In the history of value investing, Canadian value investor Peter Cundill is usually outlooked despite his impressive record.
Cundill followed a traditional value strategy, trying to buy $1 for 50 cents, the process originally laid out by Benjamin Graham. And just like all other value investors of the time, this strategy produced impressive results for Cundill and his investors. From 1974 to 1988 the Cundill Value Fund returned 22% per annum. Over its 35-year history to 2010, the Cundill Value Fund achieved a CAGR of 13.7%, which is especially impressive when you consider the fact that the market was still recovering from the financial crisis when this figure was calculated. Cundill passed away in January 2011.
Maximize upside, minimize losses
Like Graham, Cundill's desire to minimize losses and maximize upside was born thanks to an unfavorable outcome at the start of his investment career. Cundill’s first investment was made while he was working as an office boy at Wood Gundy. He bought $500 worth of stock in a speculative mining company and had lost the lot within 48 hours. It was an experience he never forgot and one that shaped his long and fruitful investment career.
Cundill wasn’t afraid to go overseas to hunt out possible investment opportunities. At one point his fund was 50% invested in Japan. Other investments included African oil companies, German blue chips, Swedish company Volvo AB (OSTO:VOLV A)(OSTO:VOLV B), Panama bank debt and the distressed debt of Argentina. As long as it offered value, no security was out of bounds for the Canadian value investor. During the early 1990s there were over 200 different deep-value securities within Cundill’s portfolio.
Like all investors, Cundill had his fair share of disasters, as he described in his last interview with the Globe and Mail:
“And your worst? Cable and Wireless would have to be the investment where I had my head handed to me. To paint the picture, the dot-com bubble was over and the share price was plummeting. Market sentiment was against this company in particular, as well as the telecoms sector in general, so I started to get interested. My history has always been in buying securities when they’re unpopular. Cable and Wireless is an illustration of the fact that despite careful analysis and a strict adherence to Benjamin Graham’s value principles – a low share price, no debt, a huge amount of cash and profitable established networks –Â things can still go wrong, spectacularly so.”
The interview also contained a final nugget of advice from the deep-value guru:
“Any advice for regular investors? Pick some first-rate money managers with whom you feel comfortable because you have done your homework on them. Then stick with them. The mantra is patience, patience and more patience. Think long term and remember that the big rewards accrue with compound annual rates of return.”
In another interview, he also expressed his dislike for forecasting:
“I think that intelligent forecasting (company revenues, earnings, etc.) should not seek to predict what will in fact happen in the future. Its purpose ought to be to illuminate the road, to point out obstacles and potential pitfalls and so assist management to tailor events and to bend them in a desired direction. Forecasting should be used as a device to put both problems and opportunities into perspective. It is a management tool, but it can never be a substitute for strategy, nor should it ever be used as the primary basis for portfolio investment decisions…”
And once again, during an interview with the Wall Street Journal:
“As I proceed with this specialization into buying cheap securities I have reached two conclusions. First, very few people really do their homework properly so now I always check for myself. Second, if you have confidence in your own work, you have to take initiative without waiting around for someone else to take the first plunge. I haven’t yet found a solution for determining timing on the sell tack. People say it ought to be largely dependant on one’s perception of the trend in the overall stock market, but I am suspicious of this. I think that the financial community devotes far too much time and mental resource to its constant efforts to predict the economic future and consequent stock market behavior using a disparate, and almost certainly incomplete, set of statistical variables. It makes me wonder what might be accomplished if all this time, energy and money were to be applied to endeavors with a better chance of providing reliable and practically useful. The timing difficulty in selling does not lie in knowing when the trading discount to intrinsic value has been eliminated, but in judging by how much it is likely to be surpassed…”
These short quotes sum up Cundill’s investment process. He declined to use forecasts or estimates, instead focusing on a stock's balance sheet, and held a broadly diversified portfolio to reduce risk. Cundill also prioritized patience, and this long-term outlook, combined with the rest of his strategy, produced some grand results.
Disclosure:Ă‚ The author owns no stock mentioned.
