Mohnish Pabrai once paid six figures to have lunch and pick the brain of with Berkshire Hathaway’s
Warren Buffett. Fast forward about 10 years, and it just may be Pabrai’s brain that needs picking.
As managing partner of Pabrai Funds, he‘s managed to turn in a stellar performance. Pabrai has generated a return of nearly 1,000% for investors since starting the fund almost 20 years ago, according to Jody Chudley of the Daily Reckoning blog,
Must be riding those FAANGs to glory, eh? Nope. In fact, he’s essentially avoided U.S. stocks altogether. As it stands now, Pabrai, born in India and living in California, says he has $1 million of his billion-dollar fund allocated to the U.S. stock market, while putting a whopping $400 million to work in India.
He explained his the rationale behind his position back in June.
“I am bullish on the U.S. in general. It’s just that things are not heavily mispriced and under priced,” he told the Economic Times in an interview. “At the same time, India has increased quite dramatically. It has gone from basically less than $100 million two-three years ago, to over $400 million.”
Chudley says he has been a big fan of Pabrai’s for 20 years and particularly appreciates how he runs a concentrated portfolio.
“Because Pabrai owns only a small number of positions at any given time, he can’t afford to make major mistakes. One big error would ruin his overall performance,” he explained. “That means that each and every investment is heavily scrutinized.”
Chudley took a deep dive into exactly where Pabrai is putting his money in India and found the housing finance sector to be his favorite.
“His logic is sound,” Chudley wrote. “Indian mortgages as a percentage of owned home value is ludicrously low. Just 6% of the value of Indian homes has been pledged as collateral for mortgages. The norm in other emerging economies is almost 20%, and in the United States it is closer to 40%.”
Chudley’s pick to gain exposure to Pabrai’s approach: Fairfax India
which formed to take advantage of the growth in India. The company was founded by Prem Watsa, who is often referred to as the “Canadian Warren Buffett.”
The Canadian shares, denominated in U.S. dollars are up about 46% over three years, including a gain of nearly 7% so far this year.
Chudley points out that 30% of Fairfax’s investments have direct exposure to the Indian home finance sector that Monish Pabrai is so bullish about. The other investments include India’s third largest airport, a soda producer and an ag finance business.
“All of those investments are going to benefit from India’s rapidly expanding middle class,” Chudley wrote in his blog post.
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