Video Link: https://youtu.be/zYwhwziO2ao
In this episode, Mohnish Pabrai was asked how does he think about allocation between debt and equity because he previously owned distressed debt in his portfolio.
In this episode, you’ll learn:
Bonds vs. Equity.
What is Mohnish Pabrai comment on bonds?
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MOHNISH PABRAI 00:07
Yeah, that's a good question. So you know, we aren't really fixed income investors like I mentioned, the lowest bar is looking for 2x. But sometimes we found businesses where the bonds were sitting at, you know, 50 cent on the dollar or 30 cent on the dollar.
So obviously, if we invest in the bonds we're going to be high on the capital structure. And to some extent, it's a little bit easier to make those Investments if you have high conviction that the business is going through temporary distress and those bonds are likely to get to par in some reasonable time frame.
So in that case, you know the equity might give you even more returns. You know, sometimes when you have bonds at 40 cents by the time they get to par the equity might be a 5x. But the risk profile is much more muted with the bonds.
And so sometimes [Inaudible] opted to buy distress bonds. And gone that way and it's work out okay. It's just a proxy for equities.