Mohnish Pabrai on Volatility vs Risk

Page 16 Assets Under Management There is $547 million in assets under management between all the funds as of January 1, 2021. It is a true joy to manage Pabrai Funds. I love it! Thanks for your continued interest, referrals and support. Feel free to call me at +1949.453.0609 or email me at mp@pabraifunds.com with any queries or comments. Warm regards, Mohnish Pabrai Note: The assets under management in the above graph are as of June 30 for all annual periods. Various indices are included throughout this letter for reference. Reference to an index or benchmark does not imply that the strategy will achieve returns, experience volatility, or have other results similar to the index. As an example, the Funds may invest in foreign securities or fixed income instruments; however the indices presented only include U.S. securities. These indices are purely a basket of stocks, and the Funds may invest in securities other than stocks such as bonds, warrants and preferred stocks. The Funds typically hold fewer than 10 positions as compared to 500 in the S&P, 30 in the DJIA, and thousands in the NASDAQ. Therefore, the Funds are significantly more concentrated than the benchmark indices and may experience notably higher volatility and return characteristics from these indices. Copyright © 2021 by Mohnish Pabrai. All Rights Reserved. Please do not post this letter on the web. $0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 $800.Management

Even the not so diligent reader will notice that PIF2 experienced a significant decline in July – over 14%. All the indices were down in July and the markets were quite volatile with fairly large swings in both directions almost daily. Since the funds typically have 10-15 holdings and do not engage in any sort of derivative hedging or taking short positions, the portfolio is likely to gyrate up and down with the market in the short run. As Ben Graham succinctly put it: “The s ock market is like a voting machine in the sho t run t r and like a weighing machine in the long run” Eventually the market price of a stock will tend to revolve around the intrinsic value of the underlying business. In the short-term however, we can easily see wide disparities between the stock price and intrinsic value. Occasionally, these gaps widen to allow fractions of businesses to be bought at big discounts to their underlying intrinsic value. That is the only time we’re interested in buying stakes in a select few of these businesses. Indices like the Dow have 30 stocks, the S&P 500 has 500 and the Nasdaq composite has thousands. With 10-12 holdings we are likely to experience higher volatility than the indices in the short term. In the long-run, however, the performance of the fund will gravitate towards the underlying intrinsic value of the holdings. The key to our success is to be right about the business. If we’re right about most of the businesses in the portfolio, we’ll do just fine.

I have not talked to the legal/accounting folks yet, but 12/31 might be a good date to merge to minimize tax issues. PIF2 Performance Update The diligent PIF2 reader will notice that PIF2’s NAV declined from $17.43 (on June 1, 2002) to $15.89 on June 30, 2002. While this is not what folks who added funds on 6/1 like to see, it is basically “noise”. As Ben Graham succinctly put it says, “In the short run, the market is a voting machine and in the long run it is a weighing machine”. The broad market volatility in the last few weeks has “voted” us down temporarily. The portfolio’s market value was well below my estimation of its intrinsic value on June 1 and, as I write this, that gap has widened. 2002 Annual Meeting Reminder: The 2002 Annual Meeting will be held at 4:00 PM on the Saturday Sept. 14, 2002 at: Carlucci’s Restaurant 6111 North River Road Rosemont, Illinois 60018 Tel. +1847.518.8