Francis Chou

Francis Chou

Last Update: 2014-05-14
Related: Chou RRSP Fund

Number of Stocks: 23
Number of New Stocks: 1

Total Value: $362 Mil
Q/Q Turnover: 0%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

Francis Chou Watch

  • Chou Funds Triples Investment in BlackBerry, Adds New Stock to Portfolio

    As with all of the Chou Associates Management Inc.’s funds, equities for the Chou RRSP Fund (Trades, Portfolio) are selected based on a company’s “balance sheet, cash flow characteristics, profitability, industry position, special strengths, future growth potential and management ability.” They are purchased if they sell at an acceptable margin of safety, and held for the long term.

    Top industry weightings for the fund are: 39.3% Consumer Services, 25.8% Basic Materials and 1.7% Financials, with 26.8% in cash.  


  • Francis Chou Comments on Dex Media Inc.

    Not every large holding worked out in 2013. R.H. Donnelley’s term loan was down from 68.90 cents on a dollar to 61.20 on a dollar as of December 31, 2013. We bought into it as we believed it was well covered by its earning power, assets, and covenants that are protective to debt holders. In addition, this term loan comes with a cash flow sweep, which means that any free cash flow remaining after all operational needs are met can be used to buy back debt at par from its holders. In April 2013, SuperMedia Inc. and Dex One Corporation, the parent company of R.H. Donnelley and Dex Media West, completed their merger, creating Dex Media, Inc. (DXM) — one of the largest national providers of social, local and mobile marketing solutions through direct relationships with local businesses. Dex Media estimates it will realize approximately $150-$175 million in cost savings by 2015, and expects to preserve Dex One’s remaining tax attributes of roughly $1.8 billion, which can be used to offset income attributable to the combined company following the completion of the transaction. We continue to believe that at current prices, R.H Donnelley is underpriced.

      


  • Francis Chou Comments on Resolute Forest Products

    The common stock of Resolute Forest Products (RFP) contributed significantly to the returns of the Fund. We do not normally buy common stock for the Fund but every now and then, due to restructuring, we receive shares for a debt security we hold. Such was the case with RFP. We received shares of RFP for our holdings in McMinn County, Tennessee revenue bonds. To cut a long story short, we purchased 15.48 million bonds for a total consideration of $155,800. We paid roughly one cent on a dollar for each bond, preparing to hold them for several years. We knew McMinn’s obligor was AbitibiBowater and we have been following AbitibiBowater story for a while (AbitibiBowater changed its name to Resolute Forest Products in 2011). McMinn bonds belong to a class of creditors that were in dispute with AbitibiBowater 7.95% class bonds, a dispute many thought would not likely be settled for several years. We figured that even if McMinn lost the lawsuit, and 100% of the disputed claim was awarded to the 7.95% class, we would not lose money on the McMinn bonds considering the price we paid. Lo and behold, a few months later, the lawsuit was settled and we received 52,564 common shares of RFP for our holdings of McMinn bonds. At the year-end price of $16.02, these shares of RFP were worth approximately $842,075.


    Such a windfall comes maybe once every 20 years and we would not recommend this case as a regular way to invest in bonds. You needed a seller who was desperate to sell his holdings within a short time frame but could not find a buyer. And in a fortuitous way, we had invested in RFP for several years and were well acquainted with the story and the lawsuit. Further, the outcome was also dependent on a quick favorable legal judgment. The lawsuit could have dragged on for years which would have diminished the annualized returns by a considerable margin.

      


  • Francis Chou Comments on Sears Holdings

    We believe that Sears Holdings (SHLD) is a misunderstood story. There are many moving parts but we believe Sears Holdings’ intrinsic value lies in its real estate assets. It also has other valuable assets such as Lands’ End, Kenmore, Craftsman and Diehard. Being a traditional department store has become a tough business during the last decade but, according to management, Sears is transitioning its historic focus on running a brick and mortar department store into a business that provides and delivers value by serving its members in the manner most convenient for them: whether in store, at home or through digital devices. The value of its real estate allows Eddie Lampert, the controlling shareholder and CEO, the time and money to effect the changes. If the transformation does not work out as expected, we believe the real estate values are high enough that we would not lose money in our investment at current prices after netting out all liabilities.


    In general, we believe that stocks and non-investment grade bonds are fairly valued. We do not time the market but when bargains are scarce, we are happy to hold cash equivalents as an alternative.

      


  • Francis Chou Comments on Dell Inc.

    We had a small holding in Dell Inc. (DELL). It was trading at $10.13 on December 31, 2012. After a protracted battle, the founder Michael Dell (Trades, Portfolio) was able to buy out the shareholders at a price of $13.75 per share, plus a 13 cent special dividend.

      


  • Francis Chou Comments on MBIA Inc.

