BALTIMORE (Stockpickr) -- Mohnish Pabrai is one of the most well-known investors off Wall Street. As the managing partner of Irvine, California-based Pabrai Investment Funds, the former IT entrepreneur heads a portfolio worth $333 million -- but it's his books and articles that put him in the spotlight.
disciple, Pabrai has written two books on the Oracle of Omaha's investing style. It's no surprise why Pabrai is a Buffett fan -- the latter's investment strategies have helped him generate market-beating returns to grow his investment firm from $1 million in assets under management in 1999 to its current size.
Pabrai's portfolio is unique because of the size of his bets. Unlike many investment funds, his firm is only invested in 16 concentrated positions -- and he takes big bets on new stocks. Because of the enormous bets that Pabrai makes successfully, it's valuable to take a look at what this portfolio manager is putting his money in right now.
Here's a look at
It's no surprise that one of the biggest positions Mohnish Pabrai added to his fund in the last quarter was Buffett's own
. The company, which made waves earlier this year when it transacted a 50:1 split of its class B shares, has been a strong performer in 2010, climbing nearly 21% vs. a market that's been languishing in negative territory.
It's no surprise that Berkshire's been a strong performer - the conglomerate's heavy exposure to the insurance industry flummoxed investors early on in the credit crunch, as Wall Street became concerned that the firm was, like many peers, overleveraged on risky bets. But Buffett's prescience won out once again, and Berkshire's assets proved to be less risky than the rest. That realization has been a major catalyst for appreciation since 2009.
But not all of Berkshire's assets are low-risk. Buffett's made no secret of the fact that he's a heavy user of derivatives -- an instrument that he's publicly had to defend in front of Congress. Likewise, Berkshire took heat for its position in
, one of the investment ratings firms that failed to spot the risk in mortgage-backed securities.
Ultimately, though, I think that Berkshire's investment potential will continue to pan out for shareholders. (As a result, my advisory has been long this stock since January.)
But believe it or not, Berkshire wasn't the biggest new position that Pabrai added to his investment book. Instead, that honor goes to
, a real estate company that focuses on developing and managing commercial office properties alongside a residential land development portfolio. At present, this stock makes up a full 11% of Pabrai Investment Funds' AUM thanks to a $36 million stake. While Brookfield isn't a REIT, it sports similar characteristics with a robust collection of real estate holdings and a nice-sized dividend yield.
The company is a major commercial landlord in key cities such as New York, Los Angeles and Washington D.C. -- cities where real estate is scarce and sells for a premium despite significant pressure to the downside. While Brookfield's long-term leases offer respectably predictable revenues, its focus on tenants in the financial sector, and a highly concentrated geographic footprint will continue to be challenges for the firm in the next couple of years.
And the first thing on the chopping block is that dividend. Although BPO managed to keep its shareholder payouts going strong throughout the recession -- with yields climbing as high as 12.5% during the first quarter of 2009 -- shareholders are betting on a highly leveraged stock right now.
Who Else Owns Brookfield Properties?
Not shying away from high-risk stocks, Pabrai also took a major position in
last quarter, betting $15.7 million that shares of the commercial lending company would see its fortunes improve.
CapitalSource is a diversified lender whose focuses range from commercial real estate to leveraged buyouts -- though things haven't always been that way. Back in 2006, CapitalSource decided to become a REIT in order to take advantage of tax benefits, loading up on residential mortgages in the process. Then the real estate bubble burst.
Now the company is restructuring itself into its current incarnation as a commercial bank. But losses continue to mount and management has been less than encouraging. Still, Pabrai is counting on a turnaround in shares -- which could be incredibly lucrative if the company is able to impress investors during its second-quarter earnings call later this month.
The fundamentals are markedly better at
, another new position in Pabrai's fund. The fund manager took a $12 million stake in shares of the equipment manufacturer.
Terex benefits from a strong balance sheet -- a significant tool considering the company's flaky profitability. But unlike CapitalSource, Terex has little near-term debt coming due this year or next, as well as a list of product offerings that are finally seeing an uptick in demand. Terex should see nice top line growth this year as commercial equipment spending continues to recover.
Who Else Owns Terex?
Deltec Asset Management
To see the rest of Mohnish Pabrai's plays, check out
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author was long long BRK.B.
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.