This is a transcript of Pabrai Wagons Fund's May 2025 investor call. Manager Mohnish Pabrai says market volatility doesn't shake his confidence in holdings, as their fundamentals remain solid. Key picks: Edelweiss (top holding, an Indian financial firm, bet on its plan to spin off several units via IPOs); Alpha Metallurgical Resources (coal miner, long-term bullish on cash flow and share buybacks); and offshore oil services like Valaris and Noble (bet on supply cleanup, but warns tariffs are a near-term risk).
Mohnish Pabrai, during the Pabrai Wagons Fund investor meeting in May 2025, discussed the fund's position logic and market views. Key takeaways include: the fund maintains a seven-figure USD cash reserve to meet redemptions, with redemption pressure occurring on only 2-3 days over the past 18 months
Context: Mohnish Pabrai delivered opening remarks at the Pabrai Wagons Fund investor meeting on May 14, 2025. The meeting began with compliance disclosures, followed by Pabrai explaining the meeting format, source of questions, and procedural arrangements.
Responses and Views:
Background: The questioner is concerned about how the fund handles daily redemptions during NAV drawdowns while holding two large positions; whether these positions are liquid, and whether their weightings are similar in the fund versus other partnership accounts.
Pabrai's response:
1. Cash reserves as the first line of defense: The Pabrai Wagons Fund always maintains a seven-figure (million-dollar level) cash balance, a measure only recently increased. Combined with continuous incoming subscription funds, this forms the primary liquidity source for redemptions.
2. Extremely low redemption frequency: Over the past 18-19 months (approximately 400+ trading days), only 2-3 days saw redemptions exceeding cash plus subscriptions, representing less than 1% of the time. On those extreme days, the fund only needed to sell a small portion of a single security to resolve the issue.
3. Additional leverage:
4. Investor behavior support: Despite market volatility and declines, investors have continued to make net subscriptions. Over the past few months, almost every day has seen net inflows, allowing the fund to buy more of its favored positions at lower prices.
5. Position structure: The fund holds 15-20 positions, not highly concentrated in just two large positions. The "two large positions" mentioned in the question likely refer to the top two holdings, but the overall portfolio still has some diversification. Pabrai did not directly answer whether these positions have similar weightings across different accounts, but implied that fund-level liquidity management relies primarily on cash and subscriptions, rather than selling large positions.
Context: The host asks how the Pabrai Wagons fund legally acquired shares of an Indian listed company like Edelweiss, which is usually difficult for U.S. investors to trade directly.
Response and View: Mohnish Pabrai explains that Edelweiss is listed and traded on Indian exchanges. For U.S. retail investors, directly trading such stocks is generally not easy. The Pabrai Wagons fund also took some time initially to obtain trading permissions. However, the fund can now freely buy and sell any stocks traded in India, including Edelweiss, just like trading any U.S. stock, with no remaining obstacles in this regard.
Context: An investor noted that Pabrai had previously stated he does not invest in financial institutions/banks, yet Edelweiss is currently the fund's largest holding. The investor asked whether this was due to a lack of better opportunities, forcing a return to such stocks.
Mohnish Pabrai's Response:
Question and Context: An investor asked whether, given the decline in Turkish holdings and the broader market, Pabrai views this as an opportunity to add to positions, or whether the economic turmoil has reduced his confidence in these companies.
Answer and Perspective: Pabrai clearly stated that his bets are not on the country of Turkey or its macroeconomy. He is a bottom-up investor whose interest lies in specific companies that trade or are headquartered in Turkey, not in the Turkish market as a whole.
Reasoning Process and Examples:
Conclusion: Pabrai's reasoning suggests that he has not reduced his confidence in these companies due to Turkey's economic turmoil, as his investment thesis is based on individual company fundamentals (such as cash flow sources, contract currencies, valuation, and revenue models) rather than the direction of Turkey's macroeconomy. He did not explicitly state whether he has added to positions, but he implied that the rationale for holding them remains intact.
