2023 Free Lunch Portfolio
In December 2017, I co-authored an article in Forbes about The "Free Lunch" Portfolio, a strategy to invest in 15 stocks across Uber Cannibals, Shamelessly Cloned Ideas and Spin-Offs. The Spin-Offs bucket was later replaced with Spawners, which I detailed in the 2021 Free Lunch Portfolio post. Each of the portfolio buckets is reassessed for changes once a year: the Cannibals in April, and Cloned Ideas and Spawners in December. I publish updates to the portfolio here on Chai With Pabrai.
The Free Lunch portfolio was down 17.7% in 2022, vs. 17.9% for the S&P 500. The portfolio tracked the S&P 500 in the market sell off this year. Since inception on January 1, 2018, on an annualized basis, the Free Lunch portfolio is up a paltry 1.6% while the S&P is up 9.5%. The S&P 500 has trounced the Free Lunch portfolio so far. In 2021 we decided to ignore the algorithm’s buy and sell decisions and only make portfolio tweaks if they are no-brainers. This bias towards inaction will avoid disrupting the compounding engine and should help the Free Lunch perform well over time. Since 2021, the Free Lunch portfolio is up 3.0% versus 5.7% for the S&P 500.
Tweaks to the 2023 Free Lunch Portfolio:
This December, we recommend adding Reysas Tasimacilik ve Lojistik Ticaret A.S. (Reysas Logistics) and TAV Havalimanlari Holding A.S. (TAV Airports). We love these businesses and just need to have them in the portfolio. To bring them in, we recommend selling Micron (Cloned Idea) and Berkshire Hathaway (Spawner). The swaps are no-brainers at present prices (the threshold we need to meet to make a change to the portfolio).
Reysas and TAV are both based in Turkey and listed on the Istanbul Stock Exchange. Reysas is a logistics business that owns 62% of Reysas REIT, which in turn owns over 12 million sq. ft of Grade A warehouses in Turkey. It is led by a father-son duo who are fantastic capital allocators. Reysas trades at a steep discount to its liquidation value, and an even steeper discount to intrinsic value. TAV operates 15 airports in 8 countries, and has developed world-class competencies in ground handling, catering, and duty free. The gem in TAV’s portfolio is the Almaty International Airport, which is it recently acquired outright (a rare feat). TAV continues to expand its reach of operations to new airports and is markedly cheaper than other publicly listed airport operators. I discussed investing in Turkey, and specifically Reysas and TAV, in my Q&A Session with YPO Gold Nairobi in Kenya.
It is not easy for US retail investors to buy stocks listed on the Istanbul Stock Exchange, but Fidelity does offer the service to trade Turkish stocks by phone. Once you open an account at Fidelity.com and fund it, you can call Fidelity at +1.800.343.3548, ask for “international trading” and advise the Fidelity representative of your order. Trades are placed in Turkish Lira, so the representative can help you determine the correct number of shares that you can buy with your USD balance, after accounting for possible movements in the Turkish Lira overnight. Trades need to be placed between 5 AM and 7 PM eastern. Limit orders are generally the best way to go. To our knowledge, Fidelity is the only game in town that offers Turkish trading to US retail investors, and it charges a hefty commission (approx. $83 per ticket order). To avoid racking up significant commission charges, you will want limit the number of orders you place and try to maximize the number of shares you buy per ticket order.
In another tweak for the Free Lunch, an existing portfolio holding, Brookfield Corporation, spun-out Brookfield Asset Management, its asset management business in December 2022. As a shareholder of the Brookfield parent, the Free Lunch portfolio automatically received shares in the newly spun out entity. We recommend holding on to the spin-off company: the business has exceptional economics and a long runway.
Here are the constituents for the upcoming year:
If you are a new investor to the Free Lunch Portfolio, you can just equal weight these 16 stocks (i.e., invest the same amount of money in each of these 16) between now and early January 2023. Reysas recently announced its intention to issue a rights offering, which would likely take place in 2-3 months following regulatory approval. To avoid dilution, one should participate in this offering, which will offer existing shareholders the right to purchase shares at TL 1 per share (the current share price is around TL 23). You can invest 90-95 percent of the amount allocated to Reysas today and keep 5-10 percent for the rights offering. Keep your eye out for information on the rights offering from Fidelity.
If you are already invested in the Free Lunch Portfolio, and you rebalanced the Uber Cannibals in April 2022 with the New Uber Cannibals, then sell Micron and Berkshire and invest the proceeds equally between Reysas and TAV. You can do the same 90-95 percent approach with Reysas to allocate the 5-10 percent to the rights offering.
These are the stocks to sell, along with their full-year 2022 returns:
As a reminder, the new Uber Cannibals get published every April, while the new Spawners and Shameless Cloning businesses are released in January. When we publish the new Uber Cannibals in April 2023, sell the Ubers that are no longer on the new list and invest the proceeds equally across the new Uber Cannibal picks. Then in January 2024, you’ll rebalance the Spawners and Shameless Cloning ideas.
Note, anyone who invests in any strategy needs to do their own research/due diligence and are themselves fully responsible for the outcome. The contents of this website are for educational and entertainment purposes only, and do not purport to be, and are not intended to be, financial, legal, accounting, tax or investment advice. Investments or strategies that are discussed may not be suitable for you, do not take into account your particular investment objectives, financial situation or needs and are not intended to provide investment advice or recommendations appropriate for you. Before making any investment or trade, consider whether it is suitable for you and consider seeking advice from your own financial or investment adviser.
12/30/2022 01:26:05 pm
12/31/2022 06:37:29 am
Mr. Pabrai - love all you do and all your work. You are an icon and a wonderful man. If I may make one slight complaint about this year's recommendation - for many many of your followers, their accounts are not at Fidelity. I understand that you are trying to help your followers with this but really I think that it would be better to consider suggesting things that are more readily available for purchase than Turkish stocks that are only accessible via one brokerage and only if ordering in a 2 hour window and paying a relatively large fee. I am now left wondering what to do with my M1 account which has made following this strategy so simple and easy. I understand that you are trying to offer us your view of what will be the best return and for this, I am most appreciative. However, I do believe that you are undervaluing the practical challenges for the average investor following your work. In any event, I still LOVE all that you do and am only offering this as a suggestion to you. My sincere best wishes for a good 2023 for you and your family. Rob
2/10/2023 08:46:52 pm
Monish, thanks for the recommendations and all the wisdom you share. It is certainly appreciated.
2/21/2023 12:43:02 pm
I’ve read some good stuff here. Definitely worth bookmarking for revisiting. I surprise how much effort you put to create such a great informative website.
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Mohnish Pabrai is the founder and Managing Partner of the