This is about how to get 25-50x returns in a place like Iraq, where everyone thinks it's a disaster. Manager Batt says you need 10-15 years of patience, and most funds can't handle that because investors pull money during bad times. He only takes money from rich people who can decide for themselves and don't care about looking stupid, so when ISIS attacked, his fund actually got more money. Key picks: Baghdad Softdrinks (Pepsi bottler in Iraq, revenue up 3x in 10 years but stock only doubled, so cheap); AsiaCell (telecom, 33% free cash flow yield); Iraqi banks (10-15% dividend yield, trade at 1/5 of book value).
Geoffrey Batt shared on the Invest Like the Best podcast how to achieve transformative returns in extremely difficult markets, such as the Iraqi stock market. Through his firm Euphrates, he manages a significant amount of capital in Iraqi equities, emphasizing that in highly volatile and illiquid ma
Geoffrey Batt is the founder of the Euphrates Fund, which focuses on investing in the Iraqi stock market. This issue primarily explores how to achieve transformative returns (25-50x) in extremely difficult markets. Batt's core thesis: obtaining transformative returns requires 10-15 years of patience, and the fund structure must be able to withstand a "decade of no returns" volatility period—the vast majority of institutional investors are structurally unable to do so.
Batt argues that achieving transformative returns faces a structural contradiction: the market requires 10–15 years to complete a revaluation, yet most fund structures cannot support such a time horizon.
He cites the post-war Japanese market as an example: it generated approximately 100,000% USD returns from 1950 to 1989, but included a roughly ten-year period of no market gains. "In the West, if you were constructive on Japanese equities, people would question your sanity." This prolonged period of zero returns was accompanied by significant political and economic volatility, requiring investors to "see through fear and emotion."
Key data chain:
Batt points out that the structure of most funds makes such investing nearly impossible:
Batt’s core innovation: By selecting specific types of LPs, he transformed the fund from pro-cyclical to counter-cyclical.
He realized that institutional investors are unsuitable for this strategy for three reasons:
1. Investment committee decision-making: Committee members face immense career risk — "If you go to the committee and propose Iraq, they look at you like you’re crazy."
2. Asymmetric incentives: There is no extra reward for investment success, but failure can cost you your job.
3. Lack of authority: Decision-makers need to consult others and cannot make independent judgments.
Batt’s strategy: Only target high-net-worth individuals and family offices that meet three conditions:
Results validated: When news broke that ISIS had captured Mosul, the Iraqi stock market plunged, yet Batt’s fund saw net inflows — his LPs actually added to their positions. "I have a counter-cyclical fund, while most funds are pro-cyclical."
Implications for LPs: Batt introduced the concept of "adjacent risk" — LPs must not only evaluate the fund manager but also consider who the other LPs are. If one large LP accounts for more than half of the fund, its withdrawal could destroy the entire fund.
Batt learned a core framework from his mentor Dan Cloud (co-founder of Firebird Funds): seek out places that "everyone thinks are absolutely terrible," then test whether that negative perception aligns with reality.
The 2007 Iraq Case:
On-the-Ground Verification: During his first visit to Baghdad, Batt observed "people playing tennis," "children kicking soccer balls," and "women window shopping" — a picture completely at odds with the "hell" narrative.
Batt’s Critique of Mainstream Media and Experts:
Conclusion: "You can only rely on yourself and your own research."
Batt points out that the Iraqi market remains in what Graham called the "voting machine" stage, rather than the "weighing machine" stage — prices have yet to reflect fundamentals.
Case study: Baghdad Softdrinks (Pepsi bottler and distributor in Iraq)
Comparison: If this company were in Pakistan or Nigeria, it might trade at 25–30 times earnings. Nigeria faces Boko Haram issues, declining oil production, and lower GDP per capita than Iraq, yet investors are excited about Nigerian consumer goods companies.
Batt's frustration: "We are stuck in the voting machine stage — local investors care more about rights issues and stock dividends than company fundamentals."
