We don't often get to hear much from the very private Francis Chou (Trades, Portfolio). Here is a rare question and answer with the value investor:
1. How did you end up becoming a portfolio manager?
I was working at Bell Canada as a technician. I wanted to change that so I was reading a lot, trying to find out what field to go into next. Once I read Security Analysis I knew I wanted to be a portfolio manager.
2. You started your firm with $51,000 from six investors. What was harder, convincing those first six to invest or keeping the clients you have now?
It was difficult to get the six investors on board. I was just a technician with no formal education in investing. The initial capital was a lot of money for them. But once they saw how well we did, it was easy to keep them on board.
3. There is a story of you as a child checking milk jugs for freshness and price. How do situations like that play a part in your outlook on investing now?
When I grew up in India, shopping was under a bartering system. You would go to market, check the quality, and then haggle about the price. Then, you would go to all the vendors and see how cheap you can get the same quality. Investing is the same. You look at different securities, their quality, and then you try to get the best price. In India if you don’t pay attention, the vendor might dilute your milk with water. In investing, you have to be careful, too. You don’t want companies that
are loosey-goosey with their accounting practices.
4. Given the recent elections in India, what do you think is the most pressing problem the new government should tackle first?
Corruption and bureaucracy need to be reduced. They need to adopt a freer enterprise system. To start a company now, you need to go to more than 30 agencies.
5. How do you perceive risk and control for it?
There is no way to fully control risk. Rather, I try to mitigate the potential for risk by following a certain framework and sticking to it and, of course, buying stocks when they’re selling at a deep discount to their intrinsic value.
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