Question: An investor noted that Alpha Metallurgical Resources (AMR) repurchased approximately $250 million in stock between Q4 2023 and Q1 2024, with the buyback price likely ranging between $215 and $400 per share. The current stock price is only around $120. This means the buyback price was 2–3 times the current price. The investor asked whether Pabrai had discussed this with management and how these companies can correct poor capital allocation—since the stock is now cheaper, why has the buyback slowed instead of buying back twice as many shares at the current price?
Mohnish Pabrai's response:
Pabrai first made it clear that he fully respects Alpha's management and board and has no objections to the timing, price, or the decision to pause the buyback. He then explained the fund's framework for Alpha in detail:
1. Long-Term Cash Flow Perspective: Alpha's mines have a lifespan of 40–50 years or more. Over this period, annual cash flows are highly volatile, ranging from negative $50–100 million at the low end to $2–3 billion or more at the high end. The current market cap is around $1.6 billion. Pabrai's logic is: if a company with a market cap of only $1.6–3 billion can generate $500 million to $2 billion (or even an average of $1 billion) in cash flow annually over the next 50 years, it represents a highly attractive long-term investment opportunity.
2. The Ultimate Goal of Buybacks: Alpha is a nearly debt-free company, and its primary method of returning capital is stock buybacks. Pabrai does not care about the specific buyback price (whether $200, $300, $400, or $500) because the core goal is to significantly reduce the share count through continuous repurchases. He outlined a scenario: assume that 20 years from now, 75–80% of the outstanding shares have been bought back and retired, leaving about 3 million shares. If the company still generates $1.5 billion in annual cash flow, the cash flow per share would be $500. Even if the market is unenthusiastic, the stock price could be $2,000–3,000; if it gains favor, it could reach $4,000–5,000. In this scenario, even if the company repurchases another 20–25% of the remaining shares, it would be a massive benefit for long-term shareholders.
3. Directional Bet, Not Concerned with the Path: Pabrai emphasized that Alpha and the coal holdings are a directional bet. They do not care whether the buyback happens at $100, $400, or $1,000 per share. They only care about the median share count and median cash flow 20 years from now. As long as the end result is a significantly reduced share count and sustained cash flow, the process is irrelevant.
4. Rationality of Management's Decision: Pabrai believes that management's decision to tighten spending, pause buybacks, and ensure financial stability during the current weak coal price environment is very prudent. Alpha currently holds about $450 million in cash. Even in the current low coal price environment (which may be near the bottom), the company only loses $30–40 million per year. The company has ample buffer and multiple tools to manage the situation and is fully capable of sustaining itself over the long term. Therefore, pausing the buyback is a prudent financial decision, not poor capital allocation.
Question and Context: An investor noted that the fund disclosed a position in Danaos on December 31, but the stock did not appear among the top ten holdings on March 31, leading to speculation that the fund had bought and then sold Danaos after just one quarter.
Answer and View: Mohnish Pabrai explicitly denied this speculation. He explained that Danaos had not been sold and remains in the fund’s portfolio, with the fund maintaining a long-term bullish stance on the company.
Reasoning Process: Pabrai pointed out that the discrepancy observed by the investor stems from differences in disclosure rules. The December 31 filing disclosed all holdings, while the March 31 filing only disclosed the top ten holdings. Although Danaos is still in the fund, it did not appear in the March 31 disclosure because its market value or position weight did not rank among the top ten. This does not indicate that the fund has liquidated the position.
Key Data and Facts:
Additional Note: After addressing this question, Pabrai shifted the discussion to Offshore Oil Services and emphasized that his motivation for providing these holding details was not as a stock recommendation, but rather to help investors understand the fund’s investment logic and rationale for holding positions. He explicitly advised investors not to buy stocks directly based on this information.
Question & Context: The host directly asks Mohnish Pabrai to explain the rationale for investing in offshore oil and gas service companies such as Tidewater, Valaris, and Noble at the current juncture. This is a follow-up on a specific sector bet.
