Career Advice from Mohnish Pabrai – Two Men by the Sea

To continue our unplanned series on Mohnish Pabrai, we thought we would share one of our favorite pieces of career advice that he gave at the end of a (virtual) talk at Boston College. The talk is worth watching but in case you decide not to, here is that final question transcript.

Any advice [for students] as they think about their career?

Mohnish Pabrai:

Because I’m a cloner, I would just clone the advice that Warren or Charlie would give you, which is to focus on going to work for people you like, admire and trust. If you unpack what Warren says about “like, admire and trust”, note that he does not say what the compensation is, or what the company is, whether it is a blue chip or start-up. It is about the people. You have to work for, and with, people that you would truly enjoy working with if you were not getting paid. I think that should be the criteria.

The second thing that Warren says is, don’t put things off. It’s like saving sex for old age. Not a good idea. Don’t say “I’m going to work for 3 years at Goldman Sachs, then I’m going to get my MBA, then I’m going to do X for 3-4 years, then I’m going to start a fund, and then this and then that.” I’m going to tell you the story of this very stressed-out investment banker.

There’s this guy in New York who’s an investment banker, working 100+ hours a week. He’s totally burned out. And of course, he’s making a lot of money. But he is stressed out beyond belief. So he does some research and finds this little tiny Mexican fishing village, which is in a very remote part of Mexico. There’s a small one-room resort there, and he would be the only guest there, so there will be no one around for miles. He says, “That’s the place for me.”

He goes over and books himself for a week, and recuperate from the New York life. In his first morning there, he gets up and notices there is a hut across the beach with one Mexican guy living there.

The investment banker watches this Mexican guy pull out a small canoe and he takes it out in the ocean, then he’s gone for an hour, or hour and a half, and he comes back with two fish. Then he makes a little fire and cooks one fish, which is his lunch. Then he takes a nap, wakes up in the evening, then cooks the second fish and that’s his dinner. Then he just hangs out at his hut and goes to sleep.

Then the next morning, the banker notices again that the Mexican guy wakes up, gets his boat, goes to the ocean, gets the two fish, comes back, cooks one fish, takes a nap, then cooks the second fish. After 3 days, the banker can’t take it anymore.

So the banker goes and talks to the Mexican fisherman.

Banker: When you go out to the ocean, can you catch more than two fish?

Fisherman: Well yeah, the ocean is full of fish. I can catch a lot more fish.

Banker: Why don’t you catch more than two fish?

Fisherman: I only need two fish, why would I need to catch more than two?

Banker: Look, if you catch more than two fish, then you would have some extra fish that you can sell in the market.

Fisherman: And then what?

Banker: Then you’d have some money, and as you keep getting more fish and more money, then you can get a second boat and hire a guy to fish as well. That other guy will catch more fish too. Now you’ll have even more fish to sell, even after you pay the other guy.

Fisherman: And then what?

Banker: We can keep doing that, because soon we’ll have a fleet. But then we’ll also vertically integrate, because instead of just selling fish into the market, we’ll set up a canning operation, and we’re not going to let those scumbags take all the margin by doing the canning, so we will. And we’re in this great part of the country and so we’ll create this great brand, market it as organic, and then sell it all over the world.

Fisherman: And then what?

Banker: Then I’m going to take you public, and I’m your guy to do the IPO. You’ll have lots of money and a great life!

Fisherman: And then what?

Banker: Then when you want to take a vacation, you can come here and hang out!

And the fisherman just looks at him.

In

Graftech International Ltd. (NYSE:EAF) - The Niche Business the Market Forgot

Recently we wrote about using 13F reports to find new investment ideas (where investment managers who manage over $100MM in public securities must file with the SEC). As we noted, Pabrai Funds recently took a large new position in Graftech International Ltd. (large being ~10% of reporting holdings, where Mohnish Pabrai is very concentrated and puts in a maximum of 10% into his highest conviction ideas…). We have a big soft spot for him – but also his record - and so of course this piqued our interest. It’s had a bit of a run in the last few weeks but it is generally in line with Mohnish’s likely cost base….. Now, after going public (again) in 2018, they’re trading at ~5x cash flow and still majority-owned by Brookfield.

Read More

Cloning those 13Fs – What’s happening at Berkshire and Pabrai Funds?

Investing is hard, especially if you are a picky concentrated value investor. You end up spending a lot of time reading into things that don’t pan out.

Thankfully, you can leverage ideas of others by helpful reports known as 13Fs. In the United States, any institutional investment manager that manages over $100 million or more in Section 13(f) securities (basically public companies but see the Securities and Exchange Commission [“SEC”] for fine print) must report its holdings on Form 13F with the SEC. These reports must be filed within 45 days (where functionally most if not all file on the 45th day to not give advantages to us copycats) and around here we affectionally call this day 13F day.

One key issue with these reports is that they only require the manager to report on effectively U.S. public holdings, where foreign and private holdings could be extremely material and so just looking at the 13F can be very misleading. It might look like someone thinks a holding is a great important idea to them based on it being a large percentage of holdings, but when (or if) you realize their unreported portfolio is many times bigger you might lose some enthusiasm.

Anyway - As we talk about in our Cloning 101, copying ideas is effectively bowling with bumpers - http://www.canadianvalueinvestors.com/cloning-investments-101

To clone Mohnish Pabrai, he said it best:

“When you only basically buy ideas that other great investors have already bought after studying them, the error rate you will have will be a small fraction of what you would have if you went out on the prairie on your own. If you go out on your own and look at 10,000 stocks and pick ten – trust me – your error rate will be off the charts. But if you pick ten out of the 40 that great investors have bought and you have looked into why they bought them, it’s like bowling with bumpers…Never bowl without bumpers when they offer you bowling with bumpers. ”

And so, we follow several different funds, two of them being Berkshire Hathaway (Warren Buffett + Ted/Todd picks) and Pabrai Funds (being Mohnish).

