In December 2017, I co-authored an article in Forbes about The "Free Lunch" Portfolio, a strategy to invest in 15 stocks across Uber Cannibals, Shamelessly Cloned Ideas and Spin-Offs. We later replaced the Spin-Offs bucket with Spawners, which I detailed in the 2021 Free Lunch Portfolio post. The portfolio rebalances its Cannibals in April and Cloned Ideas and Spawners in December. I have been publishing updates to the portfolio here on Chai With Pabrai.
The Free Lunch portfolio was up 25% in 2021, vs. 28% for the S&P 500. The portfolio has managed to keep up with S&P 500 despite significant drops in holdings like Alibaba. Since inception on January 1, 2018, on an annualized basis, the Free Lunch portfolio is up 7% while the S&P is up 17%. While 7% annualized return isn’t so bad, the S&P 500 has trounced the Free Lunch portfolio so far. The Free Lunch does not have much exposure to high-flyers at nosebleed valuations, and quite a few of its names are businesses we know well and are exceptional. Keep the faith. We’re just getting warmed up.
New 2022 Free Lunch Portfolio
Our goal with the Free Lunch is to buy and hold 15 compounders for long stretches of time, giving them plenty of room to ride. It’s a 'set it and forget it' type of portfolio. We’ll make small tweaks only if we come across a business that we love and just need to have in the portfolio. This year we came across one such gem: Tencent Holdings. I’ve given some color on Tencent in a few of my recent talks, including my lecture to Boston College (beginning at 24:08).
To bring in Tencent, we make the tough decision to sell Seritage Growth Properties. Seritage was in the portfolio as a Pabrai Fund pick, even though it wasn’t the top Pabrai Funds holding, which is Micron. We will shift the Pabrai Cloned Idea to Micron. This will leave an open slot. Tencent will fill that slot as a top pick of Value Partners, one of our select value managers based in Hong Kong.
Here are the constituents for the upcoming year:
If you are a new investor to the Free Lunch Portfolio, you can just equal weight these 15 stocks (i.e., invest the same amount of money in each of these 15) between now and early January 2022.
If you are already invested in the Free Lunch Portfolio, and you rebalanced the Uber Cannibals in April 2021 with the New Uber Cannibals, then sell Seritage and invest the proceeds in Tencent. You can do this in early January 2022.
If you’re investing in a taxable account, you may try to sell Seritage in December 2021 to capture short-term losses.
These are the stocks to sell, along with their full-year 2021 returns:
As a reminder, the new Uber Cannibals get published every April, while the new Spawners and Shameless Cloning businesses are released in January. When we publish the new Uber Cannibals in April 2022, sell the Ubers that are no longer on the new list and invest the proceeds equally across the new Uber Cannibal picks. Then in January 2023, you’ll rebalance the Spawners and Shameless Cloning ideas.
Note, anyone who invests in any strategy needs to do their own research/due diligence and are themselves fully responsible for the outcome.
I had a fun Q&A with students at the University of Georgia. We talked about my relationship with Warren and Charlie, sources for investment ideas and identifying moats.
I very much enjoyed my Q&A session with the Students at William & Mary College. I discussed my learnings from Charlie Munger, learning from my mistakes and my adventures with Tech Cominco.
I very much enjoyed my Q&A session with the University of Oxford. I talked about my Dhandho Investor book, investments in Turkey and about shorting stocks.
I very much enjoyed my discussion with Prof. Arvind Navaratnam’s class on Fundamental Analysis & Value Investing at the Carroll School of Management (Boston College). This was my 10th year of speaking to the students. We discussed a few investing frameworks, Tencent business model, and evolution of my investing style.
I very much enjoyed my Q&A session with Itai Parnes for Brown University Value Investing Speaker Series. Itai did his homework and asked wonderful questions. I talked about Spawners, Chinese Big Tech Regulation and how to raise capital when you start a Fund.
I had a fun Q&A with students at Value Scholl (Madrid, Spain) for their Summer Summit 2021. They did an amazing Spanish translation of The Dhandho Investor a few years ago - https://t.co/Saw4z4lK9V?amp=1
We talked about investing in developing markets and how my investment philosophy changed over the years.
I very much enjoyed speaking to Vishal Khandelwal for the One Percent Show. We talked about the biggest lessons I learned from the people who have been closest in my life - my father, Warren Buffett, Charlie Munger, Nick Sleep and Guy Spier. Enjoy!
If you prefer to read, here is the transcript of the interview:
I enjoyed my banter with my good friend Ajay Antony. I talked about my love of shamelessly cloning and the power of compounding.
I very much enjoyed my Q&A session with the LBS (London Business School) Investment Management Club. I talked about cloning Buffett and Munger, investing in India and the advantage to investors to think like entrepreneurs.