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: Spawners
Shameless Cloning
Uber Cannibals
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. Enjoy! Note, anyone who invests in any strategy needs to do their own research/due diligence and are themselves fully responsible for the outcome.
18 Comments
Kay
12/28/2021 07:09:09 pm
Had been looking forward to this post since the start of December. Thank you Mohnish - for this post, YouTube videos, and all the content you put out. It's priceless and so helpful to beginners like myself!
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Mayank
12/29/2021 11:43:56 am
Thanks for putting this out. One question - if one were to DCA every month into each of the 15 - as opposed to starting out with a lumpsum amount - then does this strategy still beat S&P500?
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1/2/2022 07:13:56 am
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Sabari
1/16/2022 12:40:12 am
Thanks a lot for your contents and knowledge you share on the YouTube. I watch each one of your videos. It helping me to understand the planning of 26%. I could you see Free lunch portfolio contains only U.S Stocks. As being from India, Which place i can see the free luch Indian version ? If it is not made already, Is there any plan to write on it ? Thanks you !
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Shiv Karan Singh
2/3/2022 10:43:53 pm
Thanks Monish for putting the list of these 15 gems in the free lunch portfolio inclusion. Not sure, but do you really have any such bucket which constitutes such business in Indian markets or if you may ever have in your mind to find it soon. I could only see a very few as per your > 1% current holding in a very few Indian stocks?
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Joe in Santa Rosa
2/14/2022 05:09:47 pm
Thank you so much Mohnish! I've been following you for a while. Love Dhandho Investor. But only recently heard your interview on "We Study Billionaires." I don't know how I missed your Free Lunch until now!?! A free lunch is also on me in Santa Rosa, CA if you're ever in town. The best wine and food pairing in the world is just down the road ... so is the worlds best beer. Not a bad place to go for a bike ride either.
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2/26/2022 10:04:12 pm
Brilliant write-up and got some wise words through this posting about The "Free Lunch" Portfolio! These words are really helpful and I have to follow all these. By the way, I am going to share the post on my social media pages to see my friends and followers. Thank you so much and keep it up!
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2/27/2022 12:36:10 am
Got some amazing words about The "Free Lunch" Portfolio! I have no idea about it before today. I appreciate the reading. Please keep posting things like this.
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Darío
4/17/2022 11:54:35 am
Hi!
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Darío
4/28/2022 02:42:01 am
Reply to myself in case it helps anyone: USA and Spain have an agreement to avoid double taxation, as do the US with may other countries, so ignore my previous message about dividends.
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4/27/2022 11:38:57 pm
Thank you for this informational blog and keep sharing your blog with us these blogs are very helpful for us. Again thank you
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Puneet
5/19/2022 02:59:13 am
I like your way of making things very simple
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5/28/2022 10:00:13 pm
Hi Mohnish,
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Ifeatu O Onwuasoanya
12/23/2022 02:59:35 am
Today is D-Day for 2023 Free Lunch portfolio. I can't wait to see the changes, if any, that Mohnish would make. I have a few guesses about those that will be dropped but none on what will be added.
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Ethan
12/29/2022 08:06:32 am
When is the 2023 Free Lunch Portfolio coming out?
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1/6/2023 01:20:47 am
We're all looking impatiently forward to reading the 2023 Portfolio.
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Lev Zaga
2/15/2023 08:05:52 pm
Very interested to hear your wisdom on investing.
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Mohnish PabraiMohnish Pabrai is the founder and Managing Partner of the Archives
December 2024
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