The latest development in Mohnish Pabrai’s camp (really three and a half people) is that he adopted a checklist for investing.
In a 30-minute interview that happened in April 2010, Mohnish talked to Steve Forbes about his list and how he uses it:
(Click on the picture to watch the interview at Forbes.com. Checklist is commented at about 3/4 into the interview)
In the Value Investing Congress that just happened in California earlier this month, Mohnish gave a talk on his check list. Thanks to our columnist Inoculated Investor who took detailed notes during the metting, we can have a summary of what he said in the congress:
In the Morningstar interview, Mohnish encouraged investors to build a checklist of their own so they can take it seriously. It would be nice if he can share the list with the value investing community.
But that will be too much to ask, I know.
With the 80-item check list, here are his top holdings at the end of March 31, 2010:
No. 1: Potash Corp. of Saskatchewan Inc. (POT, Financial), Weightings: 11.89% - 331,603 Shares
Potash Corporation of Saskatchewan Inc. is the world's largest potash company, the third largest phoshate producer and the second largest nitrogen producer in the world. Potash Corp. Of Saskatchewan Inc. has a market cap of $30 billion; its shares were traded at around $101.32 with a P/E ratio of 27.3 and P/S ratio of 7.6. The dividend yield of Potash Corp. Of Saskatchewan Inc. stocks is 0.4%. Potash Corp. Of Saskatchewan Inc. had an annual average earning growth of 31.7% over the past 10 years. GuruFocus rated Potash Corp. Of Saskatchewan Inc. the business predictability rank of 2.5-star.
Mohnish sold about 7,000 shares during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “POT” row to see how he has been trading this stock from quarter to quarter.
No. 2: Brookfield Properties Corp. (BPO, Financial), Weightings: 10.89% - 2,359,166 Shares
Brookfield Properties Corporation is focused on the ownership, management and development of premier office properties located in the downtown core of select North American markets, including: New York, Boston, Toronto, Calgary, Denver,and Minneapolis. Brookfield Properties Corp. has a market cap of $7.47 billion; its shares were traded at around $14.9 with a P/E ratio of 16.1 and P/S ratio of 2.8. The dividend yield of Brookfield Properties Corp. stocks is 3.8%.
Mohnish held his shares steady during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “BPO” row to see how he has been trading this stock from quarter to quarter.
No. 3: Harvest Natural Resources Inc. (HNR, Financial), Weightings: 10.8% - 4,771,814 Shares
Harvest Natural Resources, Inc. is an independent oil and gas exploration and development company with principal operations in Venezuela and Russia. Harvest Natural Resources Inc. has a market cap of $272.1 million; its shares were traded at around $8.18 with a P/E ratio of 32.7 and P/S ratio of 1503.2.
Mohnish has been selling this stock during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “HNR” row to see how he has been trading this stock from quarter to quarter.
No. 4: FAIRFAX FINL HLDGS LTD (FRFHF, Financial), Weightings: 9.28% - 80,886 Shares
Fairfax Financial Holdings Limited is a financial services holding company which, through its subsidiaries, is engaged in property, casualty and life insurance and reinsurance, investment management and insurance claims management. Fairfax Finl Hldgs Ltd has a market cap of $7.41 billion; its shares were traded at around $370 with a P/E ratio of 9.59 and P/S ratio of 1.12. The dividend yield of Fairfax Finl Hldgs Ltd stocks is 2.69%.
Mohnish bought about 270 shares during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “FRFHF” row to see how he has been trading this stock from quarter to quarter.
No. 5: Berkshire Hathaway Inc. (BRK.B, Financial), Weightings: 7.81% - 319,851 Shares
Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. Berkshire Hathaway Inc. has a market cap of $187.17 billion; its shares were traded at around $75.47 with a P/E ratio of 21.8 and P/S ratio of 1.8. Berkshire Hathaway Inc. had an annual average earning growth of 13.2% over the past 10 years. GuruFocus rated Berkshire Hathaway Inc. the business predictability rank of 2-star.
