How Mohnish Pabrai Made 30x his Money in Turkey

How Mohnish Pabrai Made 30x his Money in Turkey

Mohnish Pabrai is one of my favorite investors to follow.

Not necessarily for his investing insights, but more because he’s a great story teller. I love listening to him talk about entrepreneurship, marketing, and psychology.

He was recently interviewed on How I Made My First Million Podcast.

This podcast has quickly become one of my favorites.

And it was fun to hear the hosts, who know almost nothing about public market investing, chat with Mohnish. It made for some fresh content (rather than Mohnish just repeating what he’s said in other interviews).

The whole podcast is excellent (you can listen to the whole thing here).

But one part that stood out to me was Mohnish talking about an investment that he made in Turkey that has generated a 30x return for him.

Here’s Mohnish with the story….

“In 2018, I started visiting Turkey. I was just looking at things that were hated and unloved and I saw that the Turkey was screening really cheap….

I have a really good friend of mine who is in Istanbul. Very good investor. Classic Ben Graham investor. And I told him that I would love to visit Istanbul and if we could visit all the companies in your portfolio. Starting with your largest position. Your highest conviction idea.

His highest conviction idea was a company called Reysas (IBSE: RYSAS).

The pitch was very straight forward.

At the time, the stock had a $16MM market cap and a liquidation value of the business if you sold it today is $800MM.

So the stock was trading at 2% of liquidation value.

Why?

Because it’s Turkey and everything is cheap.

But this is outlier cheap.

Reysas is basically a very simple business.

They are the largest warehouse operator in Turkey and they rent out all these warehouses.

They are 99% leased, inflation indexed and they are leased to Amazon, Ikea, Mercedes, Toyota…blue chip clients.

So I went and met the father and son who are the founders and run the company.

And then after that I went and visited a bunch of the warehouses.

And I couldn’t find anything wrong with it.

And my friend was absolutely right about the liquidation value.

If you went to any realtor in Turkey and said, these are their 80 warehouses. Give me a value on each one. The realtor would look at the rent and say ok you are looking at $70 to 80 per square foot for each warehouse. They had 12 million square feet of warehouse space. So it was worth about $1BN and they had $200MM of debt. So liquidation value was about $800MM.

And the stock had a market cap of $16MM.

And so then I thought ok this thing probably trades by appointment. Maybe I can’t buy the stock.

But turns out Turkey has very high trading volume because they are all gamblers.

So I found that when I started buying the stock, huge volumes were available. I spent $8MM to get ⅓ of the company.

The family that owns the business has 40% to 45% ownership of the business. I’m an outside investor at 33% with no board seat. But the way I look at Reysas is the way the Walton Family looks at the Walmart stock.

And what I’ve noticed since 2019 is they have increased the value of the business. Probably today, the business is worth $1.5 to $2BN. Something in that range. I’ve never seen them make any decisions that were stupid. It’s very well run. I say basically, we are done. We will keep that business. I don’t care about the stock price.

The market cap now is about $500MM. And the Turkish Lyra was 5 Lyra to the USD when we were investing. Today, it’s approaching 33 Lyra to the USD. The Turkish Lyra has collapsed.

In dollars, we are up almost 30x. But the business is worth more.

So it’s basically what Buffett says. Just leave it alone.”

I have a couple thoughts on this story.

(1) I just love hearing stories like this. I love hearing about investors finding tiny, public companies and making a fortune off them.

(2) I don’t know if I agree with Mohnish’s conclusion: “Just leave it alone and don’t sell.”

He bought the stock at a 2% liquidation value. It’s now trading at !33% of liquidation value. Maybe that’s an appropriate valuation for stock in Turkey (current inflation is now 76%)?

(3) I wonder how much of the stock’s re-rating has been driven by Mohnish talking about it. I googled “Mohnish Reysas” and he’s talked about it several times. I bet the stock would have generated a great return but I don’t know if it would have been a 30x had Mohnish not publicly talked about it.

At the same time, I don’t blame Mohnish for talking about it. He’s in the business of making money for himself and his investors. So why not talk about it?