Mohnish Pabrai Annual Meeting 2011 (September 10, 2011) Brief Notes – By Matt Miller

- 3 previous investments discussed o International Coal Group o Terex o London Mining

- International Coal Group o Discussed history of previous Wilbur Ross consolidations o Believed it made sense to look at what he was doing now in coal o The company’s new efforts in met coal really drew his attention o Discussed choke-points in commodities o Not all commodity markets are “commodities” some commodities are “moat commodities” o Fairfax had bought o His previous investment in Teck Cominco helped in anaylsis o Reverse engineering the ideas of others is a powerful tool

Most humans don’t like to use others’ ideas Has had to train himself to accept this

- Terex o Huge decline in share price over short period caught his attention o Beneficiary of rural to urban movement taking place across the developing world o Another choke-point type of investment o May be time to take another look given the recent decline in share price

- London Mining o Another investor’s idea… John Burbank at Passport Capital o Special dividend issued and the share price went down to reflect that… got interested at that

point o Met coal again… though this was early stage, no production o Was somewhat a black box as he didn’t have insight into the project details o Was a net-net at half of cash at the time

- 45% of assets in 6 names; each greater than $5 billion, 4 greater than $45 billion… this is unusual in terms of the first 10 years of operation

- All-time high in non-US exposure (including international ideas or names with significant international exposure)

- Brookfield Asset… beneficiary of China - Had 25% cash going into recent declines, though that is down now - Just over 10% in Japanese basket… would be willing to go to 20% - Japanese bets are mostly net-nets - Taisei Oncho (JASDAQ: 1904) is a current Japanese idea

o Tangible BV of 16.78, stock is at 4.43 o Profitable o Now owns 1.4% of the company o Has about 30 of these types of companies

- 1 Chinese investment, but many holding benefit from China, India - Gave an example of thinking about things if unemployment goes to 14% in the US… despite his

international exposure, the portfolio would be hurt - Reference capacity build-out cycles in regards to shipping

o Cycles determine companies’ ability to respond o Dry-bulk shorter than VLCC (container)… therefore less boom to bust (talking 6-9 months

versus 3 years) o Clarkson ship values

- Interesting ideas can be when the market is looking at cash flows / earnings for values and should be looking more at asset values (shipping as an example of this)

- Normal position size now is 5%; would still take a position to 10% - When dealing with commodities, important to remember not all commodities are the same

“commodity” o Differing dynamics o Have to consider where a company is on the cost curve o 1st and 2nd quartile producers different from the others o What would be the valuation of a company if on the 1st and 2nd quartile producers were

profitable - Hasn’t ever trimmed a position because it got too big after purchase (probably wouldn’t even

consider trimming in this scenario if it got to 20%) - No interest in a China or India basket (too concerned about management integrity; different than

Japan) - Checklist addition… if a thesis relies on a company going from A to B, can it realistically do that?

(Sears example of 200,000 employees standing in the way of a liquidation where the value in liquidation is huge)

- Was “totally wrong on placeholders” - Has no great insight into currencies… doesn’t hedge the Yen - Going to spend most of his time in stressed areas based on the nature of value investing - Stocks are a daily auction - Doesn’t interview management or call them or meet with them

o Sales skills of the typical CEO quite good o They know everything about the company / industry and you know comparatively little…

bound to be impressed o Need to make your own judgments about the business and its future direction o Only met a management and board once as the company was trying to push through an

option package that he wasn’t going to vote for (always votes against option packages, not even worth the time reading about) Sent the company and the entire board a copy of The Essays of Warren Buffett and

had highlight a small passage about stock options Presented to the company’s board and management No change of course in mentality

- Not counting on a change in Japanese behavior - Japan… can’t find things at less than 20 cents on the dollar; perhaps that is a floor