"Mohnish, How Are You Feeling?"

According to Mohnish Pabrai, this is what most of his investors were asking him after he lost 60% of their money last year. For his answer, see the excerpt below from his annual letter to his investors, dated January 16^th:

I did hear from a few of you in the last few weeks. While some calls and emails expressed concern over our performance numbers, the surprising thing for me was that the overwhelming majority of you were focused on asking, “Mohnish, how are you feeling?”

Well, I am actually feeling pretty good. And as Q408 unfolded, my spirits remained elevated – mainly because I remained focused on intrinsic value and was drooling over the incredible opportunity set and valuations. I was in turbo mode trying to read huge piles of 10Ks, 10Qs, annual reports, industry reports, listening to conference calls etc. – so I could pull the trigger while the prices were still incredible. And several triggers were pulled in November and December. We bought into an incredible array of assets at remarkable prices.

While it was indeed tough to watch the severe drops many of our holdings took in Q408, keeping my focus on intrinsic value, rather than fixating on the quoted market value of various positions was fundamental to staying level headed.

Pabrai isn't the only professional investor who's expressed similar sentiments when asked about his outlook recently, but I don't get this, for a couple of reasons. First, if someone asked me how I felt about the money I lost last year, "pretty good" wouldn't be my answer; "nauseous" would be -- and I just lost my own money. If I had lost 60% of the money entrusted to me by hundreds of other investors, in addition to nausea, I'd feel some remorse.

Second, it's one thing to tout the great opportunities you see in a beaten-down market, but it raises an obvious question: did you have any dry powder to take advantage of them, or have you been forced to sell your beaten-down positions to buy stocks you think are even cheaper? At least Bruce Berkowitz was candid enough to acknowledge (on a recent conference call) that that's what he's been doing, for the most part (selling cheap to buy cheaper). If that's been the case with Pabrai too (and I assume it is, considering that Pabrai has allegedly used Berkshire Hathaway stock as a "placeholder" for cash), then his zeal for current bargains ought to be tempered by some regret for not keeping more cash on hand to take advantage of them.

About the image above:

In his book The Dhando Investor: The Low Risk Value Method to High Returns, Pabrai offers the story of the end of Abhimanyu, a hero of the Hindu epic The Mahabharata, as metaphor for the difficulty of selling a stock. In an nutshell: Abhimanyu uses a technique he overheard¹ from Krishna to penetrate the spiral chakravyuh battle formation of his enemies, the Kauravas. Unfortunately, he never learned how to break out of the chakravyuh, so he has no exit strategy. He fights valiantly, one against many, and kills a number of Kauravas, but ultimately gets killed. I believe the image above², from a Geo Cities site, depicts this.


¹Please see the second comment by Ravinsu for elaboration.

²Replaced as per Ravinsu.