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There's Always Something to Do (Peter Cundill) - Christopher Risso-Gill


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Guest hellsten

Great book!

 

Here are some quotes from the book that I found interesting:

 

He had devoured Graham and Dodd's Security Analysis, especially chapter 41, entitled "The Asset-Value Factor in Common-Stock Valuation", which in his copy is heavily underlined and liberally annotated.

 

On when to sell:

Peter himself could come up with no absolutely satisfactory proposal for a formula. In the end the solution turned out to be something of a compromise: the fund would automatically sell half of any given position when it had doubled, in effect thereby writing down the cost of the remainder to zero with the fund manager then left with full discretion as to when to sell the balance.

The ultimate skill in this business is in knowing when to make the judgement call to let profits run.

 

I guess you need to know when you have a Warren Buffett-type stock in your portfolio.

 

On patience:

The most important attribute for success in value investing is patience, patience, and more patience. The majority of investors do not possess this characteristic.

 

On institutions:

I don't much believe in institutions and I certainly don't believe in mere formulae. The authority of both can be pernicious and destructive.

It is worth remembering that many of the world's most renowned organizations are fundamentally flawed as well as irrational – the Jesuits, the Mafia, and IBM.

As far as generally available analysis is concerned, often what sounds terrible is just the truth and what sounds great is nothing but fantasy and rubbish..

 

The "value method of investing" will tend to give better results in slightly down to indifferent markets and less relatively sparkling results in a raging bull market.

 

On "fallen angels":

On the subject of the "fallen angels" of stock markets that occupy so much of our detective work as value investors, I try to keep in mind Oscar Wilde's comment that "saints always have a past and sinners always have a future," so no investment should be ruled out simply on the basis of past history. We focus on liquidation analysis and liquidation analysis alone.

 

Markets can be overvalued and still keep on getting more expensive for quite a while, or they can be undervalued and keep getting cheaper, which is why investing is an art form, not an exact science.

 

But I tell you statistical overvaluation is a funny thing – it can go on for a very long time, far beyond the limits of rationality, and it is a problem for the value investor in two ways: it can tempt one to compromise standards on the buy side and it may lure one into selling things far too early.

 

A comment from a senior executive at the Industrial Bank of Japan:

"I dont know what you're talking about. In a Japanese company first and foremost comes the employee, then the customer. Thirdly come the bank and the suppliers.

Here at the bank we own 4-5% of every publicly listed Japanese company and in my twenty years here I never heard the concept of shareholder's rights discussed, not ever!"

 

On investing in Japan:

Japanese companies would buy stakes in their suppliers, their bankers, and their customers because the purchase of those stakes was seen as part of the price of admission to doing business.

 

"The 100th monkey":

* every company ought to have an escape valve: inventory that can readily be reduced, a division that can be sold, a marketable investment portfolio, an ability to shed staff quickly. That sort of thing. However, no escape valve will provide a cushion in the face of a collapse in investor confidence.

* the business must be getting better, not necessarily by a lot, just honestly better.

 

On investing in Russia, one year before the Russian debt crisis:

the Russian share market has been on a roll. Valuations are still modest. The entire market trades at around book value, four times cash flow and nine times earnings. The dividend yield is negligble. Debt is not high and if one assumes growth, one could invest. But, and here's the rub, on balance, there seems to be a Russian crisis every eighteen months.

 

The story about Sibir is very interesting and explains in detail how the Russian market works.

 

Personal responsibility:

The ability to shoulder personal responsibility for one's investment results is pretty fundamental. This means that if you lose money it isn't the market's fault, it isn't some broker's fault, and it isn't the fault of your research department or anyone else. It is in fact the direct result of your own decisions. Coming to terms with this reality sets you free to learn from your mistakes.

 

Book recommendations:

- Extraordinary popular delusions and the madness of crowds - Charles Mackay

- The crowd: A study of the popular mind - Gustave Le Bon

- Buffett: The making of an american capitalist - Roger Lowenstein

- The money masters - John Thain

- The Intelligent Investor

- The Templeton Touch - William Proctor

- The alchemy of finance - George Soros

 

On managers:

he prefers to invest when a good manager has suffered a bad patch. Old habits die hard and in terms of the individual manager selection he regards this element of timing as being analogous to a margin of safety.

 

We should probably invest with John Paulson :)

 

Cundill's corollary:

…when you're beyond Murphy's Law, which says that if anything can go wrong it will, and beyond O'Brien's Law, which says Murphy is an optimist. Cundill's corollary says that when Murphy's Law is still in play one should wait, but when things get so bad that you're really scared, that's the time to buy.

 

Dead companies:

The companies I buy, when I buy them, are worth more to me dead than alive. I don't invest to see them die but I go in knowing that if I keep buying at my price and end up owning the companies, they will be worth more at liquidation than I paid for them.

 

On DCF:

…I have a firm view. I was reading some work and it uses discounted cas flows and some sophisticated stuff and I am not good enough at math to be able to work out that kind of stuff and I have sort of come back in my simple way to Graham who said if you can't add it, subtract it, multiply or divide it, then the math is too heavy. And the problem with this kind of cash flow is that it is simply a projection and, whatever the rate you choose to use, that will almost certainly shift on you. So you are trying to make two imprecise variables into a precise tool and that could get you into a whole mess of trouble.

 

Extra assets:

This has been a favourite focus on Peter Cundill's, particularly from the 1980s onwards when the pool of conventional net-nets and magic sixes had all but disappeared. Extra assets, or additional assets, are often to be found in companies such as insurance companies that own stock portfolios (traditionally valued at cost, not market) or real estate portfolios held at very low prices on the balance sheet

 

November rain:

I began to get into the practice when I was living in Vancouver in November, the time when it begins to rain – I would travel to the place with the worst stock market in the world in the first eleven months of the year. Sometimes the weather was even worse but it was very valuable.

 

Osmosis:

I don't just calculate value using net-net. Actually there are many different ways but you have to use what I call osmosis - you have got to feel your way. That is the art form, because you are never going to be right completely; there is no formula that will ever get you there on its own. Osmosis is about intuition and about discipline and about all the other things that are not quantifiable. So can you learn it? Yes, you can learn it, but it's not a science, it's an art form. The portfolio is a canvas to be painted and filled in.

 

 

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