Not So Good News For Exxon

Mohnish Pabrai is a hedge fund manager in the style of Warrenn Buffett, and his hedge fund has reported annualized returns of over 28% net of fees since inception in 1999.

I recently read Mohnish Pabrai’s book titled “Mosaic: Perspectives on Investing“, which is mainly a collection of articles that had been published in the past five years in various media outlets.

One of the interesting studies he performed was investigating the performance of the largest public stock by market capitalization each year. This list was dominated by IBM, XOM, GE, and MSFT. He reported a near 500 bps underperformance for the top mkt cap company vs the S&P 500. I extended the study a few years and found the results to be consistent, with the underperformance in CAGR of almost 7% (see chart at the end of the article). It would be interesting to take this back pre-1986, anyone out there have the data?

He has a new book that I have just picked up titled “The Dhandho Investor“. So far its a great read.

One of the topics he covers is cloning the best investment processes of great investors such as Buffett, Graham, and Munger. He argues that there is no need to reinvent the wheel – and simply apply the same selection model these investors have for decades. I go a step further and argue that an investor can perform equally well by simply following the holdings of these investors.

The timing of value investors is not the major value they add. Indeed, Pabrai talks about a few stocks that declined 50%-75% since Buffett initiated a position, before going on to achieve multi-bagger returns. The value add with the best value hedge fund managers is to follow their stock picks. If you are new to the blog, here are a few posts that delve further into the subject.

Cloning the Buffett Portfolio
Constructing a Best Ideas Hedge FOF
Following a Top Hedge Fund Manager

If you are curious about Pabrai’s current holdings, you can find them here:

BRK-A
FNF
SGU
USAP
DFC
CRYP
HNR
ABXA
MDC
LEA
FFH
PNCL
IPS