Interview With the Man Who Paid $650,100 for Lunch With Buffett!

Mohnish Prabai is the man who won the auction for that special lunch date with Warren Buffett.

And the latest Smart Money article has one fantastic interview with Mohnish.

And Nicole Bullock wrote a nice introductory on Mohnish.

• IT OFTEN SEEMS like every hedge-fund manager is reading from the same playbook about how to look, work and behave. Neatly pressed khakis; thumbs glued to a BlackBerry; slick digs in Greenwich or Manhattan staffed by number-crunching research drones. But apparently, Mohnish Pabrai never got his copy. He wears shorts to his Southern California office, keeps e-mail to a minimum and almost never misses his 4 p.m. nap. And forget goosing returns with fancy computer models or using complex derivatives: Pabrai doesn't even sell stocks short.
  
  About the only thing slick about this 43-year-old investor is his market-trouncing track record — annualized returns of nearly 25% since he set up shop in 1999, enough to earn him a growing cult following. His "secret"? Probably the most documented investment strategy around — a bare-bones, Warren Buffett style of stock picking. While that description may inspire yawns — sometimes it seems like everybody claims to be a Buffett disciple — Pabrai takes it to an extreme. His office houses an impressive Buffett mini-museum: a wall covered with photos and articles he's amassed over the years.

Click here for the rest of the article: Looking Up to Warren Buffett

I do enjoy his way of reasoning in buying Pinnacle Airlines. Which is incredible because it's an airline stock!

• SM: What stocks do you like now?
  
  MP: Pinnacle Airlines. Depending on how things work out, it's anywhere from a double to five or six times return in the next two or three years.
  
  SM: An airline?
  
  MP: It's a regional jet company. The large airlines, like Northwest (NWA: 9.06, -0.63, -6.50%) and Delta (DAL: 8.20, -0.55, -6.28%), outsource the small planes to Pinnacle. Many of the reasons why airlines are so terrible — load factors, price wars — don't matter. The revenue is the same whether there is one passenger or the plane is full and whether Northwest charges $200 or $2,000 round-trip. The contracts are long-term, usually 10 years, and will hold up in the event of a merger. So you can estimate what their cash flows will be many years into the future.
  
  SM: What's the investment case?
  
  MP: Pinnacle has more than $10 a share in cash on the balance sheet. In the next few years, free cash flow will be $3 to $6 a share, depending on how much more business they get. With a simple 10 or 15 multiple on those numbers, you end up with $30.
  
  SM: Why are the shares so cheap?
  
  MP: One overhang is that they have a past-due contract with pilots. But not a lot of Wall Street analysts follow Pinnacle, and the business itself is changing. The evolution away from hub-and-spoke and toward more nonstop flights is driving demand for their services. When you connect one small city to another directly, you aren't going to run a jumbo or a 737

And of course his reasoning why he doesn't short a stock.

• SM: Pabrai is a hedge fund, but you don't short. How come?
  
  MP: Because it's a stupid bet. The maximum you can make is double, if the stock goes to zero. The maximum you can lose is infinite. Let's say a stock is at $10, and you short it and it goes to $100. You are down about 1,000%. The extent to which the stock can go up is unlimited.