Mohnish sold about 5,000 shares during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “BRK.B” row to see how he has been trading this stock from quarter to quarter.
No. 6: Cresud S.A.C.I.F. y A. (CRESY, Financial), Weightings: 7.2% - 1,719,377 Shares
CRESUD SA-ADR is involved in the Agriculture Industry. Cresud S.a.c.i.f. Y A. has a market cap of $632.6 million; its shares were traded at around $12.74 with and P/S ratio of 1.5. The dividend yield of Cresud S.a.c.i.f. Y A. stocks is 2.3%.
Mohnish held his shares steady during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on CRESY” row to see how he has been trading this stock from quarter to quarter.
Conclusion
Mohnish had learned his lesson during the financial crisis and the mistakes he made. His checklist has prevented him from any major crashes so far.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Mohnish Pabrai for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
In a 30-minute interview that happened in April 2010, Mohnish talked to Steve Forbes about his list and how he uses it:
(Click on the picture to watch the interview at Forbes.com. Checklist is commented at about 3/4 into the interview)
In the Value Investing Congress that just happened in California earlier this month, Mohnish gave a talk on his check list. Thanks to our columnist Inoculated Investor who took detailed notes during the metting, we can have a summary of what he said in the congress:
He started to study the concept of a checklist after reading Atul Guwande’s article in the New Yorker on checklists. The aviation checklist approach to flying came about after the failure of the Boeing B-17 project for the Army. Checklists in aviation became absolutely fundamental from there.And finally in an interview Mohnish Pabrai granted to Morningstar during the VIC, Mohnish repeated some of the points (sorry for the automatic playing, I do not know to turn it off. Morningstar provides the code):
Key Breakthrough: all checklists for complex airplanes are similar and most of them are less than 12 items long. You couldn’t have a 7 page checklist because you could never get pilots to actually follow it. So, they broke it down to the most critical functions that absolutely had to be done. Aviation is now extremely safe and cheap. The system works well as a result of checklists.
What are the parallels to investing? How do we design the right checklist?
The FAA is a highly successful organization. They do nothing until a crash has happened but then they will spend months and years figuring out what happened. They will then model and see how many lives will best lost over the next 30 years if they do nothing. That entails determining what the value of a human life is. Right now we are each worth about $3M. They then multiply that times the number of potential deaths and use that value as a budget to try to make the changes they recommend. The changes will be within the context in terms of cost. Aviation improves only when there is a crash.
The best way to create an investment checklist is based on looking at crashes. These only include permanent loss of capital in Pabrai’s mind. The only humans who are 100% transparent when it comes to their mistakes are Warren and Charlie. But, to create a full list of pitfalls he then went through other high profile mistakes. He looked at the error and each time he found a mistake, he added a question to the checklist that corresponded to that mistake. The project is still ongoing but he now has 80 on the list. This has not changed any of his processes for looking at companies. It is when he is about to pull the trigger that he pulls out the checklist. The first time he runs it then he usually finds 5-7 things that he doesn’t have answers to. This tells him to go find the answers and then run the checklist again. No company could give him a “go” on all 80 questions. But, the checklist system has started to show him how he should position size investments. He went from being very concentrated to being more diversified. The current baseline is 5% bet and then 10% if he thinks it is a homerun or 2% if it is a basket trade. So far, the error rate is 0% and he has made the most investments in his career during the period in which he began
In the Morningstar interview, Mohnish encouraged investors to build a checklist of their own so they can take it seriously. It would be nice if he can share the list with the value investing community.
But that will be too much to ask, I know.
