During this interview with the Helvetian Investment Club, Mohnish Pabrai explained why it’s ok to end up with 80%-90% of your net worth in one stock. Here’s an excerpt from the interview:
Pabrai: One of the things I always kind of scratch my head about is that these very smart investors would buy MasterCard after the IPO, and they might be more diversified than me. They might have 20 positions, which is fine no problem.
And so MasterCard is like a five percent position and then it does really well and it becomes a 25% position or a 30% position because it’s done so much better than everything else.
And like Jack Nicholson said – they can’t handle the truth. And in some cases their grandmothers took away certain body parts when they were 13. And so they’ve done well. It gets to 15% and they trim. It gets to 17 they trim again, and it never gets to even 20 percent right.
And so to me I really scratched my head about that. So yes you get a diversified portfolio but you’re cutting the flowers and watering the weeds and that’s not what Rakesh Jhunjhunwala did and that’s not what Warren Buffett did.
So I think if an investment manager has done the job right they’re going to end up with 80, 90 percent of the net worth in one stock.
You can watch the entire discussion here:
For all the latest news and podcasts, join our free newsletter here.
The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.
It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization.
The Acquirer’s Multiple® is calculated as follows:
Enterprise Value / Operating Earnings*
It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com.
The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT.
Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up.
Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC.
He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.
Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
R. G. Niederhoffer Capital Management finished 2013 up 9.3% in the fund’s flagship diversified program, according to an investor letter reviewed by ValueWalk. The fund's benchmark, the Newedge Short... Read More
For this article, we look at the performance of the biggest unicorn IPOs as mentioned by a recent Business Insider article. By comparing the opening IPO price with the... Read More
Economic data
Since the end of last year, US business sentiment data has improved dramatically off the back of heightened business optimism. Expectations surrounding Donald Trump’s proposed regulation bonfire and... Read More
Horizon Kinetics commentary for the first quarter ended March 31, 2017; titled, "We're Going Mainstream."
In past reviews, we’ve titillated you with some of the more startling and story-worthy examples... Read More
Hedge Funds - Put Into Perspective by Skenderbeg Alternative Investments
"Forecasts usually tell us more of the forecaster than of the future." - Warren Buffett
Get The Full Warren Buffett Series... Read More
Wealthfront’s state-of-the-art, digital only platform tailored to next gen affluent investors will accelerate UBS’s growth ambitions in the US
Q4 2021 hedge fund letters, conferences and more
ZURICH--(BUSINESS WIRE)--Today, UBS and... Read More
LONDON — July 9, 2015 — A record level of US$103 billion in net new assets (NNA) was gathered by ETFs and ETPs listed in the United States in... Read More
Clifton Robbins Ira Sohn coverage brought to you by ValueWalk.
Clifton Robbins is Founder and Chief Executive Officer of Blue Harbour Group, L.P. The firm’s investment strategy is to use a... Read More
After an unrelenting year of fighting off cyber threats, the financial services sector should expect more of the same or even worse, as nation-state hacking campaigns are expected to... Read More
Rough notes of Elizabeth Lilly, Allan MacDonald, Paradigm, and Mason Hawkins presentation from the Ben Graham Centre’s 2018 Value Investing Conference.
We will be adding more from both this and Sogn later... Read More