Stockpickr: Another Buffett Wannabe

On Monday, I wrote the first in a series of columns on Warren Buffett's search for a new apprentice, starting off with Ken Shubin Stein of hedge fund Spencer Capital.

Today I'm going to posit that hedge fund manager Mohnish Pabrai, who runs Pabrai Investments, would also be an excellent choice as the next Warren Buffett. Pabrai has very focused holdings; you can check out his Stockpickr portfolio here.

Mohnish started and sold a software company in the 1990s and then became enraptured with value investing. He started his fund in early 2000 and has been running it since then with 20%-plus returns per year.

I profiled and interviewed Mohnish for my book Trade Like Warren Buffett. Pabrai structured his hedge fund exactly like the original Buffett partnership of the 1950s and '60s. Basically, there is no management fee and a 6% hurdle before a 20% performance fee is collected.

Prior to starting his fund, Pabrai actually wrote to Buffett in early 1999 and asked for a job so that he could learn from the master, but he was turned down. After getting over his disappointment, he started his hedge fund.

Pabrai was interviewed in the April 5, 2006, issue of Barron's, and in it he describes how he looks for "hated, distressed, thrown away businesses that are mispriced" with an average market cap of around $500 million. Not making big bets on large-cap stocks is one of the few places where Pabrai differs from Buffet. Pabrai goes on to say how he tries to minimize the volatility in his returns by investing in only one stock per industry and minimizing any correlations between his positions.