Hedge Fund Manager Mohnish Pabrai’s Stock Picks

Mohnish Pabrai is a value investor who’s following in the footsteps of great value investors like Warren Buffett and Joel Greenblatt. He even set up the fee structure of his hedge fund the same way Warren Buffett did more than 50 years ago. He doesn’t charge any management fees and takes 25% of returns that are greater than a 6% threshold.

MOHNISH PABRAI

Mohnish Pabrai was very popular prior to 2008. His funds lost around 60% in 2008, sending a clear signal of the risks of his investment style. He had a complete reversal in performance in 2009, returning around 120%. He says he’s using a checklist now in order to avoid past mistakes. He strongly recommends Atul Gawande’s Checklist Manifesto. Triple digit returns helped him get more funds flowing in. Currently Pabrai has more than $500 Million in assets under management (AUM). You can learn about Mohnish Pabrai’s investment philosophy by reading his two books: Mosaic: Perspectives on Investing, and The Dhandho Investor: The Low – Risk Value Method to High Returns.

His new methodology seems to be working. In 2010, Pabrai managed to beat most equity hedge funds, returning more than 30%. Mohnish Pabrai added two new stocks into his portfolio in the third quarter of 2010: Posco (PKX) and Teck Resources Limited (TCK). PKX performed terribly since then, losing 6% despite the double digit gains in the stock market. Teck Resources returned 43%, compensating for PKX’s poor performance.

In the fourth quarter, Pabrai added Brookfield Infrastructure Partners (BIP) to his portfolio. The stock returned 8.1% so far this year, vs. SPY’s 5.2%. Pabrai also quadrupled his Harvest National Resources (HNR) position. The stock returned 4.4% since the end of December. Another bullish bet was Air Transport Services Group (ATSG). This stock was a poor performer until today. Today, the shares jumped 10%. Pabrai seems to have started dumping Posco (PKX) during the fourth quarter. It was a good decision; the stock is unchanged so far this year, underperforming the market.

Here are the 14 biggest positions in Pabrai’s $300+ Million 13F portfolio:

Company Ticker Return Value (Millions)
Potash Corp. POT 19.6% 52
Brookfield Properties BPO -0.2% 41
Brookfield Infrastructure BIP 8.1% 37
Cresud S A C I F Y A CRESY -2.1% 26
Posco PKX 0.9% 23
CapitalSource Inc. CSE 13.0% 20
International Coal Group ICO 19.1% 19
Goldman Sachs Group Inc. GS -1.7% 19
Horsehead Hldg Corp. ZINC 7.2% 18
Air Transport Services Group ATSG -7.8% 17
Terex Corp TEX 16.2% 16
Pinnacle Airlines Corp. PNCL -12.5% 16
Wells Fargo & Co. WFC 6.7% 12
Harvest Nat Res Inc. HNR 4.4% 11

These 14 stocks returned 6.3% since the end of December, beating the SPY by 1.1 percentage points. Pabrai’s best performing stocks were International Coal Group (ICO), Potash (POT), Terex (TEX), and CapitalSource Inc (CSE). Potash is owned by several other hedge fund managers, including Daniel Loeb. Seth Klarman has a huge CSE investment which netted him nearly $200 Million since the stock market’s bottom in 2009.

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