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Monica Wolfe
Monica Wolfe
Articles (757) 

'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 (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. 

Personal History

As the story goes, Chou arrived in Canada when he was 20 years old and only had $200 in cash in his pocket.  He managed to swing a job at Bell Canada as a telephone repairman, and even though he only had a 12th grade education Chou began reading investing books such as “The Intelligent Investor” and “Security Analysis” by Ben Graham. 

After all of this research and reading, in 1981, he set up an “investing club” with six of his Bell co-workers.  The seven of them had a combined $51,000 at the beginning of their venture and in five years time the group had turned that in to $1.5 million.

In 1984 Francis Chou (Trades, Portfolio) was able to leave Bell Canada to become a retail analyst for GW Assets where he met the “Warren Buffett (Trades, Portfolio)” of Canada, Prem Watsa (Trades, Portfolio).  After a year and a half at GW Assets the Canadian guru left and joined Prem Watsa (Trades, Portfolio) at Watsa’s fund Fairfax Financial as one of the fund’s first investors.

While Watsa is now the CEO of Fairfax Financial, Francis Chou (Trades, Portfolio) turned is small investment club with $51,000 into what is now known as the Chou Associates Fund.

Chou Associates Management

Chou Associates Management is the investment counsel and trustee for the family of Chou funds which include:

The Chou Associates Management said in their mid-year report that “In general, we are not that bullish on the stock market.  Aside from a couple of industries like financial institutions in the U.S. and companies in the retail sector, we are not that comfortable with the prices of many stocks.” 

Because of the success of Chou Associates Management, Francis Chou (Trades, Portfolio) was named Morningstar Fund Manager of the Decade in 2004.  As of August Chou Associates held $650 million worth of assets under management.

Investing Philosophy

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.

Chou Associates Management’s investing objectives are as follows:

  • To provide long-term growth of capital by investing in equity and debt instruments of primarily Canadian businesses.
  • Investments may include common and preferred shares, convertible debentures, government and corporate bonds and short-term indebtedness.
  • Unit holder approval is required in order to change the fundamental investment objectives of the fund.

Francis Chou (Trades, Portfolio) generally looks for companies that are trading at what he believes to be bargain prices, and then he buys them.  Chou seeks companies that have a high ROE in excess of 15% which has been sustained over 10 years or more.  He also looks for companies with skillful and successful management teams which are measured by their control maintained on receivables, inventory and fixed assets.

Francis Chou (Trades, Portfolio) is also a highly disciplined investor, and instead of buying an overpriced stock the guru will hold onto the cash.  Chou has been quoted saying, “Find bargains and maintain discipline; if you can’t find bargains stay in cash.”

Chou refuses to follow the trends set by other investors, and he also avoids high tech stocks and the real estate market.

Performance Data

GuruFocus follows two of Chou Management’s five portfolios: the Chou RRSP Fund (Trades, Portfolio) and Chou’s Associate Fund. 

Francis Chou (Trades, Portfolio)’s Chou RRSP historical returns as of Dec. 31, 2013:

Chou’s RRSP Fund was initiated in October of 1986, and since then has seen As of Dec. 31, 2013, the RRSP fund maintained $116.9 million and operates as a Canadian Focused Small- to Mid-Cap Equity fund.  The fund operates as a Front End investment and requires a $5,000 minimum initial investment. 

Francis Chou (Trades, Portfolio)’s RRSP top five stocks as of the third quarter:

  1. International Forest Products Limited (TSX:IFP.A):  925,500 shares, representing 12.5% of his total portfolio and 1.66% of the company’s shares outstanding.


  1. MEGA Brands (TSX:MB):  626,411 shares, representing 12% of his total portfolio and 2.73% of the company’s shares outstanding.


  1. Resolute Forest Products (TSX:RFP):  624,188 shares, representing 11.4% of the portfolio’s holdings and 0.66% of the company’s shares outstanding.


  1. Danier Leather (TSX:DL):  679,200 shares, representing 10.1% of his total portfolio holdings and 17.73% of the company’s shares outstanding.


  1. Torstar Corporation (TSX:TS.B):  1,254,716 shares, representing 9.9% of his total portfolio and 1.57% of the company’s shares outstanding.


You can view more information on the Chou RRSP Fund here.

GuruFocus also follows the Chou Associates Fund which highlights the following returns:

The Associates fund is responsible for $456.1 million in assets, it’s a front end portfolio which was ranked in the first quartile as of Dec. 31 and operates as a global small- to mid-cap equity portfolio.

George Athanassakos, a professor of finance and the Ben Graham Chair in Value Investing at the Richard Ivey School of Business, thinks that Chou is not successful because of his high IQ but that he’s successful because “Chou’s natural disposition just happens to be a perfect match to the investing style he’s chosen.”

You can read more about Francis Chou and check out his third quarter portfolios here.

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