There's Always Something To Do - (Peter Cundill) written by Christopher Risso-Gill: Part I

I am currently reading There's Always Something To Do written by Christopher Risso-Gill. It is written on the life and value investment approach of the famous Peter Cundill, the founder of the Cundill Value Fund. Peter Cundill derived his approach from Graham & Dodd and included learnings from his informal mentor, Sir John Templeton and was one of the few extremely successful international investors.


What I am really loving about this book is that its taken from the copious journals maintained by Peter Cundill, so provides a first hand account of the thought process that an investor goes through. Typically, all other books by fund managers are written post-facto and are guilty, to some extent atleast, of hindsight bias. Here, the I could feel the dilemma that Cundill goes through at various points in his investing journey which I can related to very closely.


Here are some excerpts from the book:-

What I am beginning to perceive is that investors tend to follow trends and fashion rather than taking the trouble to look for value. This must offer opportunity for the professional investment manager, as a result of the short term mispricing of securities.

I think intelligent forecasting (company revenues, earnings, etc.) should not seek to predict what will 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. 

I believe that there is probably one opportunity in every man's life which demands his knowledge, his guts, his self-esteem and his judgment. If he seizes it with both hands and it is successful, he joins the first rank, if not he remains a mortal with feet of clay.

Some insights near the beginning of his career:

• Management's ability to predict earnings is universally poor

• It is the strategic modelling behind the portfolio that matters most.

• One needs to develop a sense of spaced maturities in a common stock portfolio in a way that is comparable to a bond portfolio.

• In a macro sense it may be more useful to spend time analysing industries instead of national or international economies.

I will follow up on more excerpts as I continue reading. So, stay tuned.

Walter Schloss passes away: His learnings remain

Superinvestor Walter Schloss passed away earlier this week. He was 95. From 1955 to 2002, by Schloss’s estimate, his investments returned 16 percent annually after fees, compared with 10 percent for the S&P 500.

Here are the golden rules as espoused by him.

1. Price is the most important factor to use in relation to value

2. Try to establish the value of the company. Remember that a share of stock represents a part of a business and is not just a piece of paper.

3. Use book value as a starting point to try and establish the value of the enterprise. Be sure that debt does not equal 100% of the equity. (Capital and surplus for the common stock).

4. Have patience. Stocks don’t go up immediately.

5. Don’t buy on tips or for a quick move. Let the professionals do that, if they can. Don’t sell on bad news.

6. Don’t be afraid to be a loner but be sure that you are correct in your judgment. You can’t be 100% certain but try to look for the weaknesses in your thinking. Buy on a scale down and sell on a scale up.

7. Have the courage of your convictions once you have made a decision.

8. Have a philosophy of investment and try to follow it. The above is a way that I’ve found successful.

9. Don’t be in too much of a hurry to sell. If the stock reaches a price that you think is a fair one, then you can sell but often because a stock goes up say 50%, people say sell it and button up your profit. Before selling try to re-evaluate the company again and see where the stock sells in relation to its book value. Be aware of the level of the stock market. Are yields low and P-E rations high. If the stock market historically high. Are people very optimistic etc?

10. When buying a stock, I find it helpful to buy near the low of the past few years. A stock may go as high as 125 and then decline to 60 and you think it attractive. 3 yeas before the stock sold at 20 which shows that there is some vulnerability in it.

11. Try to buy assets at a discount than to buy earnings. Earning can change dramatically in a short time. Usually assets change slowly. One has to know much more about a company if one buys earnings.

12. Listen to suggestions from people you respect. This doesn’t mean you have to accept them. Remember it’s your money and generally it is harder to keep money than to make it. Once you lose a lot of money, it is hard to make it back.

13. Try not to let your emotions affect your judgment. Fear and greed are probably the worst emotions to have in connection with purchase and sale of stocks.

14. Remember the work compounding. For example, if you can make 12% a year and reinvest the money back, you will double your money in 6 yrs, taxes excluded. Remember the rule of 72. Your rate of return into 72 will tell you the number of years to double your money.

15. Prefer stock over bonds. Bonds will limit your gains and inflation will reduce your purchasing power.

16. Be careful of leverage. It can go against you. 

Counter-thought - A process

Most of us do not think of how or why our investments can fail. While buying, we either look at the fundamentals or consider technical charts or do a mix of both and then buy. However, we are sometimes fooled as something that we may not have considered in our analysis takes place and our investment goes down in value. For this it is critical to have, what I term, as Counter-thought.

In counter-thought, you do a sort of crystal ball gazing and think that you are one year from now and your investment has turned you a loss. Now looking back you have to point out the reasons why it did not work out as you had planned or hoped it would. Looked at it from this perspective, it is much easier to figure out the major risks that can result in a loss. For example, if you are buying a company based on its ability to rent out its real estate (e.g. Nesco), then one loss-case can be a natural disaster like earthquake/flood/fire which destroys the primary asset. Another one can be a overall slump in industrial and trade fairs and reduction of demand. If you sit down with a pen & paper (notepad on a computer would do just fine as well), then you can chalk out multiple similar scenarios.

Once you have these items in your investment risk list, you can categorize them based on probability of occurrence and its possible impact. Again, taking the same example, a natural calamity at the primary convention center for Nesco is a very remote probability event but with extremely high impact (i.e. its effect is potentially catastrophic for the company).

So, before you put in your money in a stock next time, do spend a bit of time on counter-thought.

Prof. Bakshi's 8 vantage points to look at a stock

As usual, great post from Prof.Bakshi. In this he goes through the eight ways of looking at a company and provides nuggets of wisdom while looking at the financial statements from the company.

Vantage Point: 8 Points of View For Evaluating a Stock

Variant Perception or Dis-conforming Evidence

Variant Perception can be explained as the difference of opinion between you and the market. That is, when your perception of a situation is different from that of the general market.

To make serious money in the markets, it is important to be able to take a position that is opposed to the general market view. A "margin of safety" is only available if the majority of market participants believe that a particular stock is not worth buying or is actually worth selling. In those instances, where the majority view is in one direction, and you believe that exactly the opposite is true, that the stock is worth buying into, then you have a contrarion viewpoint or a variant perception.

In any transaction in the markets, there is a buyer and a seller. Both are transacting at the same price. So, it is very important to think form the opposite point of view. Why is the person on the other side of the transaction selling to you? If your logic for buying is better than what you can think of for that of the seller, then you have a good case.

This ties in with the concept of "dis-conforming" evidence as popularized by Charlie Munger. [Note: There is no such word as dis-conforming and I think Munger wanted to mean nonconforming.]

Looking for dis-conforming evidence requires that before taking a position you list down points that is opposing to your existing view point. For example, if you are about to buy a stock of a company, think of why you would not want to buy it, what can go wrong in the business, how the business can be ruined or can go bankrupt and other such points.

If you force yourself to think in these terms, it usually brings sanity and rationality to the overall-thought process and helps clarify the decision in your own mind.