Saturday, May 12, 2007

Disciplined Investor in HNR

Mohnish Pabrai bought HNR shares again, and he really bought a lot recently.

Both of us knew the recent ER was fantastic. However I couldn't hide my exhilaration and rushed to load @10. This guru investor is just so disciplined to only load it below his preset threshold which we all know now it is $10. I like his coolness.

How did he come up with the preset threshold in the first place? From reading his book, I knew his strategy. He must have done very thorough due dilligence and come up with a intrinsic value for a business, and load it when it is on fire sale, the discount rates (margin of safety) for his previous investments have been 25%-40%. So in his mind, HNR's intrinsic value is about in the range of 25-40. I certainly don't disagree with him.

Anyway it is very nice to have this guy with us in HNR.

4 comments:

BAC said...

Great analysis. A question about HNR: how do you think about holding stocks and holding options? What would be the advantage of holding stocks, although it will occupy much more funds than options (for the same amount of secured shares)? Thanks!

Robin said...

I think OTM>=12.5 option with expiration after this summer will be good choice.

theisland said...

I do have a comment about HNR. It seems to me that the market reaction for the past two quarter conference call is not that typical of your HCL label (no large pre or post-CC momentum). I think it is common knowledge now that the prospect of this company is hinged on the formation of the new company. So it is kind of odd that there is not much reaction to the bad news (March CC) or good news (May CC) about the progress on formation of the new company. Do you have any explanation on that? It seems to me that you may need to wait longer than you thought to see the market reacts to the "imminent" approval of the new company. I do agree the downside risk is low though.
Sorry to find out that you are leaving BBS. Good luck

Robin said...

March CC and May CC are both bad news to traders on the streets, since they are not familiar with the issue, all they saw is red inks, widen loss.
Strangely the recent analyst options are all downgrade, as you said we may need more time for the market to realize the situation even after the approval of new company.