Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Chapter 22

Value Investing versus Activism

Which One Is Better?

Mohnish Pabrai, managing partner at Pabrai Investment Funds of Irvine, California, is a true value investor. Fundamental laws of investing have shaped his investment strategy, and those laws do not involve investor-management communications.

The approach has worked for Pabrai. He produced 28.6 percent returns on his investment, year-on-year, after fees since his fund's inception in July 1999. Investing $100,000 with Pabrai in 1999 would have netted roughly $660,000 after all fees and expenses by the end of 2006.

Unlike activist investors, at no point will Pabrai engage or even seek to talk to the executives at the companies he allocates funds. Executives at one company called him one day to see if he had any advice or ideas. Pabrai, an 18 percent investor in the corporation, says the call was a big mistake. “I have never made a phone call to any management of any of the companies I am an investor in,” Pabrai says. “The way I see it, if they need my help, there is a problem.”

For Pabrai, executives are to be left alone to concentrate their energy on operating businesses. Pabrai's background demonstrates a respect for executives. Born in Mumbai, India, Pabrai moved to the United States where he was employed as an engineer. In 1990, Pabrai launched his own business that Trans-Tech Inc., a systems integration information technology company that employed over 225 people before he sold it in 2000. Around the same time, he ...