I have advocated many times on this site that reading can uncover clues to great investments and strategies. Throughout history, the greatest investing minds have laid out their strategies in black and white for you to digest and implement pieces of their plan in yours. With thousands of books to consider, its hard to know where to start. This is a story of how I made $100,000 by reading a finance blog.
I am not here to brag today. I owe all of the unrealized gain to insights gathered elsewhere. My reason for sharing this story is to illustrate a specific, real life example of how reading can enlighten you on your journey to financial independence and enrich yourself with quantifiable benefits.
The Beginning of my $100,000 Story
This story starts over a year ago when I was perusing a newish bloggers website that I still enjoy today. This blogger is unconventional and usually produces content that has a unique twist on the subject at hand. Our investment strategies are sometimes different, but that is ok. I am always looking to broaden my horizon as an investor and obtaining many perspectives beyond my own is one of the reason I love reading (and writing) blogs. Over the years, I have added bits of information to my wheelhouse from many much smarter investors than myself.
I would never blindly copy someone else’s stock picks without doing my own due diligence and you shouldn’t either. If you cannot value a company and conduct your own research you have no business buying individual stocks and are better off sticking to a strategy of low cost index funds as the bedrock.
With that disclaimer out of the way, one of the books this blogger recommended was the The Dhandho Investor: The Low-Risk Value Method to High Returns. I never heard of Monish Pabrai before, other then he was the crazy rich guy who paid $650,000 to have lunch with Warren Buffett years earlier and I never gave him any consideration beyond reading that story on Yahoo.
I purchased the book and likely earned the blogger a small commission
I’m not advocating that you read everything that personal finance bloggers recommend or write. Nevertheless, I am suggesting you pay attention to compelling ideas around you. Clues are everywhere in your life. It doesn’t have to come from a blog. Maybe it is a product you love or a service you use or maybe you drive past the companies headquarters on your dreadful commute to the cube farm. Take notice and investigate. I have found most of my best ideas this way.
Blogs offer up free sources of inspiration, free recommendations and free experiences to learn from. If anything check out the feeds over on Rockstar Finance. J Money is providing a outstanding service at no cost to the reader. Over a thousand blogs are pumping out high quality content every day and channeled for the astute peruser. Just maybe you will uncover clues to your $100,000 by reading a finance blog.
But, you don’t have to buy a book from a blog recommendation like I did. Simply go to your library and check the book out for free. Use the resources available to you, like Valueline, found at your local library for free. I check out my libraries copy of Valueline all the time. The librarians are starting to get frustrated by constantly lugging the enormous binder off the rack behind where they sit. They must hate when they see me coming.
I do challenge you to be curious. Once a week or month, take notice of a business from any source and understand it. How does it makes money? How much money does it keep and how much does it distribute to shareholders?
The strategy in the The Dhandho Investor is not for everyone
After reading the book over a year ago and digesting the strategy laid out, its not for everyone and I will not pretend to tell you that I changed my entire investing philosophy because of it, but I did structure one investment because of it.
For this strategy to pay off, you need to be extremely confident with your own research. You need to be able to place “large bets” on a few great ideas that might not be successful for years, if ever. To top it off, you need to know when to sell. None of this is easy. But does that mean you shouldn’t explore the possibility of your next 5 or 10 bagger investment? No way. (“10 bagger” is a term coined by Peter Lynch for an investment that returns 10 times its original investment.)
Monish Pabrai manages a hedge fund that is a very concentrated, long only fund. He has been able to crush the market by 1100% since 2000. So what does this mean?
He places large bets in only a few stocks and is always looking for “heads I win, tails I don’t lose much” situations and is not interested in making profits by shorting stocks. Right now his portfolio has only six positions. They include:
- Fiat Chrysler
- GM Warrants
- Ferrari, which was spun from Fiat Chrysler
- AerCap Holdings
- Southwest Airlines
This strategy is hard. He doesn’t accept most of the principles preached by other financial experts. For instance, he is not diversified across industries at all and placed large bets in a few names.
He credits his success by taking positions in a few investments at one time and making large investments, usually up to 10% of the portfolio. If he diversifies too much he will just mirror the results of the market.
I Felt Compelled to Understand his Reason to Invest in Fiat Chrysler
After reading the blog recommendation, I read the book. After reading the book I had a grasp on his strategy. One of the things that stood out from reading his book is that he mentions cloning. Some people mimic the moves of great hedge fund managers after they publish their trades in quarterly 13F statements.
He admits that this is one of the ways he identifies companies for his own research. He is not talking about copying trades of his peers, he is talking about using it as a starting point and completing his own due diligence on a companies stock. After reading the book my curiosity led me to peak into his portfolio and I uncovered that Fiat Chrysler was the largest holding.
