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Mohnish Pabrai and Guy Spier on Equity Investing in Japan and Beyond


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Guest hellsten

I don't think this has been posted here before:

http://www.valueconferences.com/2012/12/mohnish-pabrai-and-guy-spier-on-investing-in-japan-and-beyond/

 

Value superinvestors Mohnish Pabrai, Managing Partner of Pabrai Investment Funds, and Guy Spier, CEO of Aquamarine Capital Management, joined ValueConferences attendees live on November 7th for Japan Investing Summit 2012. Mohnish and Guy answered many questions about their philosophy and favorite ideas.

 

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"I would say that this particular business, I would just say, it's just a confluence of factors, it's an unbelievable manager in a very misunderstood industry with just a wide disparity on valuations and a lot of tailwinds that are very positive.  It would not surprise me if we held this for ten years that we might have somewhere between a 10x and 40x return on it."

 

Safe to say it's in the Pabrai Fund's portfolio - although in the above context he was referring to a huge position in the Dakshana Foundation portfolio.  It wouldn't have to be in the filings if it were a foreign company. 

 

Thoughts?  I'm assuming lots of people here would love for it to be Bank of America, and in fact, that'd be my guess if I had to make one.

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"I would say that this particular business, I would just say, it's just a confluence of factors, it's an unbelievable manager in a very misunderstood industry with just a wide disparity on valuations and a lot of tailwinds that are very positive.  It would not surprise me if we held this for ten years that we might have somewhere between a 10x and 40x return on it."

 

Safe to say it's in the Pabrai Fund's portfolio - although in the above context he was referring to a huge position in the Dakshana Foundation portfolio.  It wouldn't have to be in the filings if it were a foreign company. 

 

Thoughts?  I'm assuming lots of people here would love for it to be Bank of America, and in fact, that'd be my guess if I had to make one.

 

10x to 40x would rule out BAC, C, GM, GS. It would have to be CHK or ZINC. My guess is CHK but I have no idea about ZINC.

 

1. It's an unbelievable manager (CHK meets this requirement, Aubrey would qualify)

2. in a very misunderstood industry (CHK likely meets this requirement as well, Shale/O&G misunderstood?)

3. with just a wide disparity on valuations and (CHK meets this requirement, Gas prices between US and Rest of the world)

4. a lot of tailwinds that are very positive (CHK meets this requirement, Conversion to natural gas as fuel?)

 

Vinod

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"I would say that this particular business, I would just say, it's just a confluence of factors, it's an unbelievable manager in a very misunderstood industry with just a wide disparity on valuations and a lot of tailwinds that are very positive.  It would not surprise me if we held this for ten years that we might have somewhere between a 10x and 40x return on it."

 

Safe to say it's in the Pabrai Fund's portfolio - although in the above context he was referring to a huge position in the Dakshana Foundation portfolio.  It wouldn't have to be in the filings if it were a foreign company. 

 

Thoughts?  I'm assuming lots of people here would love for it to be Bank of America, and in fact, that'd be my guess if I had to make one.

 

10x to 40x would rule out BAC, C, GM, GS. It would have to be CHK or ZINC. My guess is CHK but I have no idea about ZINC.

 

1. It's an unbelievable manager (CHK meets this requirement, Aubrey would qualify)

2. in a very misunderstood industry (CHK likely meets this requirement as well, Shale/O&G misunderstood?)

3. with just a wide disparity on valuations and (CHK meets this requirement, Gas prices between US and Rest of the world)

4. a lot of tailwinds that are very positive (CHK meets this requirement, Conversion to natural gas as fuel?)

 

Vinod

 

I agree, if its listed in the filings then its got to be CHK.

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10x to 40x would rule out BAC, C, GM, GS. It would have to be CHK or ZINC. My guess is CHK but I have no idea about ZINC.

 

1. It's an unbelievable manager (CHK meets this requirement, Aubrey would qualify)

2. in a very misunderstood industry (CHK likely meets this requirement as well, Shale/O&G misunderstood?)

3. with just a wide disparity on valuations and (CHK meets this requirement, Gas prices between US and Rest of the world)

4. a lot of tailwinds that are very positive (CHK meets this requirement, Conversion to natural gas as fuel?)

 

Vinod

 

I do not think 10x optimistically rules out BAC over ten years, but you are right that 40x would seem to discredit the idea.  Looks like I should bring myself back up-to-speed on CHK.

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10x to 40x would rule out BAC, C, GM, GS. It would have to be CHK or ZINC. My guess is CHK but I have no idea about ZINC.

 

1. It's an unbelievable manager (CHK meets this requirement, Aubrey would qualify)

2. in a very misunderstood industry (CHK likely meets this requirement as well, Shale/O&G misunderstood?)

3. with just a wide disparity on valuations and (CHK meets this requirement, Gas prices between US and Rest of the world)

4. a lot of tailwinds that are very positive (CHK meets this requirement, Conversion to natural gas as fuel?)

