This is a transcript of Mohnish Pabrai's December 2025 investor call. Key points: the fund will convert to an ETF by Feb 2026 with a 0.90% fee; his top holding Edelweiss (market cap ~$1.15B) plans to IPO its subsidiary EAAA in April 2026, which he calls 'ridiculously undervalued'; Turkish warehouse firm Reysas just bought land near Istanbul for $47M and is testing a small apartment project in Germany. He also explains why he prefers offshore driller Transocean (low idle rigs, strong cash flow) over peers.
Mohnish Pabrai announced during the February 2026 investor conference call that the Pabrai Wagons Fund Trust will be restructured into the Pabrai Wagons ETF, with management fees uniformly reduced to 0.90%. The core holding, Edelweiss Financial Services, has a market capitalization of approximately
Context: At the start of the meeting, Mohnish Pabrai gave a brief welcome, followed by Investor Relations Manager Aidan Townsend reading standard legal disclosures and the fund restructuring announcement. Pabrai then explained the Q&A format for the meeting.
Responses and Views:
Context: This is a core qualitative question about the fund’s largest holding—India’s Edelweiss Financial Services. The questioner wants to know whether Pabrai views it as a short-term special situation for value realization through subsidiaries like EAAA, or as a long-term compounding machine intended for extended holding.
Mohnish Pabrai’s response:
Conclusion: Pabrai does not strictly classify Edelweiss as either a short-term special situation or a long-term compounding holding. Instead, he views it as currently “ridiculously undervalued,” with value to be unlocked through a series of subsidiary IPOs. His intent is to hold these high-quality businesses long-term as long as valuations remain reasonable, combining characteristics of both value realization (via IPO revaluation) and long-term compounding (by holding quality subsidiaries).
Context: Investors raised questions about Pabrai's long-term holdings in Turkey (TAV Airports and Reysas), with core concerns centered on the persistent depreciation of the Turkish lira and uncertainties in the local corporate governance environment. They asked Pabrai to explain how he prices these two types of risks.
Mohnish Pabrai's Response:
Pabrai breaks the question into governance risk and currency risk, addressing each for the two holdings separately.
Governance Risk:
Currency Risk (Lira Depreciation):
Final Judgment: Pabrai believes that in both cases, neither currency nor governance poses a problem.
Background: Investors point out that reports indicate numerous expansion projects and greenfield capacity are advancing in the metallurgical coal industry, questioning whether Pabrai’s judgment that long-term supply from low-cost producers like Warrior and Alpha is inelastic is overly confident.
Mohnish Pabrai’s Response:
Pabrai first clarifies that he is discussing the highest-quality seaborne metallurgical coal globally, benchmarked by the Premium Low Volatility (PLV) index on a FOB basis from Queensland, Australia. This premium PLV coal is scarce in the earth’s crust and exists only in a few regions.
Reasoning Process and Key Arguments:
1. New Mine Development Is Extremely Difficult and Time-Consuming: Even if new discoveries are made, the primary issue is proximity to ports and logistics conditions. He cites his holding company, Mongolian Mining Corporation, as an example. During his visit to Mongolia last year, he observed that reserves there are massive and, unusually for metallurgical coal, consist of open-pit mines. However, the problem lies in the distance from ports. While China has adjusted its supply chain by relocating some steel mills closer to the Mongolian border to utilize this resource, transportation remains complex and costly. Therefore, he believes that from discovery to production, any new mine cannot take less than 5 to 10 years.
2. Existing Supply Is Declining: Global production of high-end metallurgical coal has not seen significant growth or change for a considerable period. Meanwhile, some older mines are depleting or closing.
Conclusion and Caveats:
Pabrai believes that from a supply and demand perspective, the situation favors existing producers. He acknowledges that investing in metallurgical coal carries no guarantees, but based on a risk-adjusted assessment, it is a probabilistically favorable bet.
Mohnish Pabrai explained that the fund decided to pass on NRP after a detailed study of the metallurgical coal sector, primarily based on the following considerations:
1. Tax Structure Mismatch: NRP is structured as an MLP (Master Limited Partnership), which must distribute cash flows as dividends. Under a mutual fund structure, these dividends cannot be directly passed through to holders as in a private fund; instead, they are taxed at the fund level, resulting in efficiency losses.
