And the latest Smart Money article has one fantastic interview with Mohnish.
And Nicole Bullock wrote a nice introductory on Mohnish.
- IT OFTEN SEEMS like every hedge-fund manager is reading from the same playbook about how to look, work and behave. Neatly pressed khakis; thumbs glued to a BlackBerry; slick digs in Greenwich or Manhattan staffed by number-crunching research drones. But apparently, Mohnish Pabrai never got his copy. He wears shorts to his Southern California office, keeps e-mail to a minimum and almost never misses his 4 p.m. nap. And forget goosing returns with fancy computer models or using complex derivatives: Pabrai doesn't even sell stocks short.
About the only thing slick about this 43-year-old investor is his market-trouncing track record — annualized returns of nearly 25% since he set up shop in 1999, enough to earn him a growing cult following. His "secret"? Probably the most documented investment strategy around — a bare-bones, Warren Buffett style of stock picking. While that description may inspire yawns — sometimes it seems like everybody claims to be a Buffett disciple — Pabrai takes it to an extreme. His office houses an impressive Buffett mini-museum: a wall covered with photos and articles he's amassed over the years.
Click here for the rest of the article: Looking Up to Warren Buffett
I do enjoy his way of reasoning in buying Pinnacle Airlines. Which is incredible because it's an airline stock!
- SM: What stocks do you like now?
MP: Pinnacle Airlines. Depending on how things work out, it's anywhere from a double to five or six times return in the next two or three years.
SM: An airline?
MP: It's a regional jet company. The large airlines, like Northwest (NWA: 9.06, -0.63, -6.50%) and Delta (DAL: 8.20, -0.55, -6.28%), outsource the small planes to Pinnacle. Many of the reasons why airlines are so terrible — load factors, price wars — don't matter. The revenue is the same whether there is one passenger or the plane is full and whether Northwest charges $200 or $2,000 round-trip. The contracts are long-term, usually 10 years, and will hold up in the event of a merger. So you can estimate what their cash flows will be many years into the future.
SM: What's the investment case?
MP: Pinnacle has more than $10 a share in cash on the balance sheet. In the next few years, free cash flow will be $3 to $6 a share, depending on how much more business they get. With a simple 10 or 15 multiple on those numbers, you end up with $30.
SM: Why are the shares so cheap?
MP: One overhang is that they have a past-due contract with pilots. But not a lot of Wall Street analysts follow Pinnacle, and the business itself is changing. The evolution away from hub-and-spoke and toward more nonstop flights is driving demand for their services. When you connect one small city to another directly, you aren't going to run a jumbo or a 737
And of course his reasoning why he doesn't short a stock.
- SM: Pabrai is a hedge fund, but you don't short. How come?
MP: Because it's a stupid bet. The maximum you can make is double, if the stock goes to zero. The maximum you can lose is infinite. Let's say a stock is at $10, and you short it and it goes to $100. You are down about 1,000%. The extent to which the stock can go up is unlimited.
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