Author Topic: Outlook India - Mohnish Pabrai  (Read 8187 times)

Parsad

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Outlook India - Mohnish Pabrai
« on: February 18, 2013, 09:20:17 AM »
Pretty long interview with Mohnish in Outlook India:

http://business.outlookindia.com/article.aspx?283880

Also interviews with other value investors, including Howard Marks & Wilbur Ross:

http://business.outlookindia.com/content.aspx?site=2&issue=10969

Cheers!
No man is a failure who has friends!


nkp007

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Re: Outlook India - Mohnish Pabrai
« Reply #1 on: February 18, 2013, 09:39:49 AM »
Pretty long interview with Mohnish in Outlook India:

http://business.outlookindia.com/article.aspx?283880

Also interviews with other value investors, including Howard Marks & Wilbur Ross:

http://business.outlookindia.com/content.aspx?site=2&issue=10969

Cheers!

Holy crap. The Mohnish interview is epic... and I'm only two paragraphs in. WOW. He crystalizes his thoughts so well.

Parsad

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Re: Outlook India - Mohnish Pabrai
« Reply #2 on: February 18, 2013, 10:00:13 AM »
I really like the quote:

There is a famous quote:  if wealth is lost, nothing is lost. If health is lost, something is lost and if character is lost, everything is lost.

Also, he says his family is the 2nd largest investor in the fund...who the hell is first!  He's got like $40-45M in there...must be an endowment or something. 

Very good interview!  Cheers!
No man is a failure who has friends!

PlanMaestro

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Re: Outlook India - Mohnish Pabrai
« Reply #3 on: February 18, 2013, 10:08:30 AM »
Yes, very good one. Thanks Sanjeev.

txlaw

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Re: Outlook India - Mohnish Pabrai
« Reply #4 on: February 18, 2013, 11:15:42 AM »
Excellent interview.

I think he's wrong on SHLD, though.  (Sorry, couldn't resist saying that.)

hellsten

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Re: Outlook India - Mohnish Pabrai
« Reply #5 on: February 18, 2013, 11:24:55 AM »
Thanks. Great interview.

Sounds like he would never invest in SHLD or airlines again:

Quote
I can give you a couple of examples of permanent losses of capital and my critical learning from those mistakes. One is Sears Holdings. I made this investment because the vast real estate and brand assets of this company are worth multiples of the stock price. But I learnt that those are virtually impossible to monetise because one would need to liquidate the business and lay off tens of thousands of workers. That is gut-wrenching and highly unlikely. Another one is Pinnacle Airlines.

Quote
Traditional airlines are a losing proposition because of various structural issues — your pricing is set by your dumbest competitor, your costs are subject to a duopoly of airplane manufacturers, a duopoly of engine manufacturers, and a duopoly of maintenance guys and all of them can get whatever they want from you. On top of it, your entire workforce is unionised on every front. You don’t have any leeway to control cost.

Donald Smith Co. sees value in airlines stocks today http://whalewisdom.com/filer/donald-smith-co-inc. (>10% in airline stocks). Berkowitz still believes SHLD is cheap. If I remember correctly, Pabrai told Sanjeev he didn't like Dell :)

Quote
“Unlike brain surgery, in investing you can be wrong 40% of the time and still do fine”

Unrelated to Pabrai, but I like the quote from Robert Shiller (http://business.outlookindia.com/content.aspx?site=2&issue=10969):
Quote
“Bubbles only burst after the critics of the bubble have been discredited by years of rising prices”
« Last Edit: February 18, 2013, 11:30:31 AM by hellsten »

txlaw

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Re: Outlook India - Mohnish Pabrai
« Reply #6 on: February 18, 2013, 11:34:03 AM »
Donald Smith Co. sees value in airlines stocks today http://whalewisdom.com/filer/donald-smith-co-inc. (>10% in airline stocks). Berkowitz still believes SHLD is cheap. If I remember correctly, Pabrai told Sanjeev he didn't like Dell :)

He certainly did! :D

Microsoft, Silver Lake, SEAM, et al, including Sanjeev, thought otherwise.

