As we reported last week, GuruFocus readers are given an opportunity by Mr. Mohnish Pabrai (also a GuruFocus reader) to ask 10 questions. We have sent the questions to him today.
There were overwhelming responses and we have received more than 100 questions. We are very proud of the quality of the questions that our readers asked. These questions show how intelligent our readers are. We looked at the questions again and again, and we want to ask all of them. However, we are limited to 10. We have made some filtering and combined some questions together. Still we have too many.
We sent these questions to Mr. Mohnish Pabrai, 17 of them, and multiple questions in each question. We give Mr. Pabrai the option of selectively answering them. If… if he answers all of them, all of us get an additional 70% gain.
Please don’t count, Mr. Pabrai!
Valuation and Investment Philosophy:
- How does your investment philosophy differ from Warren Buffett’s and Charlie Munger’s and why? As a follower of Warren Buffett you insist in buying into companies with a "moat"; nevertheless the kind of companies you tend to invest in do not appear to have wide moats as generally described by Warren Buffett and reflected in his holdings like Coca Cola, Gillette or American Express. Could you please expand on your definition of a moat and contest it with Warren's definition?
- Could you briefly provide some valuation techniques you use? Which method you favor or something else? I have read that if you find you are looking for excel while valuing, you take a pass. What’s your thought process when you value a company? Do you use models like a) Reproduction Costs of assets Earnings PV/Enterprise Value? b) DCF?
- I would ask Mr. Pabrai to expand on the distinction he made in his book "The Dhando Investor" between "risk" and "uncertainty". He wrote about investing in "low-risk, high-uncertainty" situations. What are some guidelines for distinguishing whether it's risk or merely uncertainty that has depressed a stock's price?
- What are the characteristic traits to avoid, if you want to be a successful investor? Which traits should you be looking for?
- Can you give us your definition for special situations? Do you have a checklist with regards to "special situation" investing that you run through personally and don't mind sharing? Is Buffett's advice that we shouldn't own a stock for 10 minutes if we aren't willing to own it for 10 years relevant here?
- What do you do with an investment which has performed unexpectedly or poorly? What information do you find most useful in this situation in deciding to sit tight, to sell or to buy more? When do you decide its time to throw in the towel before losing more of your original investment? For me, finding good companies to buy is usually not that hard; it's knowing what to do with them after you own them that's the hard part. Thanks for your advice - you are my favorite guru!
- What has been your biggest investment mistake? Not just a stock that did not perform as expected but a process or method error? (Loved Dhandho Investor!)
- Buffett invested in three distinct categories- Generals, Workouts, and Controls. I know you tend to avoid the latter, but relating to Generals and Workouts- how do you feel those types of investments apply to today's market? Grahamian Bargains, which can see huge returns with small amounts of capital, seem to be scarce, and M&A is so heavily covered that "workouts" now may be different than in Buffett's era.
Do you have any particular comments on investing in "Generals" and "Workouts" as they apply to investing today?
- Would you say that in your experience, your best investments have been derived from some obscure "hidden" asset value you find in an investment or from some traditional valuation measures?
- Warren Buffet stated that his ideal holding period is 'forever,' and that 20 investments in a lifetime are more than enough for any individual investor. Do you agree with these statements, or should one be more flexible in their investing strategy?
- What exactly are your reasons for avoiding the P&C business? There are some very well run companies in this arena and Buffett has profited from the business. Does it extend beyond P&C to all types of insurance; health, auto, reinsurance etc.?
- In pages 24-27 of "Mosaic: Perspectives On Investing", you come right out and say, "Do Not Buy Retailers". Some of today's retailers are priced very attractively today (eg. HD and WMT). The fundamentals of these companies look great and I see them as compelling reasons to buy. However, you didn't like retailers because of the transparency of the business. To me, it seems hard to duplicate a HD or WMT, but I could be wrong. It's been 5 years since your book was written and several retailer stocks have come down in price because of apathy among other things. Then, in "The Dhandho Investor", you evaluate BBBY (albeit not worth buying at the time), which implies you at least consider some retailers. My question is, "Do you still have the same conviction today to say, 'Do Not Buy Retailers' or has your opinion changed? Will you ever buy a retailer?"
- Do you maintain statistics such as the beta of your portfolio, Sharpe and Treynor ratios, etc., that you may be able to provide to readers?
- Currently you are handling less than 1 Billion dollars, as every fund manager knows size becomes an anchor to performance, as your fund increases in size, how will your approach change in stock selection? Will you move to larger companies like Buffett or will you "diversify"? Moving away from a concentrated portfolio? Is there a range of market cap stocks that you feel most comfortable with? Is there a point at which you will close your fund to new money, given the inverse correlation between size and performance?
- Do you speak to management to judge their quality, or do you use just their performance numbers? If you speak to them, what do you ask, and if you just use the numbers, which ones do you find most important?
The Art of Selling:
- (After reading "The Dhandho Investor" I have a few general questions) What suggestions (or more examples) can you give GuruFocus readers on the art of selling, which I consider a very difficult part of investing for a value investor.
- Congratulations for winning lunch with Warren Buffett. During the meeting with Warren Buffett, what are the most important questions will you ask Warren Buffett?
If your questions are not included, we feel really sorry. It does not mean that they are not good questions, there were just too many. We will try to get such opportunities again later and hopefully we can ask more.
Mr. Pabrai said he can “ hopefully respond to it within a few weeks.” If we get answers to those questions, it will be one of greatest interviews in the history of value investing. We will post the answers as soon as we receive them. Stay tuned.
To our honor, Mr. Pabrai said that GuruFocus has provided “a terrific service to the community.” He himself is “fan of your site.” Evidently Mr. Pabrai lists GuruFocus as one of his favorite sources for generating investment ideas in his new book, The Dhandho Investor. Also he is one of the earliest registered users of GuruFocus, his user ID is 48, which is out of more than 20,000 registered. If you have not registered, please register today.
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