There’s always something to do | Christopher Russo

Published: 2011

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The book describes Peter Cundill’s life and career and is based on his investment journals, investor letters and lectures. Cundill was born in 1938 and began his career as an accountant and financial advisor at the age of 25. At the age of 35, he found Benjamin Graham’s books and two years later, in 1975, he took over the underperforming All-Canadian Venture Fund. For the next 33 years, the fund, with a deep value philosophy, had an annual return of 15.2%. In 2011 Cundill died of fragile x, 72 years old.     

CUNDILL GULPED LIFE. Cundill was described as a very curious person with sharp intuition, a great appetite for reading and with great patience. The intellectual interest was broad and included classical music, the theatre, art, literature and philosophy. He was also an avid runner and had 22 marathons under his belt. However, he was not a full-blooded health freak but had also an interest in martinis and cigars. In addition, he was an adventurer and has been called “The Indiana Jones of Canadian Money Managers”.

“The most important attribute for success in value investing is patience, patience and more patience. The majority of investors do not possess this characteristic”

A GLOBAL APPROACH. Cundill was ready to invest in anything anywhere, as long as there was a margin of safety and an attractive upside. To enable global coverage, he built a wide network of contacts with like-minded investors around the world. The network included names such as Prem Watsa, Michael Price, Irving Kahn and John Templeton. The international positions were always 100% currency hedged. Cundill was constantly on the move, which made him comfortable investing in countries outside the United States and Canada. In November every year, he travelled to the country whose stock market had the worst development during the year. In the 1970s he invested in Sweden, in the 1980s in Panama and in the 1990s in Argentina and Ecuador. During his career he worked and lived in Vancouver, Paris and London.

“Sometimes the stuff we buy is so illiquid that it is almost the same as doing private equity”

AN OPEN MIND. Cundill invested in net-nets (companies valued under current assets less all liabilities) and had an average annual return of 26% during his first ten years. A low valuation was key to get his interest – the type of business model was insignificant. However, he was not entirely religious about the net-net focus and in the late 1980’s successfully went short the Japanese Nikki index. He considered derivatives to be an excellent tool for value investors who identified markets at “the antithesis of value”. Through futures and options, he could short markets and equities without