And that's what great about this board.  We tend to give our opinions even when they are contrary to the greats.

Parsad

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Re: Outlook India - Mohnish Pabrai
« Reply #7 on: February 18, 2013, 12:49:31 PM »
Donald Smith Co. sees value in airlines stocks today http://whalewisdom.com/filer/donald-smith-co-inc. (>10% in airline stocks). Berkowitz still believes SHLD is cheap. If I remember correctly, Pabrai told Sanjeev he didn't like Dell :)

He certainly did! :D

Microsoft, Silver Lake, SEAM, et al, including Sanjeev, thought otherwise.

And that's what great about this board.  We tend to give our opinions even when they are contrary to the greats.

We should qualify what Mohnish said about DELL, and I think this is his thinking about SHLD.  He believed Dell will destroy shareholder value long-term...more the business and the competition it faced.  Whereas I thought DELL was cheap on a nominal basis.  These two ideas aren't mutually exclusive.  So I'm not sure Mohnish was wrong long-term...he was just wrong about the value in the short-term. 

We are out of Dell now and we would have been out at a certain price regardless of the buyout...probably in the $15-18 range.  The buyout actually ended up being less than what we would have preferred to sell at, so it wasn't quite the home-run that we hoped for.  We did very well in a short-period of time, but not a grand slam.

I think SHLD may be similiar.  On a nominal basis, it is somewhat cheap, but that doesn't mean that long-term destruction of value won't continue to happen.  It's a rotten business with very good assets...now how do you monetize those assets before that rotten business eats it all up?  So far, it's eaten a massive chunk!  I think you've got a reasonably good chance with Eddie and Bruce controlling it, but they could do what Dell did and screw shareholders over as well.  And so far, Eddie's results of monetizing those assets has been very subpar.  Cheers!     
No man is a failure who has friends!

hellsten

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Re: Outlook India - Mohnish Pabrai
« Reply #8 on: February 18, 2013, 02:42:09 PM »
Donald Smith Co. sees value in airlines stocks today http://whalewisdom.com/filer/donald-smith-co-inc. (>10% in airline stocks). Berkowitz still believes SHLD is cheap. If I remember correctly, Pabrai told Sanjeev he didn't like Dell :)

He certainly did! :D

Microsoft, Silver Lake, SEAM, et al, including Sanjeev, thought otherwise.

And that's what great about this board.  We tend to give our opinions even when they are contrary to the greats.

We should qualify what Mohnish said about DELL, and I think this is his thinking about SHLD.  He believed Dell will destroy shareholder value long-term...more the business and the competition it faced.  Whereas I thought DELL was cheap on a nominal basis.  These two ideas aren't mutually exclusive.  So I'm not sure Mohnish was wrong long-term...he was just wrong about the value in the short-term. 

We are out of Dell now and we would have been out at a certain price regardless of the buyout...probably in the $15-18 range.  The buyout actually ended up being less than what we would have preferred to sell at, so it wasn't quite the home-run that we hoped for.  We did very well in a short-period of time, but not a grand slam.

I think SHLD may be similiar.  On a nominal basis, it is somewhat cheap, but that doesn't mean that long-term destruction of value won't continue to happen.  It's a rotten business with very good assets...now how do you monetize those assets before that rotten business eats it all up?  So far, it's eaten a massive chunk!  I think you've got a reasonably good chance with Eddie and Bruce controlling it, but they could do what Dell did and screw shareholders over as well.  And so far, Eddie's results of monetizing those assets has been very subpar.  Cheers!     

Thank you for clarifying. I agree that it is difficult to predict the long-term future and the impact of value destruction at Dell and Sears. I guess the same could be said about Chesapeake, so it would be interesting to know what Pabrai thinks about Chesapeake (~16% holding).

