MOHNISH PABRAI 00:08
I gave Arvind a spreadsheet which has about 13,000 ticker symbols, one ticker symbol per row of this spreadsheet and then he is going to go to a website called random.org.
So what we're doing here is – we are picking a random stock, I don't even know what stock is going to be – no idea. And we just going to look at the kind of – what the price movement on that stock been and this could be a stock in any part of the world.
ARVIND NAVARATNAM 01:02
So this stock is in the U.S., its ticker –
MOHNISH PABRAI 01:05
ARVIND NAVARATNAM 01:06
Yeah, ticker PKE; P as in Paul, K as in King, E as in Elephant. And it's the company name is Park Electrochemical Corp.
MOHNISH PABRAI 01:17
Okay, so you know I have never heard of this company, maybe Arvind has. Maybe he owns it in his portfolio. (Laughter)
Alright so basically, if you look at lets say – you know, the Dhandho is looking at – like I pulled up Google Finance. So you can pull up whatever website you want which you prefer Arvind which has a –
ARVIND NAVARATNAM 01:38
We'll use the same as you.
MOHNISH PABRAI 01:40
Okay, so I'm just looking at Google Finance and you can see that the 52-week range on this stock is like from $19 to $32.
Okay so – you know, and maybe if one of you has a calculator, if you take the bottom to the top how much more than – top is more – is the top from the bottom, is it like 50-55% or something?
ARVIND NAVARATNAM 02:08
MOHNISH PABRAI 02:10
Okay so you know, from a – basically, if you bought at the bottom somehow you knew that was the bottom, it is a random company and you sold at the top within 12 months, you have 68%.
Then you know, If I looked at the 5-years – I'm looking at a 5-year chart on this thing. And the lowest price seems to be around $20 is probably at the $19 price and the highest price seems to be about $34, so we have about – what about 70% or so movement.
And you know if you see that chart, I want to see the chart for all years from the beginning. Yeah, so if you see the chart, you know from you know, this is going from 1978 onward. You can see really from you know, kind of 93 or 94 onward it's fairly choppy, you know, it just goes up and down all over the place.
And then you can see actually in probably during that dot-com boom. You know, this thing went from 15 bucks to 50 bucks in a few months and such. So anyway, let's pull up another symbol Arvind.
Let's run the generator again.
ARVIND NAVARATNAM 03:29
MOHNISH PABRAI 03:31
Mirror, mirror on the wall. (Laughter)
ARVIND NAVARATNAM 03:49
That translates into a company called Premier Gold Mines Limited in Toronto, ticker PG.TO.
MOHNISH PABRAI 04:00
Okay, so here we see a one year range within $1.28 and $3.52. And what is the – how high is that?
What is the percentage that the high is high above the below? So it's like a $2.26, it's almost 200% over the thing. If you look at – so again, you know you got massive swing within a year and then if you look at 5 years range on this thing. You know, it's all the way from $8 to $1.45.
So again, this is not anything like Iowa farmland and you seeing all these wide swings. And one of the big reasons you see these swings – of course, they are probably gold miners and they probably tied to the gold price and whatever people think is happening.
But again, another part of this whole thing is that it's not negotiated transaction, it's auction-driven market.
So let's pick another one Arvind.
ARVIND NAVARATNAM 05:17
That translates into a company in Singapore called Communication Design International Limited, SHTSI. Oh excuse me, I think that's a 5 so 5HT.
MOHNISH PABRAI 05:35
Okay, this is also a nano-cap or something. But let's see what's going on here. (Laughter) Alright, so we got like a – I think a one year – what's a one year range on this?
ARVIND NAVARATNAM 05:48
Right, market cap of 34 million.
MOHNISH PABRAI 05:51
Yeah, so it's like – now here you got from 3 cents to 15 cents. You know, a 5x delta in a year.
ARVIND NAVARATNAM 05:59
MOHNISH PABRAI 06:00
If you look at 5 years, it's like gone up to – well, it's like – looks like it's close to an all-time high here. (Laughter)
14 cents till a – like 2 cents to 14 cents and if I take the whole –
ARVIND NAVARATNAM 06:17
According to Google, it's at 8 times PE.
MOHNISH PABRAI 06:22
It might be a great buy! (Laughter)
ARVIND NAVARATNAM 06:25
It could be.
MOHNISH PABRAI 06:27
Maybe you can buy for your fund, Arvind.
ARVIND NAVARATNAM 06:30
MOHNISH PABRAI 06:31
And then, you know, if you look at the all time range from 2006. You can see from 2 cents to like 45 cents or something and such. So anyway, I think we could do this for a long time.
