"Nobody Noticed This MULTIBAGGER... But I Made 10X" - Mohnish Pabrai | Stocks | Investment

追加: 2026-05-09

[00:00:00]So going back, going back all the way to maybe around 34 years ago, 33, 34 years ago, I had just started my first business, IT services company. I had just gotten one of my first clients. I used to live in Chicago, the client was in Wisconsin. It was called J.I. Case, which is a manufacturer of farm and construction equipment. The company had had been doing very poorly for a while.

[00:00:23]They'd been losing money for a while, so they were very tight-fisted in all the, you know, the amounts they were willing to pay and the negotiations and all because they were just kind of scrambling on their end. But there was one part of the company which was their finance arm, where whenever I did work with that group, they never tried to negotiate with me. And they always seemed to have a lot of cash. And it was like almost like I was dealing with a different company even though it was a subsidiary.

[00:00:49]So I I asked the CIO, I said, "You know, James, why why are these this all the rest of your guys beat me up on price and everything else, but these guys, they don't?" He said, "Oh, they have a lot of money. And the rest of us don't have a lot of money." So it prompted me to look into why is it that the finance arm of Case was doing so well when the equipment arm was doing so poorly. And what I discovered is that captive finance companies, like if you have Ford Motor Company and there's Ford Credit or Toyota and Toyota Credit and that sort of thing, where they are, you know, kind of financing their own vehicles, etc., those businesses are extremely good businesses. And normally, lending is not such a good business. In fact, I've had a lot of permanent wiped out and losses in the investing in leveraged financial institutions. And actually, I don't invest in them anymore because I think I'm very bad at them. But captive finance arms are very different. And the reason they're different is, so if you think about, you know, like the certified pre-owned Lexus, for example, right? You know, you go to a Lexus dealer and you know, they've got the Lexus cars, but they also have the certified pre-owned. So certified pre-owned is only possible with Lexus.

[00:01:56]You can't have it with anyone else because they can give you a Lexus warranty. They can tell you we've done all the, you know, checks and inspections and and it gives a halo, the brand halo. And so it it it it has similar halo to buying a new car, right?

[00:02:11]In the sense that they're giving you a lot of assurance that you're getting a great car. So when Lexus finances one of their cars and let's say it's a 3-year or 5-year or 7-year finance deal and let's say the borrower defaults, you know, doesn't make his payments, etc. They can repossess the car.

[00:02:27]And when the car comes back to them, they are in a very privileged position versus a typical lender. So if I'm just like, you know, Citibank or Chase or someone who made a loan and the borrower defaults and the asset comes back to me, I have so many different assets I am dealing with that I don't have a particular expertise or competence in a Lexus. You know, Lexus, BMW, Mercedes, they all look the same to Citibank.

[00:02:50]There's no difference for them, right?

[00:02:52]So when when these cars come back to Citibank, for example, and there's been a default, etc., Citibank will just, you know, send it to auction or whatever and try to get rid of it quickly and try to salvage and get as much money out of it so that they minimize their losses or come out ahead or whatever. But in the case of Lexus, it's a little bit different. So when they repossess the car, they have the option of refurbishing it, making it part of Lexus pre-owned, bringing it back into their dealer channels for sale and getting a good price for it. So their ability to work with that asset is very different than the ability of a city or someone. And when you go to like equipment finance, like, you know, the the tractors and all of that, now those are business tools, right? They're the critical business equipment you need for your business. So first of all, default rate should be low because you're you know, you will let the house go, you will let many things go before you're going to let the tractor go. Because that's, you know, what if if they repossess the tractor, you're in trouble. So first of all, default rates are low. But secondly, if they if there is a default and it comes back to them. They again have the same abilities like Lexus. They can refurbish and they can sell it through a dealer network, etc. And so I found that what I learned from that experience when I was running my IT company is wow, these captive finance companies are really interesting. You know, I just something I kept in my head. And you know, in the financial crisis when all the auto companies were facing severe issues and they went bankrupt. GM and Chrysler went bankrupt but Ford did not go bankrupt.

