If you’re like me, one of the things I spend a lot of time thinking about is how many stocks to hold and how big my positions should be. That’s why I found this interview with Mohnish Pabrai on MOI Global particularly interesting.
Instead of diversifying widely across companies, Pabrai follows a concentrated approach. “What I try to do in portfolios typically is a 10×1, where if I’m making a bet, I’d make it 10% of the portfolio.” He believes that a portfolio should naturally become skewed when a high-conviction investment pays off. “Now, what ends up happening is that if you get a very big winner in one of those bets, then the portfolio will start to get skewed.”
A striking example of this is his offshore fund, which has grown into a hyper-concentrated portfolio. “For example, we have an offshore fund and an offshore hedge fund, and it has, you know, 400-odd million in assets.”
Within this fund, one standout investment—a Turkish real estate investment trust called Reysas—became an outsized winner. “That fund alone owns 20% of a business that we found extremely cheap in Turkey.”
When Pabrai first came across Reyas in 2019, its market cap was a mere $16 million. Now, just five and a half years later, it has ballooned to over $1 billion. “I think Reyas is north of 60% of that offshore fund, and by the time we get to our fourth position in that fund, it’s 100%.”
This extreme concentration may seem risky to some, but Pabrai views it as a natural evolution of a well-managed portfolio. “Because what happened over the years is that we kept the ideas that we had the greatest conviction on, and whenever there were redemptions or things going on, the low-conviction ideas were the ones that were candidates to be sold.”
Pabrai is upfront with his investors about this approach, cautioning them that position sizes won’t be cut purely for diversification.
“I warned my investors that we are not cutting position size for the sake of diversification.” Instead, he advises them to reduce their exposure if the fund has become too large a portion of their net worth.
Ultimately, Pabrai’s philosophy champions conviction over diversification. “We are going to run this fund concentrated because, on a risk-reward basis, that seems to be the best way to go about it.”
His strategy is clear: let winners run, concentrate capital where conviction is highest, and embrace the natural skewing that occurs when an investment truly takes off.
For those looking to outperform the market, there’s an important lesson here—sometimes, the best way to invest is not to spread your bets, but to double down on what you believe in the most.
You can watch the entire interview here:
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