Mohnish Pabri Interview

Here is a Bloomberg interview with Mohnish Pabri (thanks to gurufocus.com for the original mention.) For those not familiar, Mohnish Pabri is a hedge fund manager who is heavily influenced by Warren Buffett's teachings. Some say he is a future Buffett but I'm not sold on that yet. Just like how every new star that blazes a trail in the NBA is called the next Michael Jordan, only to end up nothing like Jordan, you are not going to find the next Buffett from some media proclamation.

I don't have access to Mohnish Pabri's hedge fund publications but my impression is that he has been doing very poorly lately. Some of his investments, such as Delta Financial (DFC) and CompuCredit (CCRT) have been terrible. Having said that, I still respect Pabri because he supposedly did very well during the 2000 to 2003 bear market. I think anyone that not only survived but also posted good returns deserves respect.

For those that didn't listen to the clip, here are some few points that were mentioned, along with my comments:

1. Pabri thinks oil will face some headwinds in the future: He was citing the decline in miles driven in the US. This miles-driven statistic rarely declines and it declined in March for the first time since 1979! However, as I and others have pointed out repeatedly, the real big question is what happens in Asia. Most of the incremental demand in oil--and nearly all of the expectation of future growth--is coming from Asia.
   
2. Mohnish Pabri likes muni bonds: He pointed out that muni bonds are yielding higher than Treasuries (this is very rare) and if you factor in taxes, the difference is quite large. One of the reasons for this anomaly with muni bond yields, of course, is due to the problems with the monoline bond insurers and the ARS (auction rate security) market. He thinks muni bonds are a good investment. I share that view but would qualify that. Namely, if you had to invest in bonds then muni bonds look better than Treasuries. But if you didn't have to invest in bonds then it is a tougher decision. If inflation takes hold, bonds of any type (except junk bonds) are going to get slaughtered. One of the most overvalued asset out there is the long-term US Treasury bond. Its yield is quite low (which means price is high) because of deflationary threats. If we get a deflation, you'll make a killing on these, but if we get inflation it is probably the worst place to be.
   
3. Sticking to Buffett's principles (actually it's more like Benjamin Graham's principles), Mohnish points out that you can make money on high growth stocks or on zero growth stocks. You can even make money on industries with declining sales (if I ever take a position in a newspaper company, it would be this case.) The key thing, he says, is price!! Everything comes down to the price.
   
4. He finds Berkshire Hathaway attractive here: He says if you value it as consisting of an operating unit and an investment unit, it is worth a lot more than the current stock price. He thinks there is room for appreciation over the next few years. He also thinks Berkshire will be fine if Buffett isn't with us anymore. I personally do not find Berkshire attractive. It is just too big and hence has difficulty growing. Berkshire also trades at a high multiple (something like 20x P/E) versus a typical insurance company around 12x and S&P 500 around 20x. But I'm not sure if the reported P/E for Berkshire uses look-through earnings (i.e. consists of earnings from investment holdings).
   
5. Pabri says that if someone doesn't know much about investing, they should buy an S&P 500 index fund; but if they are little bit more comfortable then 50% in S&P 500 and 50% in Berkshire Hathaway is reasonable.