Francis Chou (Trades, Portfolio) doubled one position and sold out of another in a second quarter that had otherwise light investment activity at Chou Associates Management.
Chou is a value investor who buys low-priced and typically out-of-favor companies and who was named Morningstar’s Fund Manager of the decade in 2004. His Canada-based firm manages about $650 million and entered a period of underperformance in the past five years while the market soared, returning 9.5% in U.S. dollars versus 17.3% for the S&P 500 compounded annually. In the year ended June 30, the fund fell 8% while the index gained 7.4%, and in the past 15 years, it returned 11% compounded annually, versus 4.4% for the S&P.
“It is tough to find bargains at the present time,” Chou said in his semi-annual letter. “There is hardly anything to buy at a compelling price. The few stocks we own are cheap but when the general stock market level is not cheap, it makes us nervous. Our experience has taught us that it is better to sit on the sidelines and wait for developments.”
Concern over a list of issues deterred him from heftier investment, including low interest rates, high stock prices and the unknown effects of increased interest rates.
“The current conditions make me feel that investors are being set up for heartbreaking disappointment, especially for the unwary,” he said.
New Buy: Dundee Corp. (TSX:DC.A, Financial)
Chou increased his Dundee Corp. holding from 100,000 shares to 200,000 shares in the second quarter when the price averaged C$12 per share. The holding represents 3.8% of his portfolio.
Dundee Corp. is a Canadian holding company that operates both public and private subsidiaries in the investment advisory, corporate finance, energy, resources, agriculture, real estate and infrastructure sectors. Its largest allocations are to real estate at 25% of capital and energy at 27%. The company owns 53% of Eurogas International Inc. (XCNQ:EI, Financial).
Dundee Corp has a market cap of $519.12 million; its shares were traded at around $8.85 with and P/S ratio of 1.63.
Sell: Ridley Inc. (TSX:RCL, Financial)
Chou sold 313,200 shares of Ridley Inc. to eliminate his position in the company. In his year-end filing, the company ranked as his third largest position at 10.7% of the portfolio. Its share price had increased from C$9 on average in the second quarter of 2010 to C$39 in the second quarter of 2015.
Ridley Inc. was formed in 1994 as a subsidiary of Ridley Corporation Limited of Australia on its acquisition of Winnipeg-based Feed-Rite Mills, a livestock and poultry feed manufacturer with operations in Manitoba, Saskatchewan, Alberta and Ontario. Ridley Inc. has a market cap of C$520.55 million; its shares were traded around C$40.70 with a P/E ratio of 15.7 and P/S ratio of 0.75. Ridley Inc. had an annual average earnings growth of 2.0% over the past 10 years.
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