    Our common stock investment in MBIA Inc. (MBI) has also performed well, increasing in value to $11.94 as of December 31, 2013 from $7.85 as of December 31, 2012. There was a big overhang on the stock and that was removed when MBIA Inc. and Bank of America settled their lawsuits. Although MBIA is cheap based on book value, it would make me sleep better if the company receives permission to start writing business again. Investing in companies, where the main operating business is mothballed for a while, makes it harder to evaluate its intrinsic value. Time is not on the side of investors in that type of business.

      


  • Francis Chou Comments on Overstock.com

    Overstock.com (OSTK) was the largest contributor to the positive performance of the Fund. The stock increased in value to $30.79 as of December 31, 2013, up from $14.31 as of December 31, 2012. At the beginning of the year, we had 875,931 shares, comprising just over 30% of the portfolio. As the price of OSTK has now risen significantly and is trading closer to its intrinsic value, we have drastically reduced our position. We held only 15,000 shares as of December 31, 2013.

      


  • Canadian Guru Francis Chou's Annual Letter - He Believes Sears Holdings Offers Misunderstood Value

    Dear Shareholder,


    During the year 2013, the Chou Opportunity Fund (the “Fund”) was up 29.82%, while the S&P 500 Total Return Index (the “S&P 500”) generated a return of 32.39% during the same period. The Fund’s past performance is not necessarily an indication of how the Fund will perform in the future.

      


  • Francis Chou’s Top Holdings at Year End

    Francis Chou (Trades, Portfolio) is one of the international gurus followed by GuruFocus, and is the President of the Toronto-based Chou Associates Management. The guru immigrated to Canada from India in 1976 and is oftentimes praised and acknowledged for his rags to riches story.


    According to the company’s website, the investment process that the Chou funds operate off of is the value-oriented approach to investing. The fund continues to do intricate research which involves a “detailed analysis of the strengths of individual companies, with much less emphasis on short-term market factors.” The portfolio managers at Chou Associates focus primarily on the assessment of a company’s balance sheet, cash flow characteristics, profitability, industry position, special strengths, future growth potential and management ability.

      


  • 'The first step to getting out of a hole is to stop digging' – A Look at the Performance of Canadian Guru Francis Chou

    Be aware of the risks involved, including that of the manager who does not have a long history of investing heavily in that area.  Caveat emptor!


    -Francis Chou (Trades, Portfolio)

      


  • Francis Chou Buys Sears Canada, Adds to Prem Watsa's Resolute Forest and MEGA Brands

    Founder of Toronto-based Chou Associates Management Francis Chou is a celebrated value investor whose philosophy rests on rigorous analysis of each company’s “balance sheet, cash flow characteristics, profitability, industry positions, special strengths, future growth potential and management ability.” The more a stock appears undervalued as calculated with the above data, the more of his fund he allocates to it, and margin of safety is paramount. For instance, he bought a sizable position in computer-maker Dell (DELL) when it fell out of favor in the latter half of 2012.

    Chou is also a fan of Berkshire Hathaway (BRK.A)(BRK.B), Resolute Forest Products Inc. (TSX:RFP) and Overstock.com Inc. (OSTK), which along with Dell hold the top four places in his funds.  


  • Francis Chou Comments on Actavis Inc.

    Another big winner was Actavis Inc. (ACT), formerly Watson Pharmaceutical. We first purchased Actavis in 2006 at $25. We kept buying the shares in 2007, and on June 30, 2013, it was priced at $126.22. It shows that when you are accurate in your estimation of intrinsic value and buy them at a significant discount, add in good management and respectable growth in intrinsic value, the investment works out really well. This is true even if you bought them when the market indices were trading at an all-time high. "Value traps" generally occur when you are wrong in your estimation of intrinsic value, pay too much and the company's intrinsic value is static and/or decreasing in value.

    From Francis Chou's semi-annual report 2013.  


  • Francis Chou Comments on Overstock.com

    Overstock.com (OSTK) was the largest contributor to the positive performance of the Fund. The stock increased in value to $28.20 as at June 30, 2013, up from $13.95 as at December 31, 2012. It is interesting to note that a year ago, on June 29, 2012, it was trading as low as $6.91 per share. Generally, when prices hit a new low, our reaction is to check whether our evaluation of the company's intrinsic value is accurate enough. If it is accurate enough, we either sit put or buy more. Since we already had a fair amount of OSTK in the portfolio, we did not add any more but were comfortable with our investment in the company. There are many ways of evaluating a company and one of them is to check recent transactions within its industry which may provide a sense of its intrinsic value. For example, in 2009 Amazon bought Zappos, a company that is similar to OSTK but different in many ways, at close to one times revenue. At one times revenue, OSTK's intrinsic value is more than $40 per share whereas its stock price closed on December 31, 2012 at $13.95 per share. One important caveat: This type of comparison is fraught with danger and should be viewed as just a frame of reference. At the end of the day, it is OSTK's earning power or its future potential earnings based on its revenue growth (or lack of it) that will determine its intrinsic value. So, be extremely cautious when using only revenue as a basis for estimating intrinsic value. It must be substantiated by earnings. If the earning power is not there, then a company's value is strictly the value of its liquidated assets minus its liabilities. Under that scenario, OSTK would be worth almost nothing.