Answer & View: Pabrai clearly states that he is very bullish on the offshore oil and gas service sector bet. He views it as a long-term wager with high asymmetry, with the core logic resting on a prolonged supply-side cleansing and a shifting demand structure.
Reasoning Process & Key Data:
1. Historical Supply-Side Cleansing:
2. Current Favorable Supply-Demand Dynamics:
3. Asymmetry (Asset Replacement Cost vs. Market Cap):
4. Cost Advantage & Demand Logic:
5. Specific Holdings & Valuation:
6. Risks & Uncertainties:
Summary: Pabrai's logic is that the offshore oil and gas service industry has undergone a devastating supply-side cleansing. The surviving companies possess debt-free, high-quality assets and strong cash flows, with asset values far from being priced in by the market (asymmetry). Despite short-term pressure from weak macro demand, this bet has low correlation with other assets, and over the long term, the cost advantage of offshore oil may attract more investment.
Mohnish Pabrai explicitly stated that they have studied Carvana multiple times but easily passed on it each time. The core reasons for exclusion are threefold:
1. Management and Ethical Concerns: Pabrai has consistently questioned the ethical standards of Carvana's promoters and board members. He feels uneasy about the business practices of the Garcia family (father Ernie Garcia and son Ernie Garcia II), finding their style of operation discomforting.
2. Overvaluation: Carvana's valuation levels have never met Pabrai's investment criteria.
3. Business Model Differences: Pabrai's auto dealer investments are heavily concentrated in dealers with new car franchise rights. He notes that the majority of profits for such dealers come from "back of the shop" operations, namely parts and repair services. In contrast, pure used car dealers like Carvana or CarMax lack this high-margin business segment.
Pabrai further explained that the used car business is acceptable, but new cars and parts and repair services for mainstream brands are exceptionally good businesses. He judges that the adoption of electric vehicles will be much slower than people expect; even if EVs become mainstream in the future, their parts and repair services (such as battery replacement and major repairs) will not fundamentally change, and these services will still need to be performed through authorized dealers. Therefore, he is long-term bullish on the franchise model of traditional new car dealers, believing that Carvana's business model cannot compete with it.
Background: Investors are puzzled as to why Buffett publicly stated he would not make a controlling bid for Occidental Petroleum, despite his appreciation for the business and his reluctance to replace management. The questioner speculates that this may be related to Berkshire's holdings of Occidental Petroleum's preferred shares and warrants.
Mohnish Pabrai's Response:
Context: The host asks whether recent drastic changes in U.S. tariff policy have prompted Pabrai to reassess specific holdings in his portfolio, and whether he has formed any conclusions he is willing to share.
Response and View: Pabrai clearly states that the fund has not made large-scale adjustments to its holdings or formed specific investment conclusions due to tariff changes. He acknowledges that the tariff shock is a net negative for the global economy as a whole, but emphasizes his reluctance to make decisions based on a highly uncertain macro environment.
Reasoning Process:
1. Overall Impact of Tariffs: Pabrai believes that the global economy and stock markets have long benefited from free trade, and the current shock from tariff policies is a negative factor. He agrees with President Trump's view that the U.S. has not received fair treatment in trade, noting that the U.S. previously "turned a blind eye" to high import tariffs imposed by developing countries like India, but such leniency is now diminishing.
2. Uncertain Final Outcome: He judges that once the dust settles, global tariff levels may still be higher than before, but the specific direction is unpredictable. Given the "massive uncertainty," he is unwilling to make macro judgments, considering macro issues "very complex." As a result, the fund has not taken any clear position adjustments from a tariff perspective.
3. Conclusion: As of now, tariff changes are a negative factor for nearly all global stocks, but Pabrai chooses not to act on this basis, instead waiting for the situation to become clearer. He admits he dislikes making macro predictions because such judgments are prone to error.
Key Data and Constraints:
Question and Context
An investor who calls himself a "shameless cloner" asks: Has the author studied the five major Japanese trading houses held by Buffett (Mitsubishi Corporation, Mitsui & Co., Itochu Corporation, Sumitomo Corporation, and Marubeni Corporation), and could a similar logic be applied to investing in smaller companies? The questioner explicitly states that he is more interested in understanding how Pabrai judges whether a "rabbit hole" is worth digging into, rather than seeking a specific answer.