With the 80-item check list, here are his top holdings at the end of March 31, 2010:
No. 1: Potash Corp. of Saskatchewan Inc. (POT, Financial), Weightings: 11.89% - 331,603 Shares
Potash Corporation of Saskatchewan Inc. is the world's largest potash company, the third largest phoshate producer and the second largest nitrogen producer in the world. Potash Corp. Of Saskatchewan Inc. has a market cap of $30 billion; its shares were traded at around $101.32 with a P/E ratio of 27.3 and P/S ratio of 7.6. The dividend yield of Potash Corp. Of Saskatchewan Inc. stocks is 0.4%. Potash Corp. Of Saskatchewan Inc. had an annual average earning growth of 31.7% over the past 10 years. GuruFocus rated Potash Corp. Of Saskatchewan Inc. the business predictability rank of 2.5-star.
Mohnish sold about 7,000 shares during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “POT” row to see how he has been trading this stock from quarter to quarter.
No. 2: Brookfield Properties Corp. (BPO, Financial), Weightings: 10.89% - 2,359,166 Shares
Brookfield Properties Corporation is focused on the ownership, management and development of premier office properties located in the downtown core of select North American markets, including: New York, Boston, Toronto, Calgary, Denver,and Minneapolis. Brookfield Properties Corp. has a market cap of $7.47 billion; its shares were traded at around $14.9 with a P/E ratio of 16.1 and P/S ratio of 2.8. The dividend yield of Brookfield Properties Corp. stocks is 3.8%.
Mohnish held his shares steady during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “BPO” row to see how he has been trading this stock from quarter to quarter.
No. 3: Harvest Natural Resources Inc. (HNR, Financial), Weightings: 10.8% - 4,771,814 Shares
Harvest Natural Resources, Inc. is an independent oil and gas exploration and development company with principal operations in Venezuela and Russia. Harvest Natural Resources Inc. has a market cap of $272.1 million; its shares were traded at around $8.18 with a P/E ratio of 32.7 and P/S ratio of 1503.2.
Mohnish has been selling this stock during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “HNR” row to see how he has been trading this stock from quarter to quarter.
No. 4: FAIRFAX FINL HLDGS LTD (FRFHF, Financial), Weightings: 9.28% - 80,886 Shares
Fairfax Financial Holdings Limited is a financial services holding company which, through its subsidiaries, is engaged in property, casualty and life insurance and reinsurance, investment management and insurance claims management. Fairfax Finl Hldgs Ltd has a market cap of $7.41 billion; its shares were traded at around $370 with a P/E ratio of 9.59 and P/S ratio of 1.12. The dividend yield of Fairfax Finl Hldgs Ltd stocks is 2.69%.
Mohnish bought about 270 shares during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “FRFHF” row to see how he has been trading this stock from quarter to quarter.
No. 5: Berkshire Hathaway Inc. (BRK.B, Financial), Weightings: 7.81% - 319,851 Shares
Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. Berkshire Hathaway Inc. has a market cap of $187.17 billion; its shares were traded at around $75.47 with a P/E ratio of 21.8 and P/S ratio of 1.8. Berkshire Hathaway Inc. had an annual average earning growth of 13.2% over the past 10 years. GuruFocus rated Berkshire Hathaway Inc. the business predictability rank of 2-star.
Mohnish sold about 5,000 shares during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on “BRK.B” row to see how he has been trading this stock from quarter to quarter.
No. 6: Cresud S.A.C.I.F. y A. (CRESY, Financial), Weightings: 7.2% - 1,719,377 Shares
CRESUD SA-ADR is involved in the Agriculture Industry. Cresud S.a.c.i.f. Y A. has a market cap of $632.6 million; its shares were traded at around $12.74 with and P/S ratio of 1.5. The dividend yield of Cresud S.a.c.i.f. Y A. stocks is 2.3%.
Mohnish held his shares steady during 1Q2010. Premium member can click through to Mohnish’s portfolio and click on the “History” button on CRESY” row to see how he has been trading this stock from quarter to quarter.
Conclusion
Mohnish had learned his lesson during the financial crisis and the mistakes he made. His checklist has prevented him from any major crashes so far.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Mohnish Pabrai for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
