Forbes: You have been called a value investor. Can you define what you mean by value investing?
Eveillard: Well, value investing, it, as you know, it's Ben Graham, who in the '30s, found the value school--founded the value school. And it's the idea that you look at businesses, you try to figure out what they're worth. Not in terms of the next quarterly earnings, but what, if you have the cash, what kind of price you'd be willing to pay for it today, for the entire business.
And then, later on, Buffett, who had worked with Graham, made successful and extensive adjustments to the teachings of Ben Graham, where, while Ben Graham had been mostly quantitative, sort of static, mostly balance sheet-derived, Buffett introduced the idea that there was a qualitative side, that you try to figure out the major strengths and weaknesses of a business and that what you were trying to identify was the extremely limited number of businesses where, after doing a lot of homework, you came to the conclusion what the odds were good--[though there was] no certainty of course--that the business would continue to create value, not just over the next quarter but over the next five or 10 years. And if you could buy that business at a discount, although theoretically at no discount, then most of the money you would make would be made through the business continuing to create value in the future. So the value school encompasses a large number of ideas in between Ben Graham and Buffett.
Forbes: Finally, as a former portfolio manager, what would you tell portfolio managers today? What's the one hard-rock lesson you would try to impart to them?
Eveillard: I would tell my friends among value investors who, I think value investors, they're bottom-up investors. Most value investors pay no attention, or very little attention to the top-down: interest rates, the economy, etc. Currencies. And it served them well for decades, until in 2008, it didn't.
And I would tell them, you know, continue to be bottom-up as much as you can, but keep an eye on the top-down, because there is a possibility--I'm not saying there's a probability, and it's not, obviously, a certainty. The future is unknowable. But I mean, Ben Graham used to say, "the future is uncertain," which is a statement that sounds obvious. But there is no lack of people on Wall Street who pretend to know what will happen. And so, I would say to my friends, value investors, keep an eye on the top-down, because there's a possibility that the economic and financial landscape has changed.
Forbes: So in other words, study Von Mises?
Eveillard: Yes. I mean, the two economists who have dominated the post-World War II period, as you know Steve, are Keynes, and then, in the late '60s, the Keynesians, beginning of the '70s, the Keynesians or post-Keynesians or pseudo-Keynesians were discredited because of the inflationary '70s. And Milton Friedman surfaced. And so Keynes and Friedman have dominated the scene in the post-World War II period.
And both of them are extremely, you know, important economists, there is no doubt about it. But nobody, you know, paid much attention to the Austrian school. And neither Keynes nor Friedman paid much attention either, to the phenomenon of, you know, credit boom and credit busts. And I think the Austrian school today is more interesting, to at least have some understanding of it, than it ever was.
You can read the complete transcript here.
The following video is only a small clip of the entire interview. I expect the complete video will be available on Forbes.com in the near future.
As of June 30, 2009, there are the top holdings of First Eagle Funds, which Eveillard advises on. As he said in the Forbes interview, Eveillard no longer considers the market represents bargains because of the sharp rally since March of this year.
No. 1: Gold Fields Ltd. (GFI), Weighting: 5.11% - 37,782,452 Shares
Gold Fields Limited is one of the world's largest unhedged gold producers with operating mines in South Africa Ghana and Australia. Gold Fields Ltd. has a market cap of $10.16 billion; its shares were traded at around $14.42 with a P/E ratio of 30.68 and P/S ratio of 3.15. The dividend yield of Gold Fields Ltd. stocks is 0.91%. Gold Fields Ltd. had an annual average earning growth of 2.8% over the past 10 years.
Eveillard talked about he held gold as a hedge in the Steven Forbes interview.
Eveillard owned 5.8 million shares back in 2Q06 and he increased his stake all the way to 42.2 million shares. He sold down to 36 million shares in 1Q09 but in 2Q09 he increased to 38 million shares. GFI stock price has dropped from $22.9 per share back in 2Q06 to the current $14.42 per share level.