 

Vinod

 

I do not think 10x optimistically rules out BAC over ten years, but you are right that 40x would seem to discredit the idea.  Looks like I should bring myself back up-to-speed on CHK.

 

Yeah I think considering he gave it scale of 10-40, I think it rules out BAC. I agree its possible BAC could be a 10 bagger over the next 10 years or longer, but no way 40x.

 

CHK is at an 11B market cap today, a 40 bagger would mean if you owned the whole company and kept all the dividends that your stake would be worth around 440B divs included. It seems hard to believe that even between dividends and spin offs that CHK could generate that much value and the next XOM. So I think I retract my "its got to be CHK". Although I am long CHK so I would be more than happy for this play out :)

 

I don't follow ZINC but is much smaller and appears to be involved in nickel and recycling. Anyone know more about ZINC?

 

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CHK is at an 11B market cap today, a 40 bagger would mean if you owned the whole company and kept all the dividends that your stake would be worth around 440B divs included. It seems hard to believe that even between dividends and spin offs that CHK could generate that much value and the next XOM. So I think I retract my "its got to be CHK". Although I am long CHK so I would be more than happy for this play out :)

 

Don't forget 40X was the high end of his possible range, with 10X the low end. That is a pretty large range. It could be that his opinion is that the most likely outcome is closer to 10X than to 40X. 

 

Also 10 years ago XOM had a market cap of $235B, it could be that in 10 years it has a $800B-$1T.  Which would make a $400B company significantly smaller than XOM.  I suspect in a future where CHK is a $440B company XOM would be over $1T.

 

I've owned CHK in the past, bought in the $30s sold in the $60s if I recall correctly.  I haven't looked at it in a long time though.

 

 

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10x to 40x would rule out BAC, C, GM, GS. It would have to be CHK or ZINC. My guess is CHK but I have no idea about ZINC.

 

1. It's an unbelievable manager (CHK meets this requirement, Aubrey would qualify)

2. in a very misunderstood industry (CHK likely meets this requirement as well, Shale/O&G misunderstood?)

3. with just a wide disparity on valuations and (CHK meets this requirement, Gas prices between US and Rest of the world)

4. a lot of tailwinds that are very positive (CHK meets this requirement, Conversion to natural gas as fuel?)

 

Vinod

 

I do not think 10x optimistically rules out BAC over ten years, but you are right that 40x would seem to discredit the idea.  Looks like I should bring myself back up-to-speed on CHK.

 

Yeah I think considering he gave it scale of 10-40, I think it rules out BAC. I agree its possible BAC could be a 10 bagger over the next 10 years or longer, but no way 40x.

 

CHK is at an 11B market cap today, a 40 bagger would mean if you owned the whole company and kept all the dividends that your stake would be worth around 440B divs included. It seems hard to believe that even between dividends and spin offs that CHK could generate that much value and the next XOM. So I think I retract my "its got to be CHK". Although I am long CHK so I would be more than happy for this play out :)

 

I don't follow ZINC but is much smaller and appears to be involved in nickel and recycling. Anyone know more about ZINC?

 

I think the assumption is there would be a buyback of significant number of shares. With a 50% buyback, I think CHK even at 40x might be within the realm of possibility.

 

Vinod

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10x to 40x would rule out BAC, C, GM, GS. It would have to be CHK or ZINC. My guess is CHK but I have no idea about ZINC.

 

1. It's an unbelievable manager (CHK meets this requirement, Aubrey would qualify)

2. in a very misunderstood industry (CHK likely meets this requirement as well, Shale/O&G misunderstood?)

3. with just a wide disparity on valuations and (CHK meets this requirement, Gas prices between US and Rest of the world)

4. a lot of tailwinds that are very positive (CHK meets this requirement, Conversion to natural gas as fuel?)

 

Vinod

 

I do not think 10x optimistically rules out BAC over ten years, but you are right that 40x would seem to discredit the idea.  Looks like I should bring myself back up-to-speed on CHK.

 

Yeah I think considering he gave it scale of 10-40, I think it rules out BAC. I agree its possible BAC could be a 10 bagger over the next 10 years or longer, but no way 40x.

 

CHK is at an 11B market cap today, a 40 bagger would mean if you owned the whole company and kept all the dividends that your stake would be worth around 440B divs included. It seems hard to believe that even between dividends and spin offs that CHK could generate that much value and the next XOM. So I think I retract my "its got to be CHK". Although I am long CHK so I would be more than happy for this play out :)

 

I don't follow ZINC but is much smaller and appears to be involved in nickel and recycling. Anyone know more about ZINC?

 

I think the assumption is there would be a buyback of significant number of shares. With a 50% buyback, I think CHK even at 40x might be within the realm of possibility.

 

Vinod

 

Good point. That post was pre-coffee, buybacks didn't even cross my mind. I still think 40X is a tad high but I agree that puts in the realm of possibility. I have watched CHK since I started investing in 2008 and initiated a position a few weeks ago. I feel the changes at the board level, actions to reduce debt are all steps in the right direction.

