Mohnish Pabrai: A Super Salesman, not a Super Investor

Mohnish Pabrai is clearly savvy at self-promotion (as I noted elsewhere last year) and a consummate salesman, judging by the hundreds of millions of dollars of assets he's gathered. I think it's clear by now though that he's not a great investor. If it's not, these notes on Pabrai's 2009 Chicago investor meeting, compiled by Miguel Barbosa of Simoleon Sense may be instructive. Reading them, you'll be reminded that Pabrai used to use shares of Berkshire Hathaway as a "placeholder for cash", which made absolutely no sense; that he ignored his own advice about avoiding retailers (not to mention his alleged preference for small caps) when he invested in Sears; and that he has belatedly realized that a highly-leveraged, subprime lender (Compucredit, on which Pabrai took a 72% loss¹) might not do well during a credit crunch.

A couple of years ago, I sent a copy of Pabrai's book, The Dhando Investor², to a friend of mine who works in the Southern California office of a firm that was initially established as the family office for a Gilded Age family, and now handles the finances for other wealthy families. At the time, I figured my friend's firm might be interested in looking at Pabrai as a candidate for its stable of outside investment managers, but now I think a better role for Pabrai would be as a salesman for a wealth management firm (though perhaps one with a lower minimum asset requirement than my friend's firm).

If I were Pabrai, I would quietly approach some leading wealth management/family office firms about them absorbing Pabrai's assets under management and bringing Pabrai on to gather assets for the firm from affluent Indian Americans. Pabrai could probably add more value to his wealthy clients as an excellent salesman than as an investor.

¹Pabrai also doubled down on a subprime mortgage lender, Delta Financial Corporation, after the securitization market seized up in August of 2007. He held his stake until that company went bankrupt.

²Pabrai's brief book actually contains some interesting stories about entrepreneurship (Pabrai was an IT entrepreneur before becoming a hedge fund manager), but Pabrai himself ignored some of the lessons in those stories. For example, Pabrai wrote about the ethnic Indians whose businesses were expropriated by Idi Amin, and despite this, Pabrai invested in an oil company based in Hugo Chavez's Venezuela.

Sears Update

Hat tip to Dr. Paul Price, who occasionally comments here under various pseudonyms, for pointing out how far the share price of Sears (Nasdaq: SHLD) had fallen; it closed at $33.82 per share today. The last time I wrote a post about Sears, on August 28th ("The Mystery of Sears"), the stock had closed at $90.62. In that post, I wrote that I didn't understand the long investment thesis for Sears, but was wary of betting against the stock since so many well-respected value investors were bullish on it. Maybe they saw something in Sears lesser investors didn't? The mystery remains.

The photo above, from the original post, is of the Sears building in Hackensack.

The Mystery of Sears

Sears Holdings (Nasdaq: SHLD) announced another desultory quarter today (AP: "Sears' 2Q profit drops 62 percent"). No mystery there. The mystery I refer to in the title of this post is what well-respected professional investors such as Bruce Berkowitz see in the company. I've heard the pitch that Eddie Lampert is a great asset allocator, and Sears has great assets in its brands and its real estate, but I don't see it. I have no idea what its brands are worth, but their association with a shabbily run retailer can't be making them more valuable. Whatever the real estate was worth a few years ago, it's certainly worth less now, and, in any case, this would seem to be an inauspicious time to try to monetize it.

Truth be told, I considered buying puts on SHLD when the stock was trading at $80, but my procrastination in filling out the options paperwork at my brokerage prevented me from doing so. At this point, I think I'll continue to hold off. As long as fund managers such as Berkowitz are intent on maintaining Sears as a core holding, that could continue to support the stock. If one of these prominent investors decides to dump Sears though, things could get interesting. There seems to be something of a herd mentality at work here, with one investor's conviction in the company reinforcing another's.

The photos above are of the Sears in Hackensack, and I took them all today. The first one came out much better than I expected, considering the technique I employed, which was simply holding a digital camera out of my open sun roof as I drove toward the building and vaguely aiming it at the Sears tower. Apparently this sort of free-standing Sears building is relatively rare. I believe this one was built in the 1930s.

The second photo was taken using a similar sun roof technique, except that time I was aiming the camera vaguely backward and to the right as I drove past. That photo is of the Sears building's Main Street entrance, which for some reason Sears doesn't use. It's now a bus stop, so the woman in the photo is presumably waiting for a bus.

The third photo is more prosaic, but it gives you an idea of how business is going at Sears Brand Central on a typical weekday afternoon in Hackensack.