No. 2: Berkshire Hathaway Inc. (BRK-A), Weighting: 5.05% - 4,994 Shares
Eveillard held a steady number of Warren Buffett’s company Berkshire Hathaway shares since at least. His current holding mounts to almost $500 million. Not a small change or token for one to get into the famous Berkshire Hathaway annual meetings.
No. 3: Newmont Mining Corp. (NEM), Weighting: 4.18% - 9,100,476 Shares
Newmont Mining Corp. is engaged in the production of gold the exploration for gold and the acquisition and development of gold properties worldwide. The company produces gold from mines in Nevada and California and outside of the United States from operations in Peru Indonesia Mexico and Uzbekistan. Newmont Mining Corp. has a market cap of $22.32 billion; its shares were traded at around $46.53 with a P/E ratio of 30.61 and P/S ratio of 3.6. The dividend yield of Newmont Mining Corp. stocks is 0.86%. Newmont Mining Corp. had an annual average earning growth of 4.5% over the past 10 years.
Another gold producer besides GFI, Eveillard held NEM since before 2Q06 when he held 5.2 million shares. He held a peak position of 10.2 million shares but sold about one million shares during 2Q09.
No. 4: Microsoft Corp. (MSFT), Weightings: 3.47% - 13,018,707 Shares
Microsoft develops manufactures licenses and supports a wide range of software products for a multitude of computing devices. Microsoft software includes scalable operating systems for servers personal computers and intelligent devices; server applications for client/server environments; knowledge worker productivity applications; and software development tools. The Company's online efforts include the MSN network of Internet products and services and alliances with companies involved with broadband access and various forms of digital interactivity. Microsoft Corp. has a market cap of $221.52 billion; its shares were traded at around $24.86 with a P/E ratio of 14.62 and P/S ratio of 3.79. The dividend yield of Microsoft Corp. stocks is 2.09%. Microsoft Corp. had an annual average earning growth of 10% over the past 10 years. GuruFocus rated Microsoft Corp. the business predictability rank of 4-star.
Eveillard has been trading in an out of the software giant. Back in 2Q06, he held 24.2 million shares, and by 2Q08, he sold down all the way to 3.8 million shares. Recently he had been seen buying again. In 2Q09, he held 13.0 million shares.
No. 5: 3M Company (MMM), Weighting: 3.47% - 5,138,946 Shares
3M Company is a diversified technology company with leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety security and protection services; transportation and other businesses. They are an integrated enterprise characterized by substantial intercompany cooperation in research manufacturing and marketing of products. 3m Company has a market cap of $51.67 billion; its shares were traded at around $74 with a P/E ratio of 16.82 and P/S ratio of 2.04. The dividend yield of 3m Company stocks is 2.76%. 3m Company had an annual average earning growth of 9.6% over the past 10 years. GuruFocus rated 3m Company the business predictability rank of 2-star.
Eveillard owned a small position in MMM in 4Q06 but over the cause of the past three years, he has built up a stake of 5.14 million shares as of 2Q09.
No. 6: American Express Company (AXP), Weightings: 3.21% - 12,320,574 Shares
American Express Company is primarily engaged in the business of providing travel related services financial advisory services and international banking services throughout the world. American Express Travel Related Services Company Inc. provides a variety of products and services including global network services the American Express Card the Optima Card and other consumer and corporate lending products stored value products and several others. American Express Company has a market cap of $40.64 billion; its shares were traded at around $34.17 with a P/E ratio of 25.12 and P/S ratio of 1.43. The dividend yield of American Express Company stocks is 2.11%. American Express Company had an annual average earning growth of 1.3% over the past 10 years.
Eveillard used to own a very small position until 1Q08 when he upped his stake from a quarter of million shares to 5.5 million shares. In 2Q09, he increased from 10.3 million shares to 12.3 million shares.
Eveillard is serious when he said he buys gold in order to provide a hedge against inflation. Number 1 and 3 of his top holdings are gold mining company.
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