Answer and Perspective
Mohnish Pabrai directly gives a negative judgment: these companies have entered his "too-hard pile," and he has never bought or studied them. He distinguishes two scenarios:
1. Cannot be replicated: The five major Japanese trading houses are limited in number, and there is no path to "clone them with smaller companies."
2. Beyond the circle of competence: These businesses are complex and fall outside his circle of competence. Buffett may have invested significant time in research and bought at highly attractive valuations, but Pabrai himself lacks this cognitive advantage.
Reasoning Process
Conditions and Follow-Up
Pabrai does not provide any verification signals or plans for future reassessment. He explicitly categorizes the Japanese trading houses as "too hard," meaning that unless his circle of competence undergoes a major change, he will not dig deeper. This judgment also aligns with the fund's consistent concentrated investment style: only investing in a few companies he can understand, rather than diversifying to chase hot trends.
Context: The questioner notes that Pabrai has successfully managed one fund and that regulatory burdens are increasing, suggesting it might be simpler and more direct to run such a concentrated, high-conviction strategy outside the existing open-end fund structure of Pabrai Investment Funds. The questioner questions why additional complexity is necessary.
Response and View: Pabrai responds with an analogy, comparing the expansion to a new fund to Coca-Cola or American Express entering the Japanese market in their early days—from today’s perspective, they should have entered every possible country. He believes his business has always faced a constraint: historically, it could only serve a very small number of high-net-worth families. Launching the new fund (Pabrai Wagons Fund) is intended to serve a broader audience.
Reasoning Process:
Limitations: Pabrai explicitly states that the additional regulation and complexity have been "very manageable so far" and have not posed a significant obstacle. He also cites "based on the questions received, it has been interesting so far" as evidence of his positive experience, but does not discuss the risk of future regulatory escalation.
Background: The host asked Mohnish Pabrai why he prefers Warrior Met Coal over Alpha Metallurgical Resources in the met coal sector.
Pabrai's Response and Reasoning:
Mohnish Pabrai addressed the issue of fund size and sustainability. He noted that the fund currently manages approximately $66-67 million in assets, a scale sufficient to cover all external costs (such as regulatory fees, etc.). However, to cover both internal and external costs (i.e., to achieve overall profitability), the fund's asset size would need to reach approximately $150 million.
Pabrai stated that he is satisfied with the fund's current size and believes the fund is not yet profitable overall. Nevertheless, all indications suggest that the fund will reach profitability within a reasonable timeframe. He remains optimistic about this outlook.
Question and Context: An investor noticed that Coca-Cola Icecek (CCOLA) was no longer among the top ten holdings as of March 31, 2025, whereas it had previously been held alongside Efes and Icecek. The investor was aware that Efes and Icecek had been liquidated due to recent changes in their Russian operations, but Coca-Cola Icecek has no Russian operations, prompting the question of why this position was also liquidated.
Answer and View: Mohnish Pabrai explicitly denied having liquidated Coca-Cola Icecek. He explained that the discrepancy in holdings observed by the investor stems from differences in disclosure scope at two different points in time: the complete holdings list as of December 31, 2024, included all positions, while only the top ten holdings were disclosed as of March 31, 2025. Coca-Cola Icecek's position size had fallen outside the top ten by the end of March, so it did not appear on that list, but the fund still holds the position.
Reasoning Process: Pabrai pointed out that the investor's inference of liquidation based on limited disclosures at two points in time (full list vs. top ten) was a misjudgment due to incomplete data. He implied that the position size of Coca-Cola Icecek may have shrunk due to overall portfolio adjustments or relative market capitalization changes, but it has not been fully sold off.
