1. How and why did you get started investing? What is your background?
I was always interested in the stock market; since high school I was following charts and trying to make sense of all the data that the media throws out at me. I started investing when I came to Canada, and I got my working permit. That enabled me to open a trading account. I am from Morocco. I came to Canada in 2003 to continue my studies. I enrolled in computer science; however I lost interest in the field as I was more passionate about business and finance.
2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas?
My investment strategy is value investing; I try to find quality companies at very attractive prices. My strategy is closer to Buffett’s than Graham’s. I always keep one-third of my portfolio in cash. It enables me to be ready to pounce on new opportunities without the need of selling my positions. I am always looking for investing ideas, either through screening for companies, or reading the Wall Street Journal, I also check the new 52-week lows lists.
3. What drew you to that specific strategy? If you only had three valuation metrics, what would they be?
The reason I practice value investing is that it makes sense to me, I started reading Buffett’s shareholders letters and in particular his essay called “The Super Investors of Graham and Doddsville.” Investing is a vague subject; there’s too much noise from the media. Buffett explains the core of it. I grasped the fundamentals, and everything else comes into place. No valuation metric is exclusive. Investing is more an art than science; however if I only had three metrics, it would be probabily the (price-earnings) P/E ratio, ROE, leverage ratio and (price-sales) P/S.
4. Which books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? Which investors do you follow today?
I read a minimum of 50 books about investing. Some are good. Others are a waste of time; however if I had to choose one book it would be "The Intelligent Investor" by Ben Graham, as it explains clearly the difference between investing and speculating, which is a blurred line for many participants in financial markets. Also the chapter about the margin of safety is the greatest essay about investing. It’s a cornerstone of my philosophy.
5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?
I buy a stock when its intrinsic value is higher than the quoted price with a margin of safety. I sell when the price reaches the intrinsic value. I keep following the companies I hold (reading the 10Qs, press releases) and reassessing. If I believe that the fundamentals are deteriorating, I would sell. I don’t have a minimum holding period of a stock.
6. How has your investing approach changed over the years?
My approach didn’t change over the years. I’m lucky I started on the right track; however my horizon expands over the years as my knowledge about industries and business grows.
7. Name some of the things that you do or believe that other investors do not.
What separates me from other investors is the psychology about the markets. I am nervous when the markets keep going higher. I am more enthused in bear markets as it allows me to buy great companies at a very low price. Other investors get greedier when markets are overvalued and nervous when markets crash. A great quote by Warren Buffett (Trades, Portfolio) that sums up this phenomenon is “Get greedy when others are fearful and fearful when other are greedy.”
8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies? How do you judge the quality of the management?
Some of the active CEOs that I admire are, of course, Warren Buffett (Trades, Portfolio) of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), Jeff Bezos of Amazon (AMZN, Financial), Satya Nadella of Microsoft (MSFT, Financial), Howard Schultz of Starbucks (SBUX, Financial). All these companies are well run in my opinion. I would also add past CEOs as Bill Gates (Trades, Portfolio) of Microsoft, Jack Welch of GE (GE, Financial), Steve Jobs of Apple (AAPL, Financial). I admire their companies; however a great company is not synonymous with great investment. I judge the quality of management by their asset allocation and the quality of their financials. Great managers tend to produce clear, honest reports. The manager's role is to serve and protect shareholders and not to mislead them.
9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?
I use stock screeners a lot. I also find undervalued or arbitrage situations by reading newspapers.
10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.
There’s no ideal company to invest in. The world is changing quickly, and the company must be adapting all the time. That’s when the quality of management comes into place. Each investment situation is different. I don’t use a checklist. I value an investment based on two things: earning power or assets valuation. Assets valuation is when I can purchase a company at a price lower than liquid book value. These investments are rare nowadays. Earning power is when a company has the capacity to generate and grow earnings over time. I tend to buy those companies when their intrinsic value is much higher than their market price. A bad investment is easy to spot. If the company is overleveraged with low margins, low asset and inventory turnover, I just stay clear of these companies.
11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure, process that you use? Or do you have any hard-cut rules?
I go through a process of valuation once I’m interested in a company, I check the short-term liquidity, capital structure, return on capital, asset turnover, profitability.
12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?
The research I do is reading the financial statements and using some stats from financial websites like Yahoo! Finance, GuruFocus, Morningstar. I don’t speak to management, but I listen to everything they have to say on the earnings season.
13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock? When is cheap not cheap? If you can, give some examples.
I won’t go into specifics about how I value a stock. What I will say is I don’t use any modules or discounted cash-flow projections as I believe that if we change one variable, the whole model becomes useless.
14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and why?
We are on an all-time high in the stock market. The Dow is approaching 20,000. This is a tough time to find any bargains, but I keep looking. I have no favorite sector; I try to find value anywhere I can. One sector I’m avoiding is tech. I believe it’s a bubble.
15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?
The market is way overvalued in my opinion. The Standard & Poor's 500 P/E ratio is at 26; when the dot-com bubble burst the P/E was at 29. Some sectors are worse than others in my opinion.
16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?
The book I’m reading now is "Bloomberg" by Michael Bloomberg. It has many lessons about life, business; I’m enjoying reading it.
17. Any advice to new value investors? What should they know and what habits should they develop before they start?
Advice I would give anyone willing to listen is to control emotions. People should think on their own and not be influenced by the herd mentality. It’s best if they can just ignore the media and concentrate on reading annual reports.
18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?
I don’t have any value investing tools. What I do is read shareholders or partners letters from some value funds.
19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments that burned you? What did you learn and how do you avoid those mistakes today?
One of my worst investments is BlackBerry (BBRY, Financial) when it was called RIM. It looked like a very cheap stock to me. However, I underestimated the competition and overestimated the management ability. I learned from that investment to stay away from fast-changing industries. One of the mistakes I made was selling too early; buying is simple, but selling is a complex process. I left too much money on the table by selling earlier than I should have.
20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?
I don’t let the media or any “expert” influence my thinking. I think of stocks as small ownership in a company and not a casino chip. In every correction, crash, bump, I buy more if the underlying is sound. I never panic.
21. How does one avoid blowups in value investing?
Value investing is simple but not easy; it doesn’t make sense to buy only because a stock is cheap. An investor must know why is the stock cheap. Sometimes there’s good reason for it being cheap, and sometimes there’s not.
22. If you are willing to share, which companies do you currently own and why? How have the last five to 10 years been for you investingwise compared to the indexes?
I won’t share my holding as I’m not fond of people riding my coattail. For the past four years I started investing, my returns average 30% a year compared to about 10% for the S&P.
23. Here's a fun one – Which stock would Warren Buffett or Benjamin Graham buy today if he were you?
I cannot speculate on this one.
24. What is the most contrarian investment you've ever made? Why did you make it and how did it turn out?
Most investments I make are contrarian, I buy when the company is not liked by Wall Street, and I sell it when they start liking it. Value investing is going against the common wisdom –buying stocks that the market undervalued and selling them back when the market overvalues them.
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