To read more about what transpired during the lunch between the two Investment Gurus, users are encouraged to read this article by Tess Vigeland with www.publicradio.org.
As a good old book says, "For Where Your Treasure Is, There Your Heart Will Be Also”, Pabrai follows the same attitude towards the wealth as Warren Buffett, we will then have a true believer in Warren Buffett. I do not second guess his motives of spending so much money on a lunch on a guy he truly believed in and felt very indebted to. I dismiss the idea of that is a simple marketing event for his fund.
Talking about investing, after the famous lunch in 2008, Pabrai’s hedge fund’s performance actually turned south. For the year 2008, his portfolio was down 60%. 2008 was a rough year for everybody. But if you are managing money for a couple of hundred families and you are down 60%, you have a lot more questions to answer than just your other better half. I believe Pabrai had many soul-searching nights.
The only visible sign of change in strategy, is that he would from now on instead of owning 10 stocks (10% each so called “10x10”), he would, according to an article entitled “ Lessons to be learnt from losses” by Whitney Tilson in FT.com:
One star money manager who has decided an investment strategy change is in order is Mohnish Pabrai of Pabrai Investment Funds. Having endured a humbling 2008 after several years of outsized returns, Mr Pabrai concluded that his "10x10" approach to position sizes - targeting 10 per cent positions for all his most compelling ideas - needed refining.
His new guidelines for diversification set the target position size at 5 per cent, for which "a double has a meaningful impact on the portfolio and a 50 per cent drop means a 2.5 per cent hit - both of which are acceptable", he says.
Position sizes up to 10 per cent will occur only on an exceptional basis, he says, "if seven moons line up". All other positions will be closer to 2 per cent, especially those in highly correlated stocks - such as those of a zinc producer and iron ore miner - or those with highly asymmetric risk/reward profiles.
In fact, Mr Pabrai says he's finding many opportunities today that fit his 2 per cent position.
He is pragmatic in explaining his strategy change. "One needs to be a learning machine and be willing to give up some of one's best-loved ideas when the evidence suggests they are flawed."
In 3Q09, Pabrai reported a holding of 17 domestic stocks distributed among $333 million. Not included in the portfolio is his foreign stock holdings and cash.
On performance: Mohnish delivered superb returns to his investors this year. Through September 30, 2009, all three funds were up more than 110% and beating the market indices by a large margin.
What portfolio can be so powerful that doubles since beginning of the year? Here are his top holdings as of Septemb 30, 2009:
No. 1: Ternium S.A. (NYSE:TX), Weightings: 9.28% - 1,126,331 Shares
Ternium is the leading producer of flat and long steel products of Latin America and consolidates the operations of the steel companies Hylsa in Mexico Siderar in Argentina and Sidor in Venezuela. Ternium S.a. has a market cap of $6.46 billion; its shares were traded at around $32.2 with and P/S ratio of 0.76.
Pabrai held the stock since 2Q07, when he had 1.64 million shares. He reduced his holdings from 1.78 million shares to 1.13 million shares in 3Q09.
No. 2: Potash Corp. of Saskatchewan Inc. (NYSE:POT), Weightings: 9.06% - 324,058 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 $33.02 billion; its shares were traded at around $111.64 with a P/E ratio of 22.24 and P/S ratio of 3.49. The dividend yield of Potash Corp. Of Saskatchewan Inc. stocks is 0.36%. Potash Corp. Of Saskatchewan Inc. had an annual average earning growth of 12.6% over the past 10 years.
Pabrai increased his shares from 154K shares to 324K shares.
No. 3: Harvest Natural Resources Inc. (NYSE:HNR), Weightings: 8.98% - 5,655,201 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 $189.73 million; its shares were traded at around $5.72 with and P/S ratio of 16.91.
Pabrai held his 5.7 million shares of HNR steady during the quarter.
No. 4: Teck Resources Ltd. (TCK), Weightings: 8.59% - 1,006,501 Shares
Teck Resources Limited, formerly Teck Cominco Limited, is a diversified resource company committed to responsible mining and mineral development with major business units focused on copper, metallurgical coal, zinc, gold and energy. The Company is actively exploring in countries throughout the Americas, Asia Pacific, Europe and Africa. It also sells electrical power that is surplus to its requirements at the Trail metallurgical operations. Teck Cominco Ltd. has a market cap of $19.91 billion; its shares were traded at around $34.38 with a P/E ratio of 23.07 and P/S ratio of 3.06.
Pabrai held his one million shares of TCk steady during the quarter.
No. 5: Brookfield Properties Corp. (BPO), Weightings: 8.23% - 2,360,767 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 operates real estate service businesses and develops master planned communities. Brookfield Properties Corp. has a market cap of $5.51 billion; its shares were traded at around $11.01 with a P/E ratio of 11.59 and P/S ratio of 1.98. The dividend yield of Brookfield Properties Corp. stocks is 5.09%. Brookfield Properties Corp. had an annual average earning growth of 12.7% over the past 5 years.
Pabrai increased his holding in BPO from 2.1 million shares to 2.36 million shares.
No. 6: Fairfax Financial Holdings Ltd. (FFH), Weightings: 7.9% - 68,812 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 Financial Holdings Ltd. has a market cap of $6.83 billion; its shares were traded at around $346.69 with a P/E ratio of 8.93 and P/S ratio of 0.86. The dividend yield of Fairfax Financial Holdings Ltd. stocks is 2.31%.
Pabrai kept his 68,812 shares of FFH for the third quarter of 2009.
Pabrai sticks to same investment thesis with his holdings and has achieve superb return so far this year.
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