A comment was made recently on this site asking how
Mohnish Pabrai of Pabrai Investment Funds was doing.
The answer is, he is still grossly underperforming the
S&P 500. As Mohnish himself stated in his annual letter to investors for
2015 (page 6):
“All
three funds were down 15-19% for the year, while the bench mark indices were in
positive territory.”
A comparison of Pabrai’s Investment Fund 2 (PIF 2)* with
the S&P 500, using the figures published by Pabrai himself (on page 3 of
his 2015 letter) shows that from 1 July 2008 to 31 December 2015, this fund had
returned 1.63% compound per annum against the S&P 500’s 6.55%.
In
other words, $100,000 invested in PIF 2 on 1 July 2008 was worth $112,910 on
31 December 2015. If you had instead invested in the
S&P 500, your $100,000 would have been worth $160,950 (using Pabrai’s
figures).
It’s quite clear to me that Pabrai’s early performances
(pre-GFC) were hugely assisted by the raging bull market that was then in place.
Post GFC, Pabrai has struggled, he has not even been able to get anywhere close
to the S&P 500.
As I’ve said on this site before, people using investing
techniques espoused by Warren Buffett who do not have his incredible analytical
abilities will fail – guaranteed.
One of the primary reasons for this is the emulation of
Berkshire Hathaway’s concentrated portfolio (although it’s not that
concentrated these days). If you concentrate a portfolio and you are wrong in
your assessment, you will pay a high price.
Back in 2009 when I noticed Pabrai buying into mining
companies, I made the following observation on this site:
“I also wonder what skills
Pabrai brings to the valuation of iron ore mines, zinc miners, molybdenum
producers and the like? How does he know he’s buying them at low cost? Valuing
these types of assets requires very specialist knowledge and skills and I’m not
convinced that someone with no background in the industry has those skills.”
During 2015, Pabrai lost over $95 million in one
company – Horsehead Holdings, a zinc producer. For Pabrai Investment Funds, $95
million is a very significant amount of funds under management.
Australians have a particular wariness of zinc producers
as we have had some spectacular collapses of zinc companies – and believe me,
we know mining! I too observed what looked like some very cheap zinc producers
back in 2008-09, but knowing what I know, I didn’t touch them. It’s just as
well, it all ended in tears.
Whenever you invest your money, you should think of the
stock market as being very much like a pro golfer. A decent amateur may genuinely
believe that they can beat the pro and they may even beat him or her on a few
early holes, but over the journey of 18 holes, there is no way they will beat
the pro and the longer the game goes on, the more this will become apparent.
* I could have selected any of his funds, this one wasn’t
selected because it performed any worse than the other funds.
Thanks for the update. I found it difficult to locate Mohnish's returns over 1,3,5 and 10 yr period. Seems to be an unlisted / private fund.
ReplyDeleteI find it fascinating how a person with no relevant educational qualification (eg. CFA, BA Bus / Commerce) and no work experience in a Wall Street firm / Fund Manager / Investment House can gather so much FUM?! Is SEC useless like ASIC?
I thought he could be the next Buffett? Nope! No wonder he failed his job interview - sorry, I meant lunch interview - with Buffett.
The letters to investors give the information needed to calculate the returns (but it's not explicitly stated).
ReplyDeleteMohnish is very charismatic and a great speaker, this is of huge assistance in obtaining funds.
We should state that he hasn't done anything that would require SEC intervention. Underperforming an index is not a crime! It would just be nice if the (lazy) media took a much closer look at the records of certain individuals before writing them us as "gurus" and the like.
In most industries (plumbing, construction, accounting, medicine etc.), one would need a combination of both relevant education qualifications and practical experience.
DeleteMohnish completed a degree in the fields of computing and had no work experience in Wall Street or any Funds Management company.
I am surprised that SEC allows people to manage other people's money (and in some cases one's life savings) without relevant degrees or industry experience.
I think ASIC has similar education / training rules (or no rules) for Fund Managers.
That said, I do have admiration for him for being able to build up from scratch an IT business and selling it for US$20M. Also for being able to build up a successful Funds Management business.
On a different topic, I would like to get your thoughts on the collapse of BBY. In particular, why would people trust their savings with a small private company when there are so many respectable large service providers available? And they are surprised when the company collapses due to poor / questionable activities? That's why these companies are "private".
Whilst it's fine to deal with private service providers (plumbers, builders, tour guides, hospitals etc.), I think it's crazy to hand over your life savings to a "private" company.
Your point about other industries is a very good one. Try flying a plane or performing surgery without qualifications and experience! The trouble with money management is that people can just get lucky and look like they are competent when in fact they aren't.
ReplyDeleteAll these guys that have quite poor records but have amassed significant FUM have great marketing skills, not investing skills (the media continually confuses the two).
On BBY, I'm in agreement with you. I have no idea why people would invest with such firms. Storm Financial was another incredible example of people handing over large amounts to a firm that was not worthy of their trust. As they say, "there is one born every minute", if there wasn't, these firms would never exist.
No matter how badly Mohnish performs he will never outdo Phil Mathews for crappy returns!
ReplyDelete