Value Investing

Mohnish Pabrai’s Rules on Selling

Just came across this article written by Anastasios Dimopoulos on a talk given by Mohnish Pabrai at the 4th Annual Value Investing Seminar in Italy (link here). Thought its quite interesting. I quote:”Pabrai’s strict rule is “Do not sell if the intrinsic value is above the market price no matter what happens.” He gave an example which had to do about one of his investments that is mostly sold by now. The company is Universal Stainless & Alloy Products, Inc and the situation unfolded in the following order.

  1. Bought stock at $14- 15 in 2002 seeing a forward p/e of 4-7 with no downside and a huge upside.
  2. One year later the stock was trading at $5 but he couldn’t see anything wrong with his assessment of intrinsic value. He just waited.
  3. One year later the stock was trading at $10-11 and the intrinsic value was estimated at easily over that price. Wait again.
  4. In 2005 the stock was trading again at $15 but he didn’t sell at break-even because the intrinsic value was estimated by him at $30, so he bought more and waited.
  5. In 2006 the company starts running at full capacity and is very profitable. The thesis is being confirmed and he starts selling at over 90% of intrinsic value. “

I remember reading somewhere before that Mohnish Pabrai rode a tech stock up during the dot-com bubble and managed to sell it at its peak. His learning point however was that, next time, he should sell off once the stock has reached its intrinsic value.



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