His turnover is very low, in 2017 he made no new purchases and sold just one stock. This is one of the reasons he doesn’t manage money for institutions. He believes that institutional investors will pressure managers into making changes to a portfolio to justify their fees.
Since 2016, Pabrai has published an interesting strategy called the ‘15-Stock Free Lunch Portfolio’. The portfolio consists of three groups consisting of five stocks each. The first he calls ‘Uber Cannibals’, companies that are aggressively buying back their own shares. The second group is ‘Shameless Cloners’, stocks that respected stock pickers own. And the last group are ‘Spinoffs’, companies that have been spun out of larger corporations. Pabrai believes that the combination of three different strategies and 15 stocks, provides enough diversification to hold the portfolio for 12 months before the stocks are replaced with another 15 stocks.
Pabrai is not afraid to ‘borrow’ ideas from other investors. He says his primary source for new ideas is the 13F SEC filings of other managers. Funny, because I take a peek into his fund’s current holdings below via a 13F filing.
Dalal Street’s Largest Holdings
On November 14th, 2017, Mohnish Pabrai’s firm Dalal Street filed their quarterly Form 13F regulatory filing. Dalal Street’s portfolio totals $412 million according to the latest filing. The list value of stock holdings is up 2.1% when compared to the last quarter. As a benchmark, the S&P 500 was up 3.9% over the same period.
The following table summarizes his firm’s largest holdings reported in the last filing:
Dalal Street Largest Holdings
Ticker Name Holding ($mil) % Of Portfolio
FCAU FIAT CHRYSLER $234.8 56.9%
GOOG ALPHABET INC $63.5 15.4%
AER AERCAP HOLDINGS $53.5 13.0%
RACE FERRARI N V $44.0 10.7%
LUV SOUTHWEST AIRLS $16.8 4.1%
The fund’s total portfolio represents these five companies.
Managers with more than $100 million in qualifying assets under management are required to disclose their holdings to the SEC each quarter via 13F filings. Qualifying assets include long positions in U.S. equities and ADRs, call/put options, and convertible debt securities. Shorts, cash positions, foreign investments and other assets are not included. It is important to note that these filings are due 45 days after the quarter end date. Therefore, Dalal Street’s holdings above represent positions held as of September 30th and not necessarily reflective of the fund’s current stock holdings.
However, most can agree that with thousands of stocks traded on U.S. exchanges, doing thorough research on each one is nearly impossible for smaller investors. Leveraging the resources of the largest hedge funds on Wall Street can be a powerful way to narrow down the list.
The following post was republished with permission from Vintage Value Investing.