I'm perhaps simplifying too much, but Mohnish seems to like stocks where the price is cheap and the future trend is "easy" to see:
- BAC and C (turnaround almost complete, probably can't go much lower than in 2009 and 2011, interest rates must rise at some point?)
- Chesapeake (energy independence, natural gas price recovery, oil vs. gas price mismatch?)
- GM (cyclical low, cars can't get much older?)

My guess is that a housing recovery will help SHLD recover, but Lampert will probably take the company private before that happens :)

txlaw

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Re: Outlook India - Mohnish Pabrai
« Reply #9 on: February 18, 2013, 03:24:41 PM »
Donald Smith Co. sees value in airlines stocks today http://whalewisdom.com/filer/donald-smith-co-inc. (>10% in airline stocks). Berkowitz still believes SHLD is cheap. If I remember correctly, Pabrai told Sanjeev he didn't like Dell :)

He certainly did! :D

Microsoft, Silver Lake, SEAM, et al, including Sanjeev, thought otherwise.

And that's what great about this board.  We tend to give our opinions even when they are contrary to the greats.

We should qualify what Mohnish said about DELL, and I think this is his thinking about SHLD.  He believed Dell will destroy shareholder value long-term...more the business and the competition it faced.  Whereas I thought DELL was cheap on a nominal basis.  These two ideas aren't mutually exclusive.  So I'm not sure Mohnish was wrong long-term...he was just wrong about the value in the short-term. 

We are out of Dell now and we would have been out at a certain price regardless of the buyout...probably in the $15-18 range.  The buyout actually ended up being less than what we would have preferred to sell at, so it wasn't quite the home-run that we hoped for.  We did very well in a short-period of time, but not a grand slam.

I think SHLD may be similiar.  On a nominal basis, it is somewhat cheap, but that doesn't mean that long-term destruction of value won't continue to happen.  It's a rotten business with very good assets...now how do you monetize those assets before that rotten business eats it all up?  So far, it's eaten a massive chunk!  I think you've got a reasonably good chance with Eddie and Bruce controlling it, but they could do what Dell did and screw shareholders over as well.  And so far, Eddie's results of monetizing those assets has been very subpar.  Cheers!     

Perhaps "cheap on a nominal basis" is not the best choice of terminology. 

Because that almost sounds like you're saying that using certain value-oriented metrics, DELL and SHLD appear(ed) to be cheap at least on a short term basis.  That sounds sort of like the "value trap" thesis espoused by Chanos et al. 

On the other hand, the substance of your post indicates that you are saying that both companies are/were trading under IV, but that there was some probability (perhaps, a high probability) that the IV at DELL and SHLD would be destroyed through mal-investment or non-optimal capital allocation (opportunity cost of not monetizing assets and reinvesting).

I'm going to assume the latter is what you meant -- and then disagree with both you and Pabrai. 

I think that DELL's capital allocation with respect to M&A (not with buybacks or dividend) has been okay and that, while they certainly are not transforming on the cheap, they have not burned the capital used in M&A.  I think DELL had no choice but to pay full prices to create a platform to become the mid-market IBM.  And that over the long term, what we will see is that as the ES&S biz grows, the returns on incrementally invested capital will go up quite substantially and that DELL earnings will benefit from the operating leverage inherent in their distribution channel assets.  IMO, Michael Dell understand this and is taking advantage of shareholders to steal the company and this growth platform.

With SHLD, I submit to the board, as I have before, that ESL has actually preserved and increased the long term value of SHLD's assets by proceeding slowly and focusing on run-off, rather than on liquidating assets at fire sale prices.  First, it is not entirely clear that ESL could ever have liquidated its RE assets during the financial crisis.  Second, I think ESL avoided monetizing RE (both owned and leased) at fire sale prices.  Third, liquidating a bunch of stores at once would have hurt the intangible assets  -- brand values and market share in appliance, tool, and H&G equipment market.

So I think ESL has done the right thing.

But, hey, disagreement is what makes a market.