Mohnish Pabrai clearly stated that the fund is very bullish on these spun-off independent companies and plans to continue holding them. He provided the following reasons and specific examples:
1. Historical Advantage of Spin-offs: Pabrai noted that spin-offs have historically performed well, primarily because management can focus on smaller-scale operations without needing to seek approval from the parent company, thereby improving operational efficiency.
2. Successful Precedent: Nuvama: Citing the earlier spin-off of Nuvama from Edelweiss, he argued that as an independent company, Nuvama can view the market from a more comprehensive perspective, and its performance far exceeds what it was as part of Edelweiss.
3. Specific Business with Favorable Outlook: Pabrai specifically mentioned the upcoming alternative asset management business. He likened this business to an Indian version of Brookfield or Blackstone, but with faster growth. The CEO of this business is the founder of Edelweiss, whom Pabrai has met multiple times, including hosting him at his home in Austin. Pabrai described it as an "excellent business" with "great recurring income" and expressed a strong willingness to hold its shares after the spin-off.
Context: The host cited Buffett's view from the 2025 Berkshire Hathaway annual meeting—that Buffett tends not to invest in countries with long-term currency depreciation—and asked Pabrai whether this contradicts his investments in Turkey, where the lira has experienced sustained and severe depreciation.
Pabrai's Response: Pabrai clearly stated that Turkey's high inflation and extreme currency instability were core factors fully considered before entering the market. He did not ignore currency risk but deliberately screened for businesses that are immune to or even benefit from these macro trends.
Reasoning and Examples:
1. Airport Business (TAV): Pabrai noted that most of TAV's contract revenue (even within Turkey) is denominated in euros, while costs are paid in lira. Therefore, high inflation and lira depreciation actually act as a tailwind—revenue is unaffected by depreciation, while costs decline relatively due to inflation. He commented: "For better or worse, TAV is a net beneficiary."
2. Warehousing Business (Reysas): The essence of a warehouse is land, cement, steel, and concrete—assets that are automatically linked to inflation. Pabrai provided key data:
Conditions and Limitations: Pabrai acknowledged that Buffett's view is accurate in most cases, but he emphasized that it is not universally applicable. The key lies in whether one can find business models that are naturally immune to or inversely benefit from currency depreciation. Through specific examples, he demonstrated that, under extreme macro conditions, selecting the right assets can still achieve significant appreciation in dollar terms.
Mohnish Pabrai did not provide a specific intrinsic value figure for Alpha directly. Instead, he explained his investment logic through a simplified model:
1. Simplified Model: Assume a business can operate continuously for 50 years, generating $1 billion in free cash flow annually, with a current market capitalization of $2 billion. Pabrai believes that in this scenario, no Excel spreadsheet or precise intrinsic value calculation is needed to determine that the investment will be profitable.
2. Analogy for Alpha: If Alpha’s annual cash flow drops to $500 million (equivalent to a profit of approximately $30 per ton, with a profit margin of about 15%), and the purchase is made at a market cap of $2 billion, he still thinks "sign me up anywhere."
3. Judgment Under Uncertainty: Pabrai acknowledges that he cannot predict the actual cash flows over the next 50 years, but he believes Alpha’s cumulative cash flow will not be just $25 billion (annual $500 million × 50 years) and will instead be higher. He lists possible scenarios: $50 billion (annual $1 billion), or even $100 billion or more. He would not be surprised.
4. Conclusion: Based on this perception of being "cheap enough," Pabrai is satisfied with Alpha’s share repurchases, even if the repurchase price may exceed the traditional intrinsic value. He chooses to "sit on the sidelines and applaud," letting the company repurchase shares on its own.
Key Data and Reasoning:
Mohnish Pabrai first notes that despite the decline in net asset value and market volatility, the fund has continued to attract strong capital inflows. Since inception, the total net capital inflow into Wagons Fund has been approximately $75 million to $76 million, while the current net asset value stands at about $67 million, implying a paper loss of roughly 10% to 13% on total invested capital. Notably, a significant portion of this $75 million was deployed during the recent months of market weakness, which Pabrai views as positive, as the fund was able to purchase favored businesses at lower prices.