2. Differences in Capital Allocation Strategy:
3. Higher Price Elasticity (Leverage Effect): Directly holding mining companies (e.g., Warrior, Alpha) in a high metallurgical coal price environment (e.g., PLV prices at $250, $300, $350) results in cash flow growth far exceeding that of the MLP structure. Pabrai described this elasticity as "totally bananas," while noting that although MLP cash flows also grow, the magnitude is not as great.
Conclusion: Despite the operational risk of directly holding mining companies, Pabrai prefers mining companies over royalty/streaming businesses like NRP, based on tax efficiency, capital allocation flexibility, and higher leverage effects in a high-price environment.
Context: The host notes that Transocean is a highly leveraged offshore oil service provider and, unlike peers such as Noble and Valaris that have cleaned up their balance sheets through bankruptcy restructuring, it has never filed for bankruptcy. The host asks what makes Transocean Pabrai’s preferred way to bet on the offshore drilling cycle.
Mohnish Pabrai’s Response and Reasoning: Pabrai argues that when evaluating offshore drilling companies, leverage and white space (idle capacity) are two sides of the same coin, and the impact of white space may even outweigh that of leverage.
1. Cost of White Space: Pabrai explains the enormous cost of idle capacity. A drillship under contract costs approximately $150,000–$175,000 per day; when idle and awaiting a contract, it still costs $100,000–$150,000 per day due to the need to maintain a full crew. This means that one idle vessel consumes $35–$60 million in cash per year, and the profit from one working vessel is nearly offset by the loss from one idle vessel.
2. Transocean’s White Space Advantage: Pabrai points out that Transocean’s white space situation is completely different from that of Noble and Valaris.
3. Stress Test Results: Pabrai states that they conducted stress tests on these companies under various scenarios. The results showed that, especially after Transocean recently raised approximately $1 billion through equity and debt financing, its balance sheet would not face issues even in an extreme “nuclear winter” scenario (with almost no new contracts). In contrast, Noble and Valaris are slightly more dependent on new contracts.
4. Reasons for the White Space Difference: Pabrai believes the difference in white space stems from a combination of three factors: the quality and characteristics of the fleet, the quality of the crew and operations, and the commercial acumen in securing contracts. While he cannot precisely quantify the weight of each factor, Transocean’s outstanding performance in lacking white space indicates that its comprehensive capabilities in these three areas are superior to the other two.
5. Advantage of Not Having Gone Through Bankruptcy: Pabrai adds that Noble and Valaris were “cut to the bone” during their bankruptcy restructuring processes, losing some of their best talent. Although Transocean also underwent cost-cutting driven by Carl Icahn, the extent was far less severe. This historical difference has also contributed to the current state of the companies.
Summary: Pabrai believes that despite Transocean’s higher leverage, its extremely low white space gives it a significant advantage in cash flow generation. It can produce substantial free cash flow even without signing new contracts, and its balance sheet remains robust after stress testing. In contrast, Noble and Valaris, while having less debt, see their cash flows eroded by significant idle capacity. Therefore, Transocean is the superior choice.
Background: Investors inquired about the latest updates on Reysas regarding capital raising, operations, and its balance sheet since the last conference call.
Mohnish Pabrai’s Response:
Pabrai travels to Istanbul annually to meet with Reysas management and has always been impressed. He describes Reysas as an opportunist with no fixed strategic plan, evaluating the best opportunities daily and staying put when none are suitable.
Key Update One: Istanbul Warehouse Land Bid
Key Update Two: Entry into the German Market
Question: Gimat is a new position in your hedge fund. Do you also plan to buy it in the mutual fund, or have you already done so? What is the investment thesis behind it?
Answer and Views (Mohnish Pabrai):
Question and Context: The host asks Mohnish Pabrai how to estimate the replacement cost of assets like offshore drilling companies, and how current day rates and utilization need to evolve for stock prices to approach replacement value.
Answer and Reasoning Process:
1. Estimating Replacement Cost:
2. Conditions for Triggering New Builds:
3. Pabrai's Investment Perspective:
Mohnish Pabrai argues that the supply side of metallurgical coal faces multiple structural barriers, making large-scale capacity additions extremely difficult. Therefore, the aforementioned risk is very low in the current environment. He outlines four key obstacles:
1. Capital Access Barrier: Whether through equity or debt financing, banks and capital markets universally avoid any project with the word "coal," without distinguishing between metallurgical coal and thermal coal. Thus, raising capital for new capacity is very challenging.