There is one key takeaway from this article that we would like you to have (and to remind ourselves of):

You really don’t have to be very active to do well, and in fact being active is likely counter-productive – The top concentrated investors really are concentrated in that they only make a few big investment decisions a year. You don’t have to find 20 great ideas every time you sit down, you just have to find one or two great ideas a year and frankly likely won’t find many more. This helps us sleep at night.

So what are they buying and selling anyway?

Mohnish practices what he preaches. His top 4 ideas are 72% of reported assets under management (“AUM”) on his 13F, which does exclude some meaningful holdings.

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He doesn’t buy or sell much as you can see from his purchases last quarter.

What’s particularly interesting is that he bought into GrafTech only this year, i.e. you know the range of prices he actually paid for the cost, and that he thinks it is a very good idea based on how much he put into it. Now that you know he bought Graftech, you can then take a look at what’s happening with the stock, and in this case it is likely down or around the price he paid:

Maybe it’s time to take a look!

What about Berkshire?

When looking at Berkshire you have to be a bit careful. Warren Buffett and team hired Ted Weschler and Todd Combs to both run separately managed investment accounts ($13+ billion each and counting) while larger holdings still are effectively Warren’s (where most existing holdings are his). Berkshire’s book is much larger than ours and ends up being a bit more diversified given the size and management structure; an expected and welcome problem for folks with a portfolio over $200 billion. For example, buying $2 billion more of a stock would be very high conviction if it is Ted or Todd but very low if it is Buffett. That said, the top 5 still make up over 65% (and you have to separate picks where both Buffett and one or more of the managers might also have a position given they are all truly separately managed).

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A murky idea is Amazon, where Berkshire bought some shares last quarter but with total holdings of about $1 billion. It means it doesn’t break the top 20 holdings and is very likely a Ted or Todd idea with pretty high conviction. Hmm.

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Something like Bank of America is much more clear, where they made a very large share purchase and it is also a very large holding, meaning it is clearly Buffett making the decision (or at least also buying it along with Ted and/or Todd).

 What does this all mean? Happy hunting, of course.

General Motors (GM) - There's Something About Mary (Barra)

We have been following General Motors ever since it popped up on Berkshires 13-F filings. It is a Ted Weschler pick, where Berkshire bought 10 million shares in 2012 and has steadily increased the position over time to about 72 million or so. They are the fifth largest shareholder.

 One of us likes what Mary Barra, GM’s CEO, has been doing over there quite a bit (though we didn’t survey anyone else around here). She has sold off the Company’s endlessly unprofitable European division, focused on core lines and cost control, while also making significant inroads into autonomous driving (GM Cruise) and EVs. She also handled the ignition switch fiasco quite effectively. This is all worth talking about in a longer post on another day, but in the mean-time we wanted to highlight a talk Mary gave at Stanford in 2017. It provides good insight into how she thinks about GM but also careers and life. She’s worth listening to.

Mary Barra, Chairman and CEO of General Motors, discusses how she not only wants results, but results with integrity. Read more leadership insights from the Stanford GSB View From The Top talk on Monday, May 4, 2017: http://stanford.io/22fGCxZ

Notes:

-On blending tech high return world with low return slow world of autos - what are you most worried about? I’m confident we have good answers but will we get it to market fast enough. So constantly reemphasizing the speed, but yet – sometimes in an organization, especially an engineering organization will take you so literally that you have to make sure you are talking about safety. We want results but we want them with integrity. It’s about talking about behaviors but you put the two types of people together (traditional engineering and tech) and it can be really powerful.

-Career, should you have breadth or depth? – can you comment on the increasing push at the graduate and undergraduate level to focus (your career), to add value day one, etc? -  it depends on the role. If you are the chief engineer of a vehicle that’s generally 15 years (of focusing) because the cycles of learning to integrate the systems of the vehicle. Integrating the powertrain group, electrical group, body group – they’re all coming together and (the chief) has to make those trade-offs. There’s certain areas where we need tremendous depth and this is one of them. And then there are areas where we need someone to say I understand this but understand the (horizontal). You need to make the trade-offs either (vertically or horizontally) and (as a company) we need both. As a mom (one child in college and one in high school) – how could you know at 16 what you want to do for the rest of your life? I’m not sure at age 55 what I want to do for the rest of my life. So I think there’s a need even in engineering to broaden your knowledge. I think it makes you a better engineer. It’s different once in your career. One of the most valued people when I was running the manufacturing engineering group was my welding expert. He has spent his career doing this and grew into the role – which is the kind of depth I am talking about. But he probably made that decision in his 30s and 40s not in high school or as an undergraduate. Even if you are sure you know what you want to do you should broaden and if you don’t know that’s okay. I came to GM thinking I was checking a box and I didn’t know what I didn’t know.

-Discusses Lyft. No one knows where auto companies will be in ten years. She thinks fleet first adoption of autonomous vehicles is the most likely case. Given you can (as a company) own the vehicles and limit locations driven, speed, and other factors while the technology is getting up to speed.

-EV – thinks about EV and fuel cells as obvious migration. Where will volumes come from? China is first and top of mind due to their push to regulate it – 10% requirement to be fully EV or plugin . Want to be the first OEM with EVs that are profitable and affordable.