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Guest hellsten

"I would say that this particular business, I would just say, it's just a confluence of factors, it's an unbelievable manager in a very misunderstood industry with just a wide disparity on valuations and a lot of tailwinds that are very positive.  It would not surprise me if we held this for ten years that we might have somewhere between a 10x and 40x return on it."

 

Safe to say it's in the Pabrai Fund's portfolio - although in the above context he was referring to a huge position in the Dakshana Foundation portfolio.  It wouldn't have to be in the filings if it were a foreign company. 

 

Thoughts?  I'm assuming lots of people here would love for it to be Bank of America, and in fact, that'd be my guess if I had to make one.

 

10x to 40x would rule out BAC, C, GM, GS. It would have to be CHK or ZINC. My guess is CHK but I have no idea about ZINC.

 

1. It's an unbelievable manager (CHK meets this requirement, Aubrey would qualify)

2. in a very misunderstood industry (CHK likely meets this requirement as well, Shale/O&G misunderstood?)

3. with just a wide disparity on valuations and (CHK meets this requirement, Gas prices between US and Rest of the world)

4. a lot of tailwinds that are very positive (CHK meets this requirement, Conversion to natural gas as fuel?)

 

Vinod

 

Interesting. CHK certainly looks cheap right now and seems to match all the criteria.

 

This has also been discussed in another thread:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/pabrai-and-guy-speier/

 

IMHO, BYD was the best idea in that thread. CHK sounds even better, but that's just because I own it :)

 

For some reason I have never considered buying BYD (BYDDF). Price seems to be very volatile:

http://finance.yahoo.com/q/bc?s=BYDDF&t=5y&l=on&z=l&q=l&c=

 

Charlie Munger once said that his family held a little more than half of the family fund with BYD investment. Munger commented that the founder, chairman and CEO of the company Wang ChuanFu is "a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do."

http://seekingalpha.com/article/891361-byd-great-company-will-come-out-stronger-after-a-little-glitch

 

BYD's market cap is ~3 billion and could be a 10-40 bagger with the help of the Chinese government and middle class. I don't think CHK can be a 40-bagger in 10 years even if the stars align.

 

Mohnish is a coattail investor. He trusts Charlie and Li Lu, so BYD would be my bet on which stock it is.

 

BYD doesn't seem to be a favorite of this board:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/byddf-byd-company-limited/

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BYD's market cap is ~3 billion and could be a 10-40 bagger with the help of the Chinese government and middle class. I don't think CHK can be a 40-bagger in 10 years even if the stars align.

 

Mohnish is a coattail investor. He trusts Charlie and Li Lu, so BYD would be my bet on which stock it is.

 

BYD doesn't seem to be a favorite of this board:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/byddf-byd-company-limited/

 

I agree with all your points except your guess, and that's just based on the fact that in the transcript he says he found the company through The Manual of Ideas.  I don't have any experience with that source, but in any case I'd be surprised to find out he heard about BYD there and not through BH/Munger/Li Lu.

 

Pabrai loves low-cost resource producers as a form of moat.  I haven't tried to run numbers on CHK, but if he believes they have access to a low-cost resource base that could be significantly grown, with a long upward demand ramp (LNG, anyone?) at high IRRs, then who knows what kind of estimates you could get to?

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With all due respect to Mohnish, I think it is just ridiculous to talk about 40x returns, let alone 10x in the next 10 years... It might be possible to see little downside and huge margins going forward with a huge competitive advantage, but still it is quite ridiculous to say a certain investment will grow 10 to 40x ex-ante.. Really gettin ahead of himself on this one...

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I wish we could weigh in on this discussion...

 

 

(Hope you enjoyed the session with Mohnish and Guy!)

 

John or Oliver; You could take an educated guess. As I remember he wouldn't give you a direct answer. He said in a couple of years. So I for one would be interested in your "Wild Ass Guess".

 

  Also I really enjoyed your European and Japan Seminars. I got a lot of good ideas. Ron

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I think you guys may all be on the wrong continent!  Swing again batter, batter, batter.  Cheers!

 

Ok, sounds like we have eliminated North America and Asia.

 

That narrows it down to:

 

Africa

Antartica

Australia

Europe

South America

 

I think we can probably remove Antartica from that list :)

 

Definitely warmer!  I agree, I think you can take Antartica off the list.  ;D  Cheers!

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Let's throw some darts in the dark:

 

Fiat.

 

* Marchionne is one of the best CEOs I've seen.

* priced at just 0.05x sales.

* Good balance sheet.

* Chrysler is killing it in the US and provides a margin of safety in case Italy goes bust.

* Fiat is earnings positive despite horrible utilization in Italy, and if it ever rebounds …

* convoluted way of claiming Ferrari and Maserati (don't tell Bigliari).

 

Now, 40x in 10 years… probably not. Double digit x, I would say yes.

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