Warren Buffett is rightfully considered one of the greatest investors of our time. Over 60 years of running Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) has produced returns twice those of the S&P 500.

He achieved those results by adhering to his principle of preserving capital. According to Buffett, “the first rule of investing is don’t lose money.”

He’s not alone in that thinking. Monish Pabrai, the Mumbai-born value investor who styles himself after Buffet, has a similar saying: “Heads I win, tails I don’t lose too much.”

His Dalal Street hedge fund is a heavily concentrated group of stocks, almost all in the natural resources sector. The portfolio, which has about $247 million in assets under management, includes only five companies and the top three stocks comprise 97% of the total.

Buffett himself has said an investor doesn’t really need more than that and he dismisses diversification as a cover for ignorance. Of course, Berkshire Hathaway owns dozens of stocks, but with a portfolio valued at almost $299 billion plus $325 billion in cash, he is forced to spread his money around otherwise he’d end up buying all the companies outright.

Yet Pabrai actively looks for reasons not to buy a stock. He once told The London Business School, “The model is not to find investments. The model is to find the flimsiest reason to say no.”

He recently said “no” to Arch Resources (NYSE:ARCH), selling off 92% of his stake in the metallurgical coal miner. In its place, he made a big bet on one stock he already owned and added a whole new position in a second. Let’s see what Pabrai has been buying and why they might be attractive.

24/7 Wall St. Insights:

• Billionaire value investor Monish Pabrai has long been a disciple of Warren Buffett’s investing philosophy.
• His Dalal Street fund is a very concentrated portfolio currently holding just five stocks.
• Most of Pabrai’s investments are in natural resources though he recently branched out in a new direction.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Consol Energy (CEIX)

The second-largest position in Dalal Street representing almost one-third of the total is Consol Energy (NASDAQ:CEIX), a Pennsylvania miner of high-British thermal unit (Btu) bituminous thermal and crossover metallurgical coal. 

At the end of the end of the second quarter, Pabrai owned 172,000 shares, but he increased his holdings nearly four-fold in the third quarter to 770,640 shares worth $80.7 million. Consol’s flagship project is the Pennsylvania Mining Complex, which is really a series of coal mines focused on the export market. 

What likely sparked Pabrai’s surge in buying was the August merger announcement between Arch Resources and Consol to form a $5.2 billion coal-mining company called Core Natural Resources. The deal is expected to close in the first quarter of 2025. ​​Consol shareholders will own about 55% of the new company and Arch shareholders will own about 45%.

Pabrai has previously said he bought Consol because its “guaranteed cash flows are exceeding the market cap,” so that may explain why he loaded up on CEIX and ended up selling down Arch Resources.

Danaos (DAC)

Containership operator Danaos (NYSE:DAC) was the new position Pabrai added to his portfolio in the third quarter. Considering the billionaire investor’s penchant for investing in natural resources, especially coal, Danaos may seem a curious addition. But it has diversified into the dry bulk market, which has been depressed by a slowing Chinese economy and more recently. potential for disruption due to President-elect Trump’s promise for tariffs, especially on China. It may have been an opportune time to get into the market.

Despite a solid earnings report amid the market uncertainty, Danaos stock has fallen 20% from its early summer high point. That may have looked attractive to Pabrai, who bought 46,590 shares of DAC stock at an average buy price of $86.74 per share. The position is valued at $4 million and is now down about 9% at current prices.

Yet containership demand has been robust as business is being pulled forward amid the trade tensions. There could be further disruptions early next year, however, as an East Coast port strike looms.

Although Danaos is the smallest position in Pabrai’s portfolio — even the remaining stake in Arch Resources is larger — due to its very discounted valuation, it wouldn’t be surprising if he increases his stake in DAC further in the quarters ahead.

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