Graham And Doddsville

Last week, the value investing world lost another great.  Canadian SuperInvestor, Peter Cundill, passed away on January 24, 2011 at the age of 72.

According to the National Post, in 2007, Warren Buffett stated that “Mr. Cundill had the kind of credentials he is looking for in his search for Berkshire Hathaway’s next chief investment officer.”

Peter was chairman emeritus of Mackenzie Cundill. After positions at Greenshields Inc. in Montreal and the Yorkshire Group in Vancouver, Peter became president of AGF Vancouver Investment Management Ltd., a position he held from 1972 to 1975. The All-Canadian Venture Fund was formed in 1967. In 1975, Vanan Financial Management Ltd. took over management of this fund. He was a partner in the company and in April 1977, the fund was renamed the Cundill Value Fund. In 1977, Peter founded his own firm, Peter Cundill & Associates Ltd. (PCA). In 1998, PCA entered into a strategic partnership with Mackenzie Financial Corporation to serve the needs of Canadian mutual fund shareholders. Throughout his career, Peter earned many distinctions. In December 2001, he was presented with the Analysts’ Choice Career Achievement Award as the greatest mutual fund manager of all time.

Read more at:  http://www.aspeninstitute.org/about/peter-cundill

Below are a few links to learn more about Mr. Cundill:

–  Mr. Cundill lectured at the Richard Ivey School in 2005.  Watch the video here.

–  This site claims to have the last interview with Peter Cundill.

–  Mr. Cundill’s obituary.

During the height of the recent economic crisis, David Einhorn became the public face of the “evil” short-selling hedge fund manager.  Einhorn, who was no stranger to being vilified for correctly identifying fraud in the public markets (if you don’t know what I’m talking about, click here), began raising questions about the strength of Lehman Brothers’ balance sheet in the middle of 2007.  We all know how that story ended.   If anyone wonders what it is like to be right most of the time, they should ask David Einhorn.

I have heard David Einhorn speak on several occasions.  While I have learned a great deal each time, there is one particular gem of wisdom I gleaned.  In the past, when David Einhorn has publicly stated a short position, he has always backed it up with a factual analysis.  Whether his analysis is right or wrong is not the issue.  One of the things that I admire most about Mr. Einhorn is that he has the courage to publicly disclose his analysis so that anyone with Internet access can debate its merit.  What is interesting to note is the public reaction to his analysis.  If someone were put together a presentation that successfully refuted a Greenlight short thesis, I honestly believe David Einhorn would be the first to admit he was wrong (and we’re not going to argue whether he would cover his position first).  However, in the case of Allied and Lehman, his analysis was not refuted by facts, but by public criticism of his character, and questions about the motivations of hedge fund managers and the morality of short selling.  As Mr. Einhorn has pointed out, when the first reaction to a solid analysis is defamation of character, you know you have uncovered a significant short opportunity.

David Einhorn was recently interviewed by Charlie Rose.  Given his track record, I think that investors would do well to at least ponder what he has to say.  See the entire interview here.

For more on David Einhorn, click here.

I recently came across a fantastic interview from The Wall Street Transcript with Donald Yacktman, Stephen Yacktman, and Jason Subotky of Yacktman Asset Management.   It is filled with gems of value investing wisdom.  A few examples include:

Ultimately, we think this business boils down to what you buy and what you pay for it.  Think of it as trying to be a good shopper. What we do is we’ll calculate a forward rate of return on prospective investments.  This is the rate we would expect if we hold the security indefinitely and the multiple we pay for the business does not change much.  We look at the cash being generated and the growth rates of the business, and by adding those components together, you get a forward rate of return.

We are not investing with a goal of mimicking a benchmark. I think that style evolved because managers could protect their personal business risk. We are bargain hunters and like it when securities go on sale. I don’t think you’ll find many long-only investors who are more excited than we are when the market declines. A lot of people talk a good game but when it really comes down to it, they flinch.

There is no substitute for knowledge. To really research and understand a situation is very important. The ability to buy into discomforting news is a function of having a really good understanding of what the business is and what its value is.

I would say we combine patience and opportunism. When valuations warrant it, particularly during dislocations, we’ve taken sizable positions very quickly.

[The original interview can be found here.]

Aswath Damodaran is Professor of Finance and David Margolis Teaching Fellow at the Stern School of Business at New York University.  He teaches corporate finance and equity valuation courses in the Stern MBA program.  I was first introduced to his book:  “Investment Valuation” as an undergrad student at University of Maryland, Robert H. Smith School of Business.  On the topic of valuation, Damodaran “has a great reputation as a teacher and authority.”¹

I have met many value investors who immediately dismiss anything that is either based on WACC or contains the letters “D-C-F”.  Agree or not, I would argue that no one is qualified to dismiss an entire academic theory without understanding both sides of the story.

I highly recommend Professor Damodaran’s work, which primarily deals with theoretical valuation models.  In this blog post, “The Secret to Investment Success:  Self Awareness?,” I think he really hits the nail on the head:

I know that there are many who claim to have found the secret ingredient to investment success, though few actually deliver. However, I want to present an unconventional ingredient that I think most academics and practitioners miss when they talk about investment strategies: your personal make-up as an individual.

Read the full post here.

I also recommend Professor Damodaran’s site which is packed with useful information, spreadsheets, and even links to his classes! [Damodaran Online]

I am still working on transitioning the SuperInvestor Resources to a new format.  In the meantime, I will continue adding resources and hope to even publish a new post once in a while!

Value investor William Von Mueffling, Columbia Business School alumnus and founder of Cantillon Capital Management, was recently profiled in the Wall Street Journal.  Von Mueffling made headlines in June 2009 when he decided to close his long/short hedge funds, while continuing to manage the firm’s long-only strategy. 

 

Cantillon’s strategy is to dig around for companies that, regardless what business they are in, produce higher-than-average returns on shareholder equity, while they are priced cheaply relative to their earnings streams.

“You want to be in businesses that can pass through inflation, and also that have exposure to currencies in parts of the world that are growing,” which in this environment helps protect against the declining value of the U.S. dollar, Mr. von Mueffling said.

[Link to WSJ article]

Please excuse the current remodeling in progress.  I hope to have the site back and better than ever by the end of Labor Day.

I must also apologize to many who have written me and not received a reply.  I am working on that as well.  If you did write and do not received a response by Labor Day (September 6, 2010),  I strongly encourage you to follow-up.

While Labor Day has come and gone, I have not yet finished cleaning up this site. Please accept my apology for the delay, but things should get back to normal shortly.  I have now made it infinitely easier to add new materials at a faster pace.  Keep checking back for updated resources.

I hope everyone is having a great end to their summer fall!

-Cogitator