the Dhandho Investor: Mohnish Pabrai

For those of you that are not familiar with Mohnish Pabrai, he is a devout disciple on the teachings by Warren Buffett and Ben Graham. Mohnish runs a fund identical to Warren Buffett's original Buffett Partnership which was the predecessor of Berkshire Hathaway(BRKA,BRKB). Pabrai wrote a book about a year ago titled the Dhandho Investor. The word Dhandho which is pronounced dhun-doe is a Gujarati(a state in India) word. Dhan comes from the Sanskrit root word Dhana meaning wealth. Dhan-dho, literally translated, means "endeavors to create wealth".

Pabrai is a focus investor usually holding about 12-18 stocks in his portfolio. Pabrai likes to put no more than about 10% in each stock. Currently Pabrai holds about 16 stocks in his portfolio with about 320 million under management. Fairfax Financial(FFH), Harvest Natural(HNR), and Sears Holdings(SHLD) represent his 3 top holdings. The current 13F filings show that Pabrai increased his holdings by 52% in Wellcare(WCG) while selling most of his position in Jackson Hewitt(JTX).
For those of you that have not read the Dhandho Investor, you should, it is simple to understand and makes a lot of sense.

A Cash Rich Insurer: Odyssey Re

Odyssey Re (ORH) is a leading reinsurance underwriter that provides property and casualty insurance as well as specialty insurance. Odysseys biggest shareholder is Fairfax Financial which I talked about in a previous post. Fairfax holds 66% of the outstanding common shares. Currently ORH has a market cap of 2.5 billion and its revenues are 3.2 billion. Total cash on hand is 2.5 billion, which means it only trades for 1 x cash. Very little debt with a debt/equity ratio of .18. ORH sports a 27% REO(return on equity). They pay a small dividend which yields .70% which was recently raised. With so much in cash and backing from Fairfax, Odyssey looks to be in a strong position to weather out the current financial crisis.



Author does not hold any position.

Buffett...Berkowitz...Lampert...Pabrai... And Focus Investing

What is Focus Investing? Does it mean staring at your stocks so long that you become cross eyed. No! Focus Investing is a style that has been around for many many years but it is not talked about much in the mainstream, only in value circles do you hear it mentioned. Its concentrating your bets, putting a large amount of your investment dollars or portfolio into your best ideas. Investors Mohnish Pabrai, Bruce Berkowitz, Eddie Lampert, and Warren Buffett have practiced this style, along with many other notable investors. The first three mentioned, Pabrai, Berkowitz, and Lampert practice this method very much today. For example, Eddie Lampert has 50% of his ESL Investments in Sears Holdings(SHLD) and another 20% in Autozone(AZO). Buffet however over the years has become more diversified owning roughly 90 public and private companies, not necessarily by choice but by the growth and success he's had. Both Pabrai (The Dhando Investor) and Joel Greenblatt (You Can Be A Stock Market Genius) mention focus investing in their books. Focus Investing also has to do with position sizing and what percentage you should allocate to each security, 5% 15% 25% or greater. This all depends on ones risk tolerance, and your expectations for upside(downside) potential. Pabrai has stated that ideally he favors putting no more than 10% of his total holdings in one individual security and only buying about 10-15 stocks. Here again this has to do with ones own personal risk level.
If you study many of the master stock pickers over the last 60 years you will see that they have used or use Focus Investing out performing the indexes.

Your comments or thoughts...

Fairfax Financial Holdings Looking Cheap!

I recently wrote an article that mentioned Fairfax Financial(FFH). Fairfax is an insurance holding company run in the same fashion as Warren Buffet's Berkshire Hathaway. They take the float from the insurance business and re-invest it in common stock, bonds, or whole companies. Fairfax is run by Prem Watsa who is looked upon as the Warren Buffet of Canada. Fairfax has sold off with the market in general reaching a high of $355 a share. Currently Fairfax is trading at book value of $252 a share with a market cap of 4.7 billion and sales near 8 billion. With over 6 billion in cash (which represents $333 per share) and a debt-to-equity ratio of only .35 this company is looking quite attractive. They have a high REO(return on equity) of 37% with a trailing P/E of 3.25 and pays 1.9% dividend. To boot they have a stock portfolio worth 3 billion.

The author suggest further research before investing.
The author is long FHH.

STOCKMANMARC

3 Mini Berkshire Hathaways???

For those of you interested in purchasing Berkshire Hathaway stock (BRKA) A shares and (BRKB) B shares which trade at $111500 and $3710 respectively, but do not want to pay the price, here are 3 companies that operate in the same fashion as Berkshire Hathaway hence the title. Markel (MKL), Fairfax (FFH), and Alleghany Corp. (Y) all 3 are insurance companies just like Berkshire. They take the insurance float and invest it in common stock or buy the whole company. All 3 have a portfolio of businesses ranging from railroads to pharmaceuticals with Markel having the most diversified portfolio. All have very competent management in place. All take a value approach to investing. These companies are not in the limelight like Apple(AAPL), Google(GOOG) or Research in Motion(RIMM), so you are probably not familiar but all 3 have prodded along allocating capital (insurance float) into new businesses. It has even been rumored in certain circles that Tom Gayner the Chief Investment Officer of Markel could be in line to run Berkshire. All 3 trade in the triple digits MKL $315, FFH $285, Y $275, but keep in mind folks the price does not have anything to do with the valuation of the underlying business.

I hope this article was some what informative.

STOCKMANMARC