    If you take a cursory glance of OSTK prices over the last 18 months, it may appear that we had a huge winner in OSTK, but there is more to the story. The investment in OSTK did not pan out as expected. When you are investing, the time value of money must be given serious consideration. We first invested in OSTK in 2006 and since then, the results have been positive but sub-par to say the least. Looking back, we paid too much for it and the intrinsic value that we estimated seven years ago was too high. Since we are a patient investor and can hold on to stocks for seven years or more, it is imperative that the intrinsic value of the company we invest in grows satisfactorily. In that regard, OSTK's growth in intrinsic value was anemic at best.  


  • Francis Chou Drastic Cut - Overstock Up 237% Over 12 Months

    As of April 23, 2013, Francis Chou, fund manager of Chou America Mutual Funds, reduced his position in Overstock.com (OSTK) by 12.25%, with current shares after the trade at 1,891,587. Chou sold in the price range of $18.91 per share, for a 1.48% loss to his portfolio. OSTK’s current price is $1.75 with a change from average up 4%. This is Chou’s second reduction so far this year, and his fifth chop since last fall when the share price was around $15.5, according to GuruFocus Real Time Picks.

    His holding history since third quarter 2011 shows an average price for shares bought at $11.8 per share with a 67% gain.  


  • Canadian Value Investing Guru - Francis Chou's 2012 Annual Report



  • Francis Chou Makes Largest Overstock.com Paring Yet

    Francis Chou, fund manager of Chou America Mutual Funds, has for the fourth time since October reduced his stake in Overstock.com (OSTK). This time, he shed 3.58% of his holding, shrinking his shares owned to 2,155,611 as of Jan. 25, according to GuruFocus Real Time Picks.

    This is the most drastic cut Chou has made to the holding of his four recent parings. The company’s stock spiked 70% in the past six months, though it has declined 5% since the year began.  


  • Francis Chou Joins Prem Wasta in RIMM Bet; Sells USG, WPI, S, GPS, SYA, OSTK

    Canadian value guru Francis Chou joined his friend Prem Watsa in the bet RIMM and Dell (DELL), according to the latest filings of Chou Funds. Francis Chou bought 200,000 shares of RIMM at the average prices of $7. He also bought another beaten down tech stock Dell at about $11.5 a share. He sold out his position in USG, and reduced holdings in Watson Pharmaceuticals Inc., Sprint Nextel Corp, Gap, Inc., Overstock.com, Inc., etc.

    As we reported back in July, Prem Watsa Doubled Down on Research-In-Motion, Again. Prem Watsa has incurred large losses with RIMM. He started buying when the stock crashed from $140 a share to $50 a share. He kept adding to the position, but the stock prices continue to decline. His latest purchases are in July, in which he doubled down again and lowered his cost per share to about $17 a share. Prem Watsa is still having a more than 50% paper loss with RIMM.  


  • The Latest on Overstock.com and Francis Chou’s Stake with the Online Retailer

    Utah-based Overstock.com (OSTK) has reported its third quarter results on Oct. 25 per the welcoming of a new earnings season, covering the months between July and September. Guru investor and 10% owner of Overstock, Francis Chou of Chou Associates Management, reduced his holding of the stock one day later.

    Overstock experienced increases in revenue by 7%, gross profit by 21% and diluted earnings per share by $0.44, in a year-over-year comparison with 2011 data.  


  • Francis Chou's Semi-Annual Letter

    Letter originally posted on investor, Francis Chou's fund website, www.choufunds.com, under Semi-Annual Reports  


  • Latest Picks from Francis Chou: USG, NOK; Sells GPS

    Francis Chou, like his friend Prem Watsa, loves to buy cheap stocks, especially if everyone else hates them. Market is giving him a lot of opportunities of doing so, as we can see from his latest portfolio. We have written extensively about Francis Chou. You can read it here: Francis Chou – The Investment Guru That You Never Heard Of. Francis Chou's experience is an amazing success story of value investing. He came to Canada in 1976 at age 20 with $200 in his pocket. Without a college degree, he could only work on blue collar jobs. Finally he landed a job at Bell Canada as a telephone repairman. Somehow he was introduced to the books of Benjamin Graham. As written by Warren Buffett in his famous article, The Superinvestors of Graham-and--Doddsville, "It is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately to people or it doesn't take at all." The idea apparently took Francis Chou immediately.”

    Francis Chou buys Nokia Corporation (adr), Usg Corporation, sells The Gap Inc., Qiao Xing Mobile Communication Co., Ltd. during the 3-months ended 06/30/2012, according to the most recent filings of his investment company, Chou Associates Management. As of 06/30/2012, Chou Associates Management owns 30 stocks with a total value of $328 million. These are the details of the buys and sells.  


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