2. "NIMBY Effect" and Permitting Barriers: Obtaining permits for new mines is extremely difficult. Even if reserves or thick coal seams are discovered, the process of securing approvals and reaching mining agreements is fraught with challenges.
3. Transportation and Logistics Barriers: If the mining area is not near a port, the required logistics infrastructure (which varies by country) becomes another bottleneck.
4. Long Lead Time for Production: Even if all the above barriers are cleared, it typically takes 5 to 10 years from the discovery of reserves to the actual shipment of coal to the market.
Conclusion: Based on the above four points, Pabrai judges that there will be no sudden, large-scale increase in metallurgical coal supply for a considerable period, or even forever. Therefore, he believes the risk of long-term price suppression due to financing ease is not realistic.
Background: Against the backdrop of elevated home prices, declining affordability, and high mortgage rates, homebuilders have adopted a cautious tone in their 2026 revenue guidance. Investors inquired about Pabrai's long-term investment thesis for these homebuilder positions.
Mohnish Pabrai's Response:
Pabrai first clarified that Toll Brothers and Pulte are among the lowest-conviction positions in the fund, though they remain bullish on both companies. He then elaborated on the long-term thesis from several angles:
1. Structural Supply-Demand Gap: There is a multi-million-unit shortfall in U.S. housing inventory (estimates range from 5 million to 10 million units). The existing housing stock is aging, and the annual construction volume needed (approximately 1.5 million units or more) is not being met, causing the gap to widen. This forms the foundation of long-term demand.
2. Short-Term Headwinds vs. Long-Term Tailwinds: Current headwinds include economic uncertainty, declining affordability, and high mortgage rates. However, over the long term, once interest rates decline, the pressure from the housing shortage will re-emerge as a driving factor.
3. Long-Term Structural Advantage of Large Homebuilders: This is the core argument. Large national homebuilders possess a long-term, structural competitive advantage over smaller "mom-and-pop" builders. The industry is becoming more like manufacturing, where large players achieve significant cost advantages through scale, leading to higher profit margins. The trend of industry consolidation is ongoing, granting top players greater pricing power and higher margins.
4. Capital Model Shift: Large homebuilders have transitioned to an asset-light model. Instead of holding large land banks as in the past, they now control land through options and just-in-time purchasing. This shift enables them to generate substantial cash flow, and given their relatively low valuation multiples, they have the capacity for capital allocation such as share buybacks.
5. Management and Governance: Pabrai stated that they like the governance of these companies, the operational style of management, and the long-term tailwinds they possess.
Summary: Pabrai believes that despite short-term macroeconomic headwinds, large homebuilders (Toll Brothers and Pulte) benefit from structural cost advantages driven by industry consolidation, cash flow from the asset-light model, and the persistent long-term housing supply-demand gap. These factors underpin their rationale for holding these low-conviction positions.
Mohnish Pabrai first clarifies that Oxy is currently one of his lowest-conviction bets, even lower than his position in homebuilders. Nevertheless, he remains positive on the transaction and explains the reasons.
1. Oil price increases: If oil prices experience periodic rallies, Oxy would be a major beneficiary.
2. Fracking technology innovation: If fracking technology further innovates and reduces costs, Oxy, as one of the lowest-cost operators, would gain additional upside. He cites Charlie Munger's view that the probability of Oxy achieving another breakthrough in fracking technology ("pulling another rabbit out of the hat") is not zero.
Question and Context: An investor asks how to reconcile Pabrai's consistent adherence to the "concentrated betting" philosophy (i.e., holding only a few high-conviction positions) with the statutory diversification requirements of mutual funds (e.g., a single stock position cannot exceed a certain percentage, and there are caps on shareholding in a single company).
Answer and Perspective (Mohnish Pabrai):
Context: The host asks Pabrai to provide an example of a case he researched thoroughly but ultimately decided not to invest in, along with the specific reasons for the rejection.
Pabrai’s Response and Reasoning:
Pabrai uses the automotive dealership industry as an example, detailing the process of rejecting Penske Automotive.