But the bottom line is that these picks aren't value picks, they are random picks right? And what tends to happen when you're doing value investing is you'll tend to buy things when they are in general cheap, and you might even be getting them closer to the bottom of the 52-week range because if you've been looking at it for a while.
It may be that you know, finally gets the point that it's cheap. And so one of the advantages you get with value investing is that just because of this natural wider swing in this asset class.
You can – so I mean, if you were an investor and you are limited to only buy Iowa farmland and that was the only asset class you could buy and sell or do option or whatever else. You basically will be screwed because, you know, you saw what that chart looked like.
And you know, you can do fine if you are a farmer and such. Though, people who are buying today that Iowa farmland may not do so well. You know, it might be good to rent it today because you're getting it pretty cheap if you rent it.
So basically, these stock market based assets that you are buying are really completely and uniquely different from any other assets. They are very different from buying whole businesses, they are very different from buying cars, they are very different from buying real estate and they are very different from, you know, pretty much any other asset class you can do.
And it's because you are not dealing with face to face. When face to face – when you do intelligent buyer facing intelligent seller, you will tend to get more times than not a pretty rational pricing.
Sometimes, you can get distortion like in late 2008 or early 2009 even private assets will get undervalued because people are just freaked out or need cash or something.
But in most circumstances, you won't get that with negotiated transaction but you can always – almost always find that in equity market because of these swings that are going on, companies are going through all sort of things like today the – today I think, I didn't check but how much was the Dow down today Arvind?
ARVIND NAVARATNAM 09:30
300? Probably 300?
MOHNISH PABRAI 09:32
Okay, yeah so over 300 points.
And you know, so all kinds of businesses got marked down. And you know, I used to give the example. In fact, I will take a look here. There is a company called Service Corp.
And you know, you can see that Service Corp with Arvind post it up, its got – it dropped 2% in price today and you know, this is a company that bury dead people and they are in the funeral services business.
So whatever caused the market to go down, Arvind what caused the market to go down?
ARVIND NAVARATNAM 10:14
I have no idea.
MOHNISH PABRAI 10:16
Anyone else want to take a crack of what happened? What happened that caused the market to go down today? You know, how these commentators have a one-sentence answer?
Like I heard earlier today on CNBC that – and maybe I don't know this was the reason where I just caught a tongue bite where they were concerned about Draghi, Mario Draghi, and they said the people are concerned that the emperor has no clothes.
You know, maybe they are questioning its ability to actually do things in Europe. So I don't what happened but something jolted the market, I have no idea what happened. But whatever jolted the market, it did not increase human life expectancy. (Laughter)
Did it increase human life expectancy today? Any of you could answer. Did we have any change in the way humans take care of their death today?
AUDIENCE MEMBER 11:17
Maybe, fewer people died. I don't know.
MOHNISH PABRAI 11:20
Pardon, fewer people died?
AUDIENCE MEMBER 11:22
MOHNISH PABRAI 11:23
You think fewer people died? Arvind, do we have a baller on the screen or not on the TV nowadays? (Laughter)
Okay, so basically you look at something like Service Corp. So whenever you have these big ups and downs in the Dow, you know, if Service Corp were a private business and they were negotiating to sell the business, and they've been negotiating at – yesterday, they are agreed to some price and then today the buyer comes and said listen the Dow dropped 300 points, so I need to drop your price by 2%, you know, the seller would tell him go take a hike.
You know, they are not concerned with all that. And so you can see that you have these swings taking place and today is a good example where everything gets marked down.
And Service Corp is just an example, an extreme example of a company which is just burying dead people or cremating dead people and you know, what a wonderful business to be in. And you know, why should they have any impact whatsoever on their business valuation because of today, but they did.
And in fact, even if you look at Service Corp. I just pulled up like the one year range on this thing. So if you look at the one year range of this, it's like a $17 to $23. Again, that's a fairly large range for a company that is doing something as benign as burying dead people.
But if you look at it 10 years, you know, over 10 years this thing has gone from like I don't know like $2 or $3 all the way up to $23 and their business – In fact, the funny thing is it went down a lot during the financial crisis. (Laughter)
You know, you see that chart during the financial crisis in 2008 and 2009. Okay, did people stop dying then? (Laughter)
Did they have more heart attacks at that time or less heart attacks? You know, did the – like the did human mortality changed at that time? What happened then? Nothing happened. You know and either did they have a margin or anything else.
So you can see kind of what's happening and this would not be the chart if we had a chart of private transactions of buying and selling a funerals. You know, this would not be the chart that shown up, that will be a completely different chart.
So those are my kind of remarks I wanted to make. And we can talk about anything you have in mind now Arvind.
1. Focus on the business and not the market movement.