Eveillard has been investing for approximately 50 years. Born in France, he obtained a job as an analyst with Societe Generale, the French bank. It was during his tenure at the bank that he discovered value investing and was given an opportunity to manage a fund. The fund, First Eagle SoGen Global was sold to Arnhold and S. Bleichroeder Advisers, where Eveillard now serves as chief investment officer of several funds.
Here are some of my notes from the interview that I felt worthy of mentioning and ideas that all investors should heed.
The first item that drew my attention was his frankness regarding investing and some general characteristics displayed by many investors that are clearly wrong. Eveillard stated, "…the great majority of individuals, if left to their own devices in terms of investing, will do the wrong thing at the wrong time." He goes on to state that many, if not most investors, cannot read or understand a balance sheet and "…it's less a lack of technical knowledge, because that's not very difficult to acquire. It's more a failure of character or intellect or both."
Ouch… but it's the truth. There are too many that will screen the stocks through a screener and fail to go the extra distance and delve into the financials and discover the rest of the story.
He admonishes the investor to not just follow the crowd or stay in the herd by just buying stocks that have been rising with a hope to catch some of the profits, without really studying or researching your purchase.
Of particular interest, at least to me, were his enlightening statements on accounting methods used here in the U.S. Eveillard said that while accounting methods in Europe had a poor record, he now believes that accounting in the U.S. is far worse. He, once again, cautions investors that there are too many accounting tricks and appears to agree with Warren Buffett and his complaint about the need to place stock options directly in the income statement.
According to the interview, Eveillard does not run screens to find stocks to invest in, stating that they simply cannot rely on the numbers that the company has reported in their financial records. They prefer to look for hidden assets in the balance sheet and divulge that they spend a considerable time studying the footnotes to see exactly what might be over reported. He adds, "We don't want to be taken."
He acknowledges that they rarely use research by any outside organizations, simply stating, "We don't trust anybody." Eveillard states that they often rerun numbers from the financials themselves and gives one example when they discovered, during their research, that one airport depreciated its runways over a 20-year period, while another depreciated their runways over a 100-year period. That can certainly make a huge difference in the numbers or ratios and should leave us all understanding the need to really scrutinize the financials before we invest. The caution has been issued.
In regards to intrinsic value, Eveillard admits that, "We are involved with both old and new value. To use Buffett's words, that means we tend to own both questionable businesses at comfortable prices and comfortable businesses at questionable prices." Those words are extremely important and do clearly emulate a lot of Buffett's style. He further explains that he may buy a good company for a lower margin of safety, if it's both a good company and they understand it. A company that they have less confidence in would require a higher margin of safety.
That is demonstrated throughout his portfolio. As an example, The TJX Companies (TJX), owned by Eveillard, is a great company, but is nearing its intrinsic value by almost anyone's calculations. He also owns Cisco (CSCO). While I think Cisco is a good company, many would state that its performance shows otherwise and would require a higher margin of safety. His portfolio clearly shows a good diversification. I was surprised, however, to discover how many gold stocks they were holding.
Finally, he admitted that his entire life savings is invested in the funds that he manages. When you consider the amount of research that he endeavors to fulfill with each purchase and that he's also using his own money, there is a confidence in emulating an investor such as Jean-Marie Eveillard.