NRI fund whiz has Buffett for Rs 2.6 cr charity lunch
California-based Indian investor Mohnish Pabrai ponied up $ 650,100 (Rs 2.6 crores) in partnership last week for an upcoming charity lunch with legendary investment guru Warren Buffett. But at the end of what's arguably history's most expensive meal, it's the man known as the Oracle of Omaha who may be eating his heart out.
For good reason: Mumbai-born Pabrai, who idolizes Buffett, has outperformed the latter’s Berkshire Hathaway in recent years. Since its inception in 1999, the $ 600 million Pabrai Investment Fund has annualized returns of more than 30 per cent, Berkshire’s far weightier $ 43 billion weighs in at around 20 per cent over a longer period.
Pabrai’s secret? Call it the Patel Principle. In his recent book intriguing titled "The Dhando Investor," Pabrai examines the low-risk, high-return approach to business of the famed Patels from India who have quietly begun to dominate the motel industry in the US Gujaratis will recognize the word – a variation of the Hindi "dhanda" – the creation of wealth.
Building on the Patels’ innate sense of "dhando" and the principles of his value investing gurus such as Benjamin Graham, Warren Buffett, Charles Munger and others, Pabrai calls one of his chapters "Heads, I win! Tails, I don't lose that much!" Another chapter is titled, "Few Bets, Big Bets, Infrequent Bets."
The secret to investment success, Pabrai argues, is not to confuse activity with productivity. In a 2002 article in the online journal Motley Fool, he elaborated on this by quoting the 17th century French scientist Blaise Pascal, best remembered for his contributions to pure geometry and inventions such as the syringe, the hydraulic press, and the first digital calculator: "All man's miseries derive from not being able to sit quietly in a room alone."
Like Buffett, who often spends years without buying a single share, Pabrai puts his own spin on the Pascal principle: "All portfolio managers' miseries derive from not being able to sit quietly in a room alone."
Pabrai did not return calls for this article, but in investment circles, he often modestly claims not to do a whole lot other than read and wait for the occasional "loud shout" to make an investment. He says his calendar is mostly empty and he does not have more than one meeting a week. He even takes a nap most afternoons.
So how does he pick his winning stocks? "I wait to hear the scream 'Buy me!' " he joked in one interview. "It needs to be really loud, as I'm a bit hard of hearing."
You wouldn't believe that if you've heard whispers of his investing acumen. Among Pabrai's classic value investments that is spoken of in admiration in the market is when he dipped into the Norwegian oil tanker firm Frontline in 2002 soon after shipping rates fell to $5,000 a day. To remain profitable, the company needed rates of at least $18,000 a day on its 70 double-hulled oil tankers. Investors fled the stock, and it fell to $3.
Frontline wasn't considered a classic value play since it didn't have much by way of net current assets. But it had hard assets in the form of tankers. Pabrai studied the oil shipping business and discovered that small Greek shippers with near-obsolete single-hulled tankers were being hurt more than Frontline and were selling their ships for scrap. So he knew that when oil demand next surged, Frontline would be able to command premium rates. Months later, Frontline was charging $50,000 a day per tanker and Pabrai made a killing.
Pabrai came relatively recently into the investment world after nearly two decades in the tech field. In fact, he is a lapsed dotcommer and serial entrepreneur. In 1990, he quit his job working as an engineer for Tellabs in Chicago and abandoned his master's thesis at the Illinois Institute of Technology to launch TransTech, a systems integration company, which he funded with $30,000 from his retirement account and $70,000 from credit cards.
By 1999, Transtech, which had grown to 200 employees and $30 million in revenues, held no thrill. He sold it and dabbled for a while in internet start-ups till the industry went belly up. By then, he had read and appreciated the principles of value investing. He wrote a letter to the foremost exponent asking him for a job. The guru turned him down, saying he didn't need anyone; he liked to work alone.
No prizes for guessing the guru’s name.
Despite the rebuff, and his own subsequent success, Pabrai remains an unabashed fan of Buffett. He imitates him in almost every sphere of work, including operating alone and unobtrusively. In his spare time, he loves reading, playing duplicate bridge and analyzing businesses using Munger’s Latticework of Mental Models and the Buffett’s special situations and "moat-based" investment approach.
"Mr. Buffett deserves all the credit. I am just a shameless cloner," he said in one interview.
Such is his unalloyed admiration for the Oracle of Omaha that Pabrai has bid for the last four years on eBay for lunch with Buffett, even as his own fund has outperformed Berkshire Hathaway. He missed each time (Buffett gives the auction money to the Glide Foundation, which provides social services to the poor and homeless in San Francisco.)
But last Friday, the joint bid by Pabrai and his partner Guy Spier of Aquamarine Capital Management, beat out others for the now famous lunch at New York’s Smith&Wollensky, described as the steakhouse to end all arguments. Pabrai, who will meet Buffett with his wife Harina Kapoor and their two daughters Monsoon and Momachi, will pay two-thirds. Spier, who will be with his wife, will pick up the remaining third.
The date of the lunch is yet to be decided, but Pabrai isn’t sitting idle. "I’ll probably download the menu and see what we want so we don’t waste our time looking at the menu," he told AP.
There’s obviously a great deal more than steak at stake in this Buffett lunch.
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