Back to the story at hand
At this point, I still had no idea why he would invest around 30% of his portfolio in an automobile stock, and Fiat Chrysler on top of it. They are notorious for their quality issues. (In full disclosure I drive a Jeep Grand Cherokee and absolutely love it.)
Automobile manufacturers are not usually a preferred investment because they are highly cyclical, unionized, suffer from massive pension liabilities and are extremely capital intensive. Recall that Chrysler went bankrupt in 2009 and was acquired by Fiat.
Additionally, the industry has many future competing technologies to fend off. Self driving cars, all electric vehicles like Tesla and companies like Uber will take sales away from the historic big three auto manufacturers. I’ll be the first to admit I don’t know what this industry will look like 20 years from now. Does this mean I shouldn’t exploit a prospective value? I love paying $.50 for $1.00. I like even better paying a quarter for a dollar.
Anyway, Here is some of the research I conducted:
- Listened and watched Monish Pabria’s University lectures on You Tube. He mentioned some of the reasons for his investment.
- Investigated every Fiat Chrysler Annual Report I could find looking for red flags
- Listened to investor presentations
- Devoured the Fiat Chrysler 5 year plan from 2013 – 2018, and believed they could do it even if analysts couldn’t fathom it.
- Read many analyst reports, many of them agreeing, saying it is undervalued. Even Morningstar had a five star rating on this company for at least a year.
- Uncovered many valuations online, like Morgan Stanley’s sum of the parts and compared them to my own valuation.
After all this, I was still interested. I could not fathom how this companies valuation was so low. Over a year ago the company was trading with a market capitalization of $8 billion. I figured at that level, the company was priced at half of what the Jeep brand could sell for. Almost every metric compared to peers was low and the automobile industry as a whole was trading low. This was truly the worst company in the worst industry.
After performing my valuation, I deduced an investor a year ago would get:
- Half of the Jeep brand for free
- Fiat brand for free
- Abarth brand for free
- Chrysler brand for free
- Dodge brand for free
- Fiat Professional for free
- Maserati brand for free
- Alfa Romeo brand for free
- Many Industrial subsidiaries for free.
What a deal. There is some risk due to the debt and pension liabilities in the event of a major recession. This risk remains today. A small drop in sales could eradicate any earnings from the company.
On the contrary, it didn’t appear so difficult for management to unlock value with this portfolio of brands. They even had a track record of success with spinning off Ferrari.
Recently, Fiat Chrysler was approached by a Chinese manufacturer to acquire the Jeep brand. According to this article, it suggests that the Jeep Brand could be valued more than the market cap of the entire company alone. Fiat Chrysler still has significant net industrial debt and pension liability to work through. The only analyst report I could find for free is a little dated from March which details a sum of the parts valuation.
Heads I Win, Tails I Don’t Lose Much
Even still, I was cautious because I saw Pabrai Funds investment in Horsehead implode. This was a terrible investment and the company ultimately went bankrupt and the fund lost a lot of money. The last thing I want in the back of my mind is losing my hard earned dollars.
However, the story I uncovered was so compelling. It had all the markings of a heads I win, tails I don’t lose much value investment. Even if Fiat Chrysler management misses their 5 year plan by a lot, the company is still worth a lot more than $8 billion.
I made the investment over two months period.
I purchased 10,050 shares at an average price of $6.53 for a total of about $65,000.
$65,000 is a lot of money to stake and this was a relatively large position for me. It was a high single digit percentage of the total Early Retirement Investment Plant (SERIP.) Today it is a double digit percent of SERIP and one of the contributing factors of how I beat the market with a 33% return in 2016.
After my initial purchase, the price dropped by one dollar. This was heartbreaking, but I continued to buy. In hindsight, this downturn was a blessing. I received more shares for an even more discounted price.
Today those shares are worth $180,000 which is how I made over $100,000 by reading a finance blog.
So Who is the Mysterious Blogger that Provided the Clue that made me $100,000 by reading a finance blog?
I hope he doesn’t mind me sharing but the source goes to Mr. Tako over at Mr. Tako Escapes. He has a wonderful, funny and insightful blog. Please take some time to look around. You never know if you will find $100,000 by reading a finance blog. The clues are around us all the time.
I know this story goes beyond just reading a finance blog. However, I hope I leave you with one thing from this story. The greatest advantage you have is your own curiosity to improve your financial situation. Take it as far as you can go. You alone are responsible for your financial picture and the decisions and actions you take. Investigate blogs. Take time to read from the experts. You never know what you might uncover.
As always, I am grateful to anyone who shares this story. I am curious, how reading financial blogs or books impacted your financial journey? How you experienced any great sources of inspiration?