In this interview with MIT, Mohnish Pabrai discusses a missed opportunity involving Fiat Chrysler and Ferrari. Despite being deeply involved in the analysis of Fiat Chrysler, he underestimated the potential value of Ferrari.
He focused on the larger picture of the company’s overall valuation and earnings potential, neglecting the significant value of Ferrari’s brand and future growth.
This experience highlights the importance of meticulous analysis and the potential for significant returns from even seemingly small components of a larger investment.
Pabrai concludes by emphasizing the need for a deep dive into every investment, no matter how small, to uncover hidden opportunities.
Here’s an excerpt from the interview:
Pabrai: When I encountered David [Einhorn} and Ted Weschler on GM, it led to the work on Fiat Chrysler, which was a huge home run. And of course, now one of the problems that came about in that huge home run was I missed the biggest piece of that home run.
The biggest piece of that home run was that Fiat Chrysler owned 80% of Ferrari. I didn’t even care that much about the value of Ferrari because I was so focused on these other pieces which were going to make the market cap and earnings in a single year.
And Ferrari was making a quarter billion dollars a year, and I said, “Okay, so it’s worth like three billion, four billion, you know, if you want to be really excited about it. But so what? You know, five billion here, we’re going to have the rest of the business be worth 40, 50 billion.”
So, I didn’t care about Ferrari, but actually, Ferrari was my—I had a good return on Ferrari. I think I made it five, six times my money.
But the big mistake I made was it should never have been sold. From then till now, it’s almost a 25-bagger. And a 25-bagger on a 20 million dollar investment is about four or 500 million. That’s more than chump-change.
So even I missed it, even in that scenario where I was looking at this thing so carefully for so many years. So I think that that is the business we are in.
We are in the business of drilling down anomalies, just like I told the student, her job is to look at every public company that she is giving even a dollar a year to and drill down.
You can watch the entire discussion here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