Regarding future compounding ability, Pabrai's assessment is: the current portfolio appears very undervalued.
He candidly acknowledges that some bets in the portfolio will inevitably fail, and there may even be losses, but he cannot know in advance which ones. He adds that if he did, he would immediately cut those positions.
The core logic lies in the margin of safety: Pabrai emphasizes that the fund does not need all investments to succeed, nor even a 50% success rate. As long as it is right on a substantial portion of the portfolio, the fund can achieve very good returns and can tolerate a fairly high error rate. He believes the fund is in a favorable position and explicitly states, "I like this portfolio."
Context: Investors understand Pabrai’s strategic logic behind coal, oil, and offshore drilling contractors, but question the core risk—if commodity prices remain depressed for the next decade, could these companies fall into structural losses, thereby destroying investment value.
Pabrai’s Response and Reasoning:
1. Common Trait: “Unfair Advantage” from Bankruptcy Restructuring
Pabrai notes that, aside from Occidental Petroleum (Oxy), these companies (coal firms Alpha, Warrior; offshore drillers Valaris, Noble) have all undergone Chapter 11 bankruptcy restructuring. The process liquidated balance sheets and shed unnecessary assets, leaving behind:
2. Asset Value and Barriers to Entry
3. Demand Inelasticity and Cost Advantage
4. Conclusion: An Asymmetric Bet
Pabrai explicitly states that he does not know where commodity prices will go. However, he believes that based on the three points above (debt-free, low cost, high barriers), these investments constitute a highly asymmetric bet: limited downside risk (companies can survive a downturn) and enormous upside potential (high profit elasticity when prices recover). This is precisely why they favor such opportunities.
The questioner believes that artificial intelligence and global economic development will drive a significant increase in energy demand over the coming decades, with oil, natural gas, and coal playing an important role for many years to come. As investment in this sector is lagging, Occidental Petroleum (Oxy) presents a substantial profit opportunity.
Mohnish Pabrai responded that they like Oxy but prefer other positions because those are simpler and easier to understand. He noted that smaller companies are easier to grasp. The investment thesis for Oxy is highly dependent on two factors:
1. Rising Oil Prices: Higher oil prices would significantly benefit Oxy.
2. "Magic Tricks": As Charlie Munger once said, Oxy has already performed one or two "magic tricks" in shale oil fracking technology and may create more in the future.
Pabrai added that Oxy's CEO, Vicki (Vicki Hollub), is excellent and is currently making a big bet on artificial intelligence (AI). They have brought in quite smart data scientists from Silicon Valley, aiming to use AI to boost production and efficiency. Pabrai commented, "We'll see how it works," with a tone of cautious observation and reservation.
Question and Context: The questioner cites Buffett's advice that investors should evaluate a company's earnings performance over five years or more, and asks Mohnish Pabrai what time frame he believes investors should use to evaluate his fund, as well as how he personally sets time parameters to ignore short-term fluctuations.
Answer and Views: Pabrai believes that at least five years is a reasonable evaluation period, applicable not only to his fund but to any equity fund. He cites the historical case of the Sequoia Fund (Ruane Cunniff), which underperformed the market significantly for five consecutive years after its inception in 1969-70, illustrating that even excellent funds can experience prolonged downturns (the high-volatility period of 1972-1973).
Reasoning Process:
Historical Case: The Sequoia Fund performed poorly for five consecutive years after its inception but ultimately became a long-term successful fund. Pabrai uses this to demonstrate that the five-year evaluation period is not arbitrary but grounded in real historical experience.
Limitations: Pabrai does not guarantee that the fund will necessarily outperform within five years, nor does he provide specific performance targets; he emphasizes that this is the minimum time expectation investors should have when evaluating any equity fund.
Background: An investor asked when the Pabrai Wagons Fund is expected to open to non-U.S. investors.
Mohnish Pabrai's Response:
Conclusion: Pabrai thanked the investors for their time and expressed appreciation for the quality of the fund's investor base and the caliber of the questions asked.