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Collection: Mohnish Pabrai - #57 'Berkshire, Fairfax & Leucadia'



Well, I think we bought Berkshire a few times and I think sometimes it got cheaper than at other times.

And you know, like for example, there's a – And I may not have all my facts straight on that. There's an emerging young investor called Allan Mecham. And maybe Arvind you can have him come and speak to your class, He's in Utah or some place, Arlington capital management or something is the name of the fund.

I think they have a few hundred million under management. And he had a – probably still has a pretty large position with Berkshire. I seems to recall it was more than 50% of the fund. And what he has done is he has levered that portfolio, borrowed against it to juice the returns.

And he basically levered because he in effect thought that with Berkshire, there was a put where Warren had said that you know, below 1.2 times book he will buyback stock. And so in effect when before that was 1.15 or 1.1 and whenever Buffett did that, the stock basically never went below those floors.

Probably went below so it would just came right back up because that is the time when Warren was buying. So he bought his position basically right at or slightly above that floor with the assumption that you know, it will do reasonably well over the future. And then he levered it on top of that to juice the return and he did quite well.

Now you know, I looked at that and you know to me the perspective was you know, I remembered Buffett's story about Rick Guerin. And the thing is that the Buffett put if you will, there are circumstances under which Buffett will not exercise that put.

For example you know, if you got to 2009 type pricing rather than buying Berkshire stock, he will be looking to buy other things. And he wouldn't care Berkshire went down. It's unlikely, very unlikely but in those types of scenario, Allan might get margin calls and it didn't happened during that period that he owned it.

Yeah, so in general I would say with Berkshire you would do reasonably well. But I think it's just so large that I think you ought to be able to find things that will do better. Unless it gets close to that floor level pricing.

Leucadia is a different animal now because you know the two founders are gone and there is another guy running it. So [Inaudible] handicap how well that guy does.

Fairfax you know actually they have a state objective of delivering 15% or more long-term return to investors. So if you agree with that and think they will do that and that's your objective. Then that will be a good stock to own for that.

But I think that if you are working with small amounts of capital, you ought to be able to do better than any of those ideas.


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