Pabrai Investment Funds Annual Meeting Notes – 2014
— September 21, 2014
Fund Facts :
- Mohnish Pabrai (Trades, Portfolio) is the principle investor and is a classic value investor in the tradition of Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio)
- Pabrai Funds ( PF1 through 4 ) have a combined capital of $690 Million under management
- Inception : 2000
Value Proposition :
- No leverage / no margin / no short positions
- No management fees, only performance fees. ( typical expense ratio of Pabrai funds are between 0.04% to 0.08% )
- Pabrai family is the second-largest investor.
Dhandho Holdings :
- Founded in Q4 2013
- Raised $152.4 Million
- Setup as a SPAC ( Special purpose acquisition vehicle )
- Flexible vehicle – Ability to buy and hold fully owned subsidiaries for long term and portfolio of stocks
- Time limit (sunset) to invest funds raised from investors in proposed investment (Stone Trust Insurance )
- Headquartered in Porte Rico – for tax benefits
- First acquisition : Stone Trust Insurance
- Proposed date for IPO : 2015
Stone Trust Insurance – quick facts :
- Mutual insurance company with 5000+ policy holders
- Primarily into workers comp insurance
- Serving five starts in U.S in 2014 ( expected to expand to ten or fifteen stats in ten years )
- Earned $70 million in annual premium ( compared to $20 million in premiums in 2009 and $10 million in premiums 2004 )
- Expect combined ratio of 95 or lower over long term
- Dandho Holdings will infuse a capital of $30 million after acquiring Stone Trust Insurance for $35 million
Dhandho + Stone Trust Advantage :
- Dhandho’s cash surplus and backing will allow Stone Trust Insurance to grow without capital constraints.
- Boost’s Stone Trust’s credit rating from B+ to A- post acquisition
- Single investor ( Mohnish Pabrai (Trades, Portfolio) himself ) managing investments for Stone Trust ( Clone of Buffet’s model for Berkshire )
- Environment where the focus is on under writing discipline and not growth
- Dhandho will provide a non-institutional environment, which is important for success in insurance business
Q&A :
(Q) Why did you invest in Chesapeake Energy and what were your reasons to exit ?
Historically based on an energy equivalent basis, crude oil and natural gas prices should have a 6 to 1 ratio. However in the recent years the price of oil typically had traded 8-12x that of natural gas due to a combination of rising domestic production from unconventional shale gas and regulation of natural gas export from U.S. depressing price levels and fear premium for the global crude oil prices.
Chesapeake Energy ‘s stock price had hit a low under the leadership of Aubrey McClendon due to unsustainable expansion and spending. Aubrey ran into financial and ethical trouble and was ousted by the board of directors
Chesapeake Energy was going through a change in management with the appointment of Doug Lawler as CEO and election of Carl Icon and Lou Simpson (Trades, Portfolio) to the board. Doug Lawler had started to bring spending discipline and focus the company on it’s core business.
My expectations and assumptions when I invested in Chesapeake Energy were :
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