It is not clear why he did not buy AIG, which is the largest holding of Berkowitz.
At the same time he bought banks that seem risky, he sold out positions that look relatively safe: Berkshire Hathaway (BRK.A)(BRK.B), Wells Fargo (WFC) and Cresud (CRESY).
One can certainly argue that these banks are not risky; they are just volatile. Their stock prices are sure much more volatile than the stocks of Berkshire and Wells. They are indeed more risky because their business quality and financial strength are much worse than that of Berkshire and Wells. The only explanation to why Mohnish Pabrai is almost all in with them is he thinks that the economy, the housing market and the banking sector will recover soon. During recoveries the stocks of lower quality companies run up much higher than high quality companies because they are more beaten down during recessions.
The only problem is what if the recovery takes longer than expected? What if the “second leg” of the recession comes? If that happens, we can easily see the prices of those banks cut in half again.
One can also argue that Mohnish is a long-term investor and he is thinking of a much longer term. Being a fund manager investing other people’s money, your investment time span is only as long as that of your clients who are tired of seeing their account balances shrink. Didn’t Bruce Berkowitz learn that the hard way last year?
Bank of America (BAC), Citigroup (C) and Goldman Sachs (GS) may be great bets if you are investing your own money and you are a REAL long-term investor. For those who manage other people’s money, the trip is going to be much tougher.
Didn’t Mohnish say heads I win, tails…
Here is the complete portfolio of Mohnish Pabrai.