1. High Recognition of Business Quality:
2. Core Reason for Rejection: Excessive Price Premium:
Conclusion: This is a case that involved significant research time but was ultimately rejected due to an unfavorable risk-reward ratio. Pabrai explicitly states that they chose other dealerships as investment targets.
Mohnish Pabrai responded that he had already partially addressed this question. He noted that many of Edelweiss's underlying businesses possess long-term investment value, characterized by strong tailwinds, sound business models, asset-light operations, high return on equity, and high growth. If these businesses perform well and management is excellent, he is willing to hold them for the long term. He added that the Indian financial services sector has enjoyed robust tailwinds for many years. Therefore, his holding period depends primarily on business fundamentals and management performance, rather than a preset fixed term.
Context: The host noted that Warrior has strong prospects and a new longwall face about to come online, yet it ranks only third in the portfolio, with a position roughly half the size of Edelweiss. Since Pabrai still believes Warrior has 10x return potential, why not build a larger position?
Mohnish Pabrai’s Response:
1. The Position Gap Is Overstated: Pabrai first corrected the numbers in the question. He pointed out that Warrior’s position is not half of Edelweiss. Based on the closing price on the day the Wagons Fund’s assets first exceeded $100 million, Warrior accounts for approximately 13%–15% of the portfolio, while Edelweiss accounts for approximately 18%–19%. Warrior is about 30%–35% smaller than Edelweiss—a gap not as wide as suggested in the question. Both are significant bets.
2. Healthy Internal Debate Exists: Pabrai acknowledged that Edelweiss itself is undervalued, and there is a healthy internal debate over which of Warrior and Edelweiss will perform better going forward. Both offer substantial torque.
3. No Direct Answer on Why Not Larger: Pabrai did not directly explain why Warrior’s position was not increased to match or exceed Edelweiss. Instead, he indirectly responded by correcting the position data, emphasizing that both are heavy positions and that internal views diverge. This implies the position difference reflects more of a balance between current valuations and internal judgment, rather than a denial of Warrior’s potential.
Background: An investor asks how Alpha Metallurgical Resources (AMR) can achieve $700 million in sustainable profits under current production and pricing, and what conditions are needed to reach this target.
Mohnish Pabrai’s Response:
Pabrai first uses the Warrior analogy to explain the investment logic: If a business can be bought for $2 billion, and it can survive for 50 years before disappearing, with annual cash flows fluctuating between $0–$200 million (low end) and $2–$3 billion (high end), the discounted value remains highly attractive.
Specifically for AMR’s $700 million profit, the math is simple:
Cost and Pricing Analysis:
Key Personnel and Cost Improvements:
Conclusion: Pabrai believes it is not difficult for AMR to generate $500–$600 million in cash flow, corresponding to a profit of only $30–$40 per ton. The $700 million profit target is achievable under the reasonable assumption of PLV at $200–$250/ton, with the core support coming from cost improvements and metallurgical coal prices remaining near current levels.
Background: The investor asks about the proportion of cloning strategies in Pabrai's portfolio and which investors have had a key impact on current holdings.
Mohnish Pabrai's response:
Key reasoning: Pabrai's cloning is not simple replication but serves as a research starting point—starting from the cloned investor's holdings, he forms his own judgment through independent research, potentially ending up with entirely different holdings from the cloned investor. He is candid about this strategy, stating, "That is just the way it is."
Mohnish Pabrai responded that replacement value is not a core metric he focuses on. He clearly stated that the value of any business depends on "the sum of future cash flows from now until Judgment Day, discounted at a reasonable rate," and replacement value is not part of this formula. Therefore, he does not assume these companies will trade at replacement value, and this metric is not central to his analysis.
However, when considering factors such as cash flow, business quality, and asset quality in relation to current market capitalization, he believes the situation for these companies "looks extremely favorable." He even described that in this sector, "you could almost throw darts and do very well." This indicates that, despite not relying on replacement value, he holds a very optimistic view of the overall investment prospects for offshore drilling companies like Transocean, Valaris, and Noble.
Mohnish Pabrai argues that the key impact lies not in Blue Creek's output itself, but in two larger variables: the absolute level of the PLV index and Warrior's own cost curve.