Mohnish Pabrai has sold more Seritage. This February 15th filing shows his share count is down to 1.137 million shares. He ended Q3 2021 with 4.733 million shares. So his Seritage holding is down by 76%. And now that he owns 2.61% of the company and less than the 5% threshold that’s required for SEC filings, he can now sell the rest of his position without reporting it, and we won’t know when he sells. He could be totally out now, or he could have this 2.61% stake. We don’t know.
I’ve seen some comments on Twitter to the effect of “it’s hard to clone Mohnish these days.” And my reaction as the Supercloner of the Superinvestors is that “yea, it is hard to clone, welcome to the game, nice for you to join us.”
Or as Munger said at the Daily Journal meeting yesterday, “welcome to adult life.”
Cloning can be very rewarding, but it’s not easy. Just like value investing, which is buying something for less than it’s worth, cloning is a simple concept, but it’s not easy in practice.
Consider Mohnish’s Seritage investment. Mohnish bought Seritage in Q2 2020, and probably near the low. Let’s call is $8. Mohnish sold 25% of his Seritage stock in Q4 2021, and he sold another 49% of that initial position in Q1 2022. Seritage traded between $17 and $12.45 in Q4 2021, so even if he sold for the low during that quarter, on 25% of his Seritage stock, he made at least a 56% gain in less than two years. And even if he sold the other 49% in Q1 2022 at the low of $9 so far, that’s a 12.5% gain from an $8 purchases price.
My point is that even assuming the worst sale prices, Mohnish has made money on Seritage. That might surprise many unskilled cloners who bought Seritage late in 2020 at $12 to $15 because they haven’t made money on Seritage. And that’s what happens when you try to clone when you don’t know what you’re doing.
It can happen to the best of us. I made a mistake with Seritage too. I cloned Mohnish, but for some reason I forgot to implement my “within 30% of the price the Superinvestor bought it at rule” when I bought Seritage for $12.50.
Buying too high is probably the number one mistake cloners make. My rules are to a) always assume the Superinvestor bought the stock for the low during the quarter. Not the average, the low. This bakes conservatism into the process. And b) to never pay more than 30% more than the Superinvestor paid, assuming they purchased at the low during the quarter. If one would have followed these rules with Mohnish’s Seritage investment, they would not have been willing to pay more than $9.10 for Seritage, and they’d still be up money today.
Rules and conservatism. You need those if you’re going to be a shameless cloner.
And we must also keep in mind that these Superinvestors are just like us, in the sense that they’re always looking for better opportunities and their outlooks on companies change just like ours do. Mohnish may have found something he liked better in Turkey, he may have wanted to invest more in Prosus, he may have needed cash for some other reason, or he simply may have changed his outlook on Seritage and decided that it was a good time to sell. Superinvestors can do whatever they want, and we must always remember they could sell at anytime for a number of different reasons. And that’s why I like building conservatism into my shameless cloning with price rules and assumptions.
Another skill you need in order to be a successful shameless cloner is understanding the Superinvestors’ bet sizes. If a Superinvestor makes a 1% bet, and you buy that stock for a 20% bet, then that is not shameless cloning, that is stupid cloning.
How do we know what bet sizes the Superinvestors make? The answer is not in their 13F percentages. The 13Fs only show US stocks, I don’t think they show shorts but I’m not sure, they don’t show cash percentages, they don’t show foreign holdings, and they don’t show private company holdings (I think, but not sure on this one either).
To understand a Superinvestor’s bet size, one must pay attention to the assets under management number. If a Superinvestor shows a $100 million investment in their 13F and it’s one fifth of their 13F total dollar amount, it doesn’t mean it’s a 20% bet. If their assets under management are $2 billion, then it’s a 5% bet.
The reason this is on my mind is because of Li Lu. Check out Himalaya Capital Management’s 13F page on WhaleWisdom.
It shows $2.7 billion in 13F assets, but check out the assets under management number, $18.6 billion. Wow! I had no idea Li Lu was managing that kind of money.
I don’t know for sure, but I assume those numbers are accurate. I looked at that Form ADV and saw that number that WhaleWisdom is reporting, but I’m not an expert in these forms, so who knows, but it does seem accurate, and other Superinvestor assets under management on WhaleWisdom seem accurate as well.
Where’s the other $16 billion? I would guess it’s in Chinese stocks, other Asian stocks, cash, and maybe private investments too. But wow, again, that’s a huge number.
The lesson here is that when I see that Li Lu bought more Bank of America and Facebook in Q4 2021, it’s interesting, but based on his assets under management, those stakes are only currently 3.5% and 1.6% bets, respectively. Who knows if he had some private company home run and a lot of that $18.6 billion is tied up in a private holding and those positions are actually bigger stakes if you look at just liquid money, but again, I have no clue, and that’s kind of the point.
Whether it’s Mohnish selling Seritage with a small gain in order to buy something we can’t see in Turkey or elsewhere, or it’s Li Lu making a small bet that looks larger just based on 13F numbers, one must be very careful and thoughtful when cloning.
There’s a lot to consider when cloning and to quote Donald Rumsfeld there are always known unknowns and unknown unknowns.
“There are known knowns — there are things we know we know, we also know there are known unknowns — that is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.”
– Donald Rumsfeld
Shameless, intense, and ferocious cloning is simple, but it is not easy. That is why I do my best to work in conservative assumptions about when the Superinvestors bought, price rules about not buying for more than 30% of where they bought something at, and now also making sure I consider the assets under management and what that tells us about the bet size.