The $10 Billion Bargain

Pabrai's journey with FCA began not in the pages of financial newspapers or analyst reports, but in the dusty corners of European regulatory filings and obscure industry publications. While most investors were focused on the headline-grabbing stories about the auto industry's challenges, Pabrai was digging into the nitty-gritty details of FCA's operations, supply chain, and future product pipeline.

His research process was painstaking and often isolating. Pabrai spent countless hours poring over FCA's financial statements, not just from the parent company, but from its various subsidiaries and joint ventures scattered across the globe. He studied the company's debt structure, its pension obligations, and its tax situations in different countries. This level of detail was far beyond what most investors, even professional analysts, typically delve into.

But Pabrai didn't stop at the numbers. He traveled to Italy and visited FCA's factories, talking to workers, suppliers, and even competitors. He attended auto shows and dealer conferences, not as a VIP investor, but as an ordinary attendee, soaking in the industry gossip and observing the reactions to FCA's latest models. This grassroots approach gave him insights that were simply not available in mainstream financial media.

One of Pabrai's most crucial discoveries came from an unlikely source - trucking industry magazines. While most investors were focused on FCA's passenger car business, Pabrai noticed a growing buzz about Ram trucks in these niche publications. He realized that FCA's truck division was not just profitable, but was gaining market share and had a strong pipeline of new models. This insight, buried in publications that most Wall Street analysts never read, became a cornerstone of his investment thesis.

As Pabrai pieced together his research, a picture emerged that was starkly different from the prevailing market narrative. While many saw FCA as a troubled automaker burdened by debt and legacy costs, Pabrai saw a company with strong brands, improving operations, and significant hidden value in its luxury car divisions like Maserati and Alfa Romeo.

But perhaps the most valuable insight Pabrai gained from his unconventional research was an understanding of FCA's CEO, Sergio Marchionne. By studying Marchionne's past interviews, conference call transcripts, and even his academic writings, Pabrai developed a deep appreciation for the CEO's strategic thinking and operational acumen. This gave him confidence that FCA had the leadership to execute on its ambitious turnaround plans.

Armed with this mosaic of information, Pabrai made a bold move. In 2014, when FCA was trading at around $11 per share, he began accumulating a significant position. This wasn't a small bet - at its peak, FCA represented nearly 40% of his fund's portfolio. Such concentration would make most fund managers break out in a cold sweat, but Pabrai's deep research gave him the conviction to make this outsized bet.

The market's reaction to Pabrai's investment was initially skeptical. Many couldn't understand why a value investor would be interested in a cyclical, capital-intensive business like auto manufacturing. But Pabrai wasn't swayed by the market's short-term thinking. He knew that his edge came from his unconventional research process, which had given him insights that the market hadn't yet recognized.

As the years went by, Pabrai's thesis began to play out. FCA's financial performance improved dramatically, driven by the success of its Ram trucks and Jeep SUVs - exactly as Pabrai had anticipated based on his industry research. The company's luxury brands also began to show promise, with Maserati in particular exceeding market expectations.

By 2019, FCA's stock price had more than tripled from Pabrai's initial purchase price. But the real vindication came in 2021, when FCA merged with French automaker PSA Group to form Stellantis. This merger, which Pabrai had long anticipated based on his understanding of Marchionne's strategic vision, created one of the world's largest automakers and unlocked significant shareholder value.

In the end, Pabrai's investment in FCA generated returns of over 400% for his fund. But more importantly, it demonstrated the power of unconventional research in investing. By looking beyond mainstream financial media and digging into sources that others overlooked, Pabrai was able to develop a differentiated view that led to outsized profits.

The FCA case study perfectly illustrates Ted Weschler's point about the limitations of relying solely on mainstream financial news. If Pabrai had confined his research to the New York Times or Wall Street Journal, he would have missed the crucial insights about FCA's truck business, the potential of its luxury brands, and the strategic genius of its CEO. It was his willingness to go beyond these sources, to dig into industry-specific publications, regulatory filings, and on-the-ground research, that gave him his edge.

For the average investor, the lesson here is clear: Don't just follow the herd. While it's important to stay informed about general market trends, true insight often comes from unexpected places. Maybe it's talking to employees of a company you're interested in, or reading industry-specific publications, or even attending trade shows. The key is to look for information and connections that others might miss.

In the end, Pabrai's FCA investment reminds us that in investing, as in life, the biggest rewards often come to those who are willing to dig deeper, think differently, and have the courage to act on their convictions. Because sometimes, the most valuable insights come not from the front page of the Wall Street Journal, but from the back pages of a trucking magazine.