Mohnish Pabri Peking University Speech (Oct 2016)

I ran across this after someone on Twitter mentioned that Mohnish Pabri, a successful value investor, started a blog and has posted a few videos of his speeches. I'm not huge fan of Pabri--his style is a bit different from what I want to be and his holdings always seem very risky if you don't know what his reasons are (which is never clear to most amateur investors)--yet it is worth listening what he has to say. Pabri often raises some items often ignored by many and he is very open and speaks his mind.

Mohnish Pabri, in my opinion, is a deep-value investor who focuses on cyclicals. Not everything he does fits that description but I do notice the unique thing about him is his tendency to invest in cyclical companies. As experienced investors, or at least those that have studied history, know, sometimes it is very hard to tell if some company is facing structural decline or a cyclical decline. This strategy has the potential for huge losses if you end up stuck in a structural decline when you thought it was a cyclical trough.

His new blog is The Compounders, although the URL is, and it seems like he has included a lot of his past material. I'm not sure why he started a blog right now--doesn't seem like it is related to his business or will help his investments in any way--but it's a benefit to amateur investors. Interesting to me are his old articles, including a few which detail his analysis. In particular, I'm working my way through this one, "The Intrinsic Value of Microsoft, Intel, and Cisco" which details his analysis in 2000. You might want to read some of his other articles there as well, although I didn't find enough depth in many of them.

What does have depth--it certainly is very long and I haven't listened to all of it yet--is Mohnish Pabri's latest online lecture/speech at Peking University (apparently held on October 14, 2016). I don't follow Pabri closely like some others do, so I learned quite a bit about him. I don't agree with everything he says/implies but there are some thoughts that investors might find beneficial. For instance, he cites Guy Spier's, a value investor from Europe, strategy of identifying very-good businesses with superior industry characteristics and then looking for something similar elsewhere in the world. The one he cites is the credit rating agency Moody's, which has a very good business (basically an oligopoly), and then trying to identify other businesses like it elsewhere in the world (the one Guy Spier found was apparently a rating agency in India in early 2000's that was undervalued). This is a good strategy to add for global investors: find a great business (possibly in a developed country) and then find a similar one in another country (possibly in an undeveloped or developing country where the industry is in its early stages).

One thing about Pabri that one has to be careful with, if you are blindly investing in his stock picks, is that he invests in cyclicals and such investing approaches are very risky if you get the macro case or some industry change wrong. For instance, early in the video he talks about his investment in a Canadian steel company in the mid-2000s(?) (I forget the name) and it sounds easy in hindsight but it would have been a difficult and possibly risky decision at that time (if you didn't know why the market was pricing it so low). Right now, Pabri is long Fiat Chrysler (FCAU) and Ferrari (spin-off from Fiat Chrysler) precisely when the auto market appears to be near a cycle peak. It seems he recently took a stake in Southwest Airlines (LUV), which seems like an interesting pick. Airlines have been one of the worst industries in a century; but if the Alaska Airlines reference I alluded to (in my Virgin America risk arbitrage post) is correct (namely, airline industry dynamics changed in mid-2000s and industry is actually structurally profitable now), airlines are not as bad as they historically have been. Haven't done much research but apparently Southwest is examining international flights, and if it could do what it did to domestic American flights, it could be revolutionary for low-cost flyers.

If I get some time and feel like there is enough to write, I might touch on some of the ideas he expounds in a future blog post.


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