{"id":40057,"date":"2013-07-15T16:38:08","date_gmt":"2013-07-15T20:38:08","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=40057"},"modified":"2013-07-15T16:38:08","modified_gmt":"2013-07-15T20:38:08","slug":"the-turkcell-fiasco-what-can-we-learn","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/07\/15\/the-turkcell-fiasco-what-can-we-learn\/","title":{"rendered":"The Turkcell Fiasco: What Can We Learn?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

It\u2019s been a long couple of years, but the three-ring circus that is Turkcell\u2019s ($<\/span>TKC<\/a>)<\/b> boardroom power struggle is finally (sort of) coming to an end.<\/p>\n

Queen Elizabeth\u2019s Privy Council\u2014which had jurisdiction because the holding company in question was domiciled in the British Virgin Islands (LONG story there\u2026)\u2014ruled last week that Mehmet Karamehmet may reacquire control of the company if he pays the $1.56 billion owed to a Russian-backed investor group.\u00a0 This little spat dates back to the 2007 default on a loan in which the Turkcell shares were used as collateral.<\/p>\n

Turkcell\u2019s board of directors has been paralyzed by this squabble between its two biggest shareholder groups to the point that it hasn\u2019t paid a dividend since 2010.\u00a0 The company never actually cut <\/i>its dividend, mind you.\u00a0 Turkcell\u2019s underlying operations have chugged along just fine, and it has plenty of cash available.\u00a0 The dividend hasn\u2019t been paid because the board of directors is so dysfunctional, they can\u2019t sit in a room together long enough to declare it.<\/p>\n

But while Mr. Karamehmet is busily getting the funds together to repay the debt,\u00a0 the story doesn\u2019t end here.\u00a0 To start, Karamehmet was recently sentenced to seven years in Turkish prison due to completely unrelated charges dating back to the financial crisis of 2000-2001.\u00a0 And even with the shift in controlling ownership, the board is still deadlocked\u2026at least pending intervention by the Turkish government.\u00a0 Turkish regulators have promised to appoint new directors and effectively take over control of the company to break the impasse.<\/p>\n

While this story may have comedic value, there are actually some valuable lessons we can learn.<\/p>\n

In InvestorPlace\u2019s Best Stocks of 2012<\/a><\/strong> contest, I came within a single percentage point of winning with my selection of Turkcell\u2014which returned 37% on the year. \u00a0A major plank in my bullish argument was that a resolution of the boardroom crisis\u2014which I expected in early 2012, over a year too soon\u2014would mean a major short-term boost to the share price and the possibility of a massive, multi-year dividend payment.<\/p>\n

I was dead wrong about that.\u00a0 Yet Turkcell still had a great year.\u00a0 Why?<\/p>\n

It comes back to that old concept of margin of safety\u2014or what Warren Buffett<\/a> and Charlie Munger playfully call a \u201cbelt and suspenders\u201d approach.\u00a0 If an investment is strong enough and offers enough value, you can afford for large parts of your investment thesis to be wrong or for some unexpected bump in the road to happen. \u00a0If the belt fails, the suspenders will keep your pants from falling down.<\/p>\n

Turkcell\u2019s corporate governance at the board level was a joke.\u00a0 But operationally, its management team was led by top-notch, Western-educated professionals.\u00a0\u00a0 Turkcell had (and still has) a dominant position in a critical industry in one of the fastest-growing emerging markets, and is a major player across Eastern Europe and the Middle East.\u00a0 And the company consistently ranks as one of the highest-quality telecom providers in Europe\u2014meaning it compares favorably with international giants like Spain\u2019s Telefonica ($<\/span>TEF<\/a>)<\/b> and Britain\u2019s Vodafone ($<\/span>VOD<\/a>)<\/b>.<\/p>\n

Furthermore, Turkey was an underrated emerging market at the time.\u00a0 In early 2012, \u201cemerging markets\u201d meant the \u201cBRIC\u201d countries of Brazil, Russia, India and China.\u00a0 But as that investment theme was looking a little long in the tooth to me, I expected investors to expand into lesser-followed markets like Turkey.\u00a0 And until the recent Taksim Square political crisis, that is exactly what happened.<\/p>\n

I expected a quick (ha!) resolution of the boardroom crisis to be the catalyst that caught investors\u2019 attention but that the great underlying fundamentals would be what ultimately drove the stock higher.\u00a0 I was wrong about the catalyst\u2026but in the end, it didn\u2019t matter.\u00a0 Often, a quality stock trading at an attractive price creates its own catalyst.<\/i><\/b><\/p>\n

\"DDAIF\"<\/a><\/p>\n

My choice in InvestorPlace\u2019s 2013 Best Stocks<\/a><\/strong> contest is German automaker Daimler ($<\/span>DDAIF<\/a>).<\/b>\u00a0 And again, it looks like I am wrong about the catalyst (strong Chinese growth) but right about the stock.<\/p>\n

China\u2019s growth continues to slow\u2014and Europe is in outright recession\u2014yet Daimler has cruised to 27% returns year to date, including dividends.<\/p>\n

When I first recommended Daimler, a third of its market cap was in cash and it traded at a single-digit price earnings ratio.\u00a0 At its then-current valuation, it was hard for me to imagine a scenario whereby I could lose money in Daimler over any reasonable time horizon.<\/p>\n

Again, a quality stock trading at an attractive price has proved to be catalyst enough.<\/p>\n

Sizemore Capital is long TEF and DDAIF.<\/p>\n

SUBSCRIBE\u00a0<\/b><\/a>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

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