{"id":39767,"date":"2013-07-08T10:24:42","date_gmt":"2013-07-08T14:24:42","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=39767"},"modified":"2013-07-08T10:24:42","modified_gmt":"2013-07-08T14:24:42","slug":"guru-in-focus-what-is-mohnish-pabrai-buying","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/07\/08\/guru-in-focus-what-is-mohnish-pabrai-buying\/","title":{"rendered":"Guru in Focus: What is Mohnish Pabrai Buying?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Warren Buffett<\/a><\/strong> is known for keeping the investment process simple.\u00a0 He avoids complex models, and once joked that if calculus were required, he\u2019d have to give up the money business and go back to his childhood job of delivering papers.<\/p>\n

But not even Warren Buffett can match Mohnish Pabrai<\/a><\/strong> when it comes to having a Spartan investment philosophy.\u00a0 Pabrai has effectively boiled the entire process down to the logic of a coin flip: \u201cHeads, I win.\u00a0 Tails, I don\u2019t lose too much.\u201d<\/p>\n

I love it.\u00a0 Short, simple, and yet profound.<\/p>\n

\"\"<\/a>\"\"
\nFor anyone not familiar with Pabrai, he is the principal of Pabrai Funds and the author of The Dhando Investor<\/i><\/a><\/strong>, a book on value investing I strongly recommend.<\/p>\n

Pabrai is a Warren Buffett disciple who takes Buffett\u2019s comments on diversification seriously:\u00a0 \u201cDiversification is a protection against ignorance. It makes very little sense for those who know what they\u2019re doing.\u201d<\/p>\n

According to his latest SEC filings, Pabrai has just six stocks in his $340 million portfolio<\/a>\u2014and half of its value in just two stocks: Citigroup ($<\/span>C<\/a>) <\/b>and Bank of America ($<\/span>BAC<\/a><\/b>).<\/p>\n

So what is Mr. Pabrai buying these days?<\/p>\n

Zinc\u2026and a lot of it.<\/p>\n

Throughout the month of June, Pabrai made several large additions to his holdings in Horsehead Holding Corporation ($<\/span>ZINC<\/a>), <\/b>a producer and seller of zinc- and nickel-based products and the leading supplier of zinc in North America.<\/p>\n

This is not a sexy business\u2026as there is nothing particularly interesting or exciting about a company that mines zinc or produces zinc power\u2026and it\u2019s not even a particularly profitable one.\u00a0 In fact, ZINC posted a loss in its last full year of reporting.<\/p>\n

It\u2019s not exceptionally cheap for a commodity producer either.\u00a0 Horsehead sells for 13 times forward earnings and at 1.5 times book.\u00a0 To put that in perspective, Teck Resources ($<\/span>TCK<\/a>),<\/b> a diversified miner, trades for 8 times forward earnings and 0.63 times book.<\/p>\n

I\u2019m having a hard time seeing Pabrai\u2019s angle here.\u00a0 He has a long track record of buying distressed companies and what he calls \u201clow-risk, high-uncertainty businesses.\u201d\u00a0\u00a0 Horsehead could certainly fall into this latter camp, as commodities businesses are anything if not uncertain.<\/p>\n

But this essentially looks like a large bullish call on the price of zinc.\u00a0 It appears that Pabrai is making a large bet that zinc\u2014which has drifted lower for most of the past three years\u2014is about to get a lot more valuable.<\/p>\n

He might have another angle, and I expect that he does.\u00a0 It would be unlike Pabrai to wager a decent chunk of his investors\u2019 capital on the price of a traded commodity.\u00a0 But because I can\u2019t figure out what that angle is, I\u2019m not going to follow suit.<\/p>\n

But might any of Pabrai\u2019s other holdings have potential?<\/p>\n

I\u2019m somewhat bullish on Chesapeake Energy ($<\/span>CHK<\/a>)<\/b>, as I am bullish about the long-term prospects for natural gas and I see this as a \u201cscandal stock\u201d with most of the bad news long ago priced in.\u00a0 I also like Pabrai\u2019s bet on General Motors ($<\/span>GM<\/a>)<\/b> via long-term warrants<\/p>\n

Otherwise, Pabrai is essentially just long financials in a big way.\u00a0 Buying Citi or Bank of America at substantially below book value should be a fairly low-risk investment.\u00a0 Bank stocks will continue to get knocked around with every Fed announcement, but if you are content to \u201cbuy and forget\u201d for a few years, it\u2019s hard to see losing a lot of money on that trade.\u00a0 And the upside could easily be 100% or more over the course of the next 2-3 years.<\/p>\n

Or, as Pabrai likes to say, this is a case of heads, you win.\u00a0 Tails, you\u2019re not likely to lose too much.<\/p>\n

\n

Related posts:<\/p>\n