I haven't taken the trigger off just doing exactly what these professor said.
But in effect, I'm cherry-picking once a great brilliance have already processed it and what they think are great ideas. And then, you know just looking at the one that I think, you know, passed my limited circle of competence and I take it from there.
So let's take the next question.