[00:04:17]And the reason Ford did not go bankrupt is because of Ford Credit. So Ford Credit was so strong that it carried the company even when the rest of it was just as bad as GM. And and GM had taken their GMAC and they had gone into mortgage lending and number of other things which hit them really hard. So they actually, you know, kind of left the reservation and went off the reservation basically and they paid the price. So the captive finance arm of Lexus should not be financing BMWs. You know, you want to keep it to Lexus because that's where it has real power and competitive advantage. So this this experience I had was in the early 90s just observing this, right? In 2012, which is, you know, maybe something like 30 years uh yeah, almost 30 years after I made that made that investment, I made an investment in Fiat Chrysler in the fund. So in 2000 when I when I learned about all about this captive finance, I was a, you know, running an IT company, wasn't running a fund or anything. But when I made the investment in Fiat Chrysler, one of the things I looked for was their captive finance arm. Because I knew that that piece is really good and it did not exist. So they had been so decimated, the capital had been so decimated, they had sold everything off including the captive captive finance.

[00:05:30]Of course, a number of things had changed in that business where it became a lot better business after the financial crisis because they re-did their union contracts, their cost structures went down. So Detroit actually went from being one of the worst places on the planet to build a car in up to 2007 to one of the best places on the planet to build a car in 2009 and beyond. Actually, it became very competitive. My interest in investing in Fiat Chrysler was because I think the world still thought of auto companies as terrible, you know, high capex, unionized, subject to consumer tastes, everything you can think of that's terrible in in making an investment. And what they didn't realize is when these companies went through bankruptcy, they got cleansed. So, a lot of their retirement liabilities went away, the pension liabilities went away.

[00:06:14]They went and redid their union contracts. And a number of other things came in their way. And the valuation was really off. Like the market cap of Fiat Chrysler was $5 billion. And their annual revenues were $130 million.

[00:06:27]So, it was trading at about 4% of revenues. And so, if if they could right the ship and make even modest profits, I felt that they could make five, six, seven billion in a single year. So, basically, it'd be less than a PE of one against future earnings. And the other thing that was interesting to me was that to the main reason I made the investment was that Sergio Marchionne was the chairman of Fiat uh was the CEO of Fiat Chrysler. And I'd done a lot of work looking into Sergio. He was this a off-the-charts exceptional leader. So, anyway, we made the investment. And from 2012 to 2022, it's a 10X. And unfortunately, I didn't capture the whole 10X because in the middle Sergio died, which was a big shocker. But we made a we made several times our money.

[00:07:08]We would make like four, five times our money and such. But the thing is that in the process of owning Fiat Chrysler, I got to know John Elkann, who was the chairman. And he's part of the Agnelli family in Italy, which controls Fiat Chrysler.

[00:07:21]And I had many conversations with with John. And I said that, you know, the finance arm, which doesn't exist because they had a deal with Santander Bank, who was doing all the financing for them, I said I said the finance arm is the one of the most important things to put in place. So, I said, "Why aren't you guys putting resources behind it? Why aren't you guys, you know?" I think the answer he gave was that we we just don't have the financial strength. And what I also observed is while he was saying we didn't have the financial strength, they were pushing out very large dividends.

[00:07:51]And that made no sense to me. So, I felt like almost like the Fiat Chrysler owners, they'd been through so much trauma before that they wanted to like, you know, pull chips off the table.

[00:07:59]Whereas I felt that if that if that cash had gone into the finance arm, and I tried to explain to John that, "Look, these captive finance arms are really really exceptional businesses." And, you know, Santander Bank, you know, they they finance everything. They they don't have the same variable as you guys would have. They never went down that So, I wonder whether either they didn't understand it or there was something else rather than understand, but our investment still worked, but I think it would have been worked even better. So, this is an example of how something happens in life, you know, you cannot connect connect the dots, you know, looking forward, but you connect them looking back. And then later something comes up which is, you know, way in the future, 30 years in the future. And the dots connect and you can you can do something about it. Mohnish Pabrai has a unique ability to connect seemingly unrelated dots and uncovering opportunities where the real risk is minimal, but the upside can be massive.

[00:08:51]Much like Warren Buffett in his early days using arbitrage to generate low-risk profits, Pabrai believes great investing often comes from seeing what [music] others miss.

[00:09:00]According to him, investing is about looking back, connecting the dots, and slowly building a picture that becomes clear, logical, and easy to understand.