The great Jean-Marie Eveillard is back to First Eagle Fund. He just wrote his first shareholder letter. "... we’re not interested in the psychology of the market. We’re interested in the realities of a business. We play bridge, not poker, the difference being that there is much less luck associated with bridge than there is with poker."
First, a reminder: for more than twenty-five years, we have been in the business of establishing “intrinsic” values for securities which catch—on a preliminary basis—our attention. In a nutshell, we try to figure out what a somewhat knowledgeable buyer (“somewhat”, because we’re on the outside, looking in), expecting a reasonable long-term return, would be willing to pay —in cash—for the entire business. That number is the intrinsic value. If the market price of the security is at some discount to the intrinsic value, then we might be interested. The appropriate size of the discount is a function of how well we think we understand the business and of how much we like the business. The better we understand and like it, the smaller the required discount. As for the sale of securities, it takes place whenever we realize that our intrinsic value was overstated, in other words, when our analysis was flawed. We also sell when the price of the security moves up to the intrinsic value, though we make exceptions—not without trepidation—when we believe the odds are good that the business will continue to create value over the years.
This investment approach—the value approach—is not a recipe, a formula, a black box. But I believe it is a sound approach. As Seth Klarman, a successful value investor, has said, a long-term orientation is the biggest edge a value investor can have. Or, as Benjamin Graham put it, short-term the market is a voting machine, long-term it’s a weighing machine. In other words, we’re not interested in the psychology of the market. We’re interested in the realities of a business. We play bridge, not poker, the difference being that there is much less luck associated with bridge than there is with poker.
Read the complete letter
First, a reminder: for more than twenty-five years, we have been in the business of establishing “intrinsic” values for securities which catch—on a preliminary basis—our attention. In a nutshell, we try to figure out what a somewhat knowledgeable buyer (“somewhat”, because we’re on the outside, looking in), expecting a reasonable long-term return, would be willing to pay —in cash—for the entire business. That number is the intrinsic value. If the market price of the security is at some discount to the intrinsic value, then we might be interested. The appropriate size of the discount is a function of how well we think we understand the business and of how much we like the business. The better we understand and like it, the smaller the required discount. As for the sale of securities, it takes place whenever we realize that our intrinsic value was overstated, in other words, when our analysis was flawed. We also sell when the price of the security moves up to the intrinsic value, though we make exceptions—not without trepidation—when we believe the odds are good that the business will continue to create value over the years.
This investment approach—the value approach—is not a recipe, a formula, a black box. But I believe it is a sound approach. As Seth Klarman, a successful value investor, has said, a long-term orientation is the biggest edge a value investor can have. Or, as Benjamin Graham put it, short-term the market is a voting machine, long-term it’s a weighing machine. In other words, we’re not interested in the psychology of the market. We’re interested in the realities of a business. We play bridge, not poker, the difference being that there is much less luck associated with bridge than there is with poker.
Read the complete letter