Current market conditions (2019):
| Metric | 2008–2009 | 2019 |
|---|---|---|
| Trading days | 3 days per week | 5 days per week (still only 2 hours) |
| Total market cap | Approximately $1.8 billion | Approximately $5–6 billion |
| Investable companies | Approximately 5–10 | More, but still limited |
| Custody | No third-party custody | Still no third-party custody (exchange self-operated) |
| Foreign investors | Almost none | Interest beginning to emerge |
Valuation levels (2019):
Batt believes that Iraq has experienced two major crises (civil war and ISIS), yet emerged "unscathed" each time, which has actually strengthened investment confidence.
Key Chain of Events:
1. 2003: Regime change
2. 2006–2008: Civil war
3. 2013–2014: ISIS rises, occupying about one-third of the country
4. 2017–2018: ISIS defeated, legitimate democratic elections held
5. 2018: Ruling party loses the prime minister position, peaceful transfer of power
Batt's analogy: "It's like a bank that went through the 2008 financial crisis without needing TARP funds — now you know this bank is very resilient."
Outlook for the future:
Batt’s advice for young investors:
1. Look for places where “everyone thinks it’s terrible”
2. Use data to test whether the negative perception is accurate
3. Propose an “alternative model” to explain reality
4. Consider democratic transitions in the Middle East — “Democratic transitions are always accompanied by large-scale violence. It happened in the U.S., it happened in Western Europe, and it may happen in the Middle East as well.”
Current opportunity: Batt believes there may be more opportunities now than in 2007, as the entire Middle East region is shrouded in negative sentiment — the Arab Spring, the Syrian civil war, Yemen, and U.S.-Iran tensions.
| Position | Analyst View | Key Data |
|---|---|---|
| Baghdad Softdrinks (Pepsi Iraq Bottler) | Bullish (Largest Holding) | Revenue grew ~3x over 10 years; operating cash flow per share CAGR of 20%; share price only doubled; would trade at 25-30x P/E if in Pakistan/Nigeria |
| AsiaCell (Telecom) | Bullish | Enterprise value ~$1 billion; EBITDA ~$700 million; free cash flow yield ~33%; dividend yield 14.5% |
| Iraqi Bank Stocks (Unnamed) | Bullish | 10-15% dividend yield; trading at 1/5 tangible book value; strong liquidity |
1. Batt on Fund Structure: "I view funds like pre-Depression banks—the stability of the LP base determines whether a fund can successfully capture transformative returns." — By accepting only high-net-worth individuals and family offices with agency and no fear of looking foolish, he has built a rare counter-cyclical fund.
2. Batt on Perception vs. Reality: "Mainstream media cannot convey complexity, experts have no skin in the game—you can only rely on yourself and your own research." — In 2007, Iraqi data (inflation falling from 75% to 5-10%, currency appreciation, death toll dropping from 3,000 to 200) completely contradicted the media narrative.
3. Batt on the "Voting Machine" Dilemma: "We are stuck in the voting machine phase—local investors care more about rights issues and stock dividends than company fundamentals." — Baghdad Softdrinks has 20% CAGR in operating cash flow per share, yet its stock price has only doubled, while Nigeria, with worse fundamentals, enjoys higher valuations.
4. Batt on National Resilience: "Iraq has endured two major crises (civil war and ISIS) and emerged intact each time—it is like a bank that survived 2008 without needing TARP." — Crises actually serve to validate the information.
5. Batt on Investment Approach: "Look for places everyone thinks are terrible, then use data to test whether that perception is accurate." — This is the core framework he learned from his mentor Dan Cloud (co-founder of Firebird Fund).
6. Batt on LP Selection: "If you sit on an investment committee and propose Iraq, they will look at you like you are crazy—even if the investment succeeds, you get no extra reward, but failure could cost you your job." — The structural incentives of institutional investors are incompatible with transformative returns.
7. Batt on Adjacent Risk: "LPs must not only look at the fund manager but also at who the other LPs are—if one large LP accounts for more than half the fund, its withdrawal could destroy the entire fund." — This is a critical issue most LPs overlook.
8. Batt on Current Valuations: "Iraqi stocks trade at 4x real P/E, bank stocks at 1/5 tangible book value—cheaper than in 2009, while the companies are stronger." — Although the market has grown from an $1.8 billion market cap to $5-6 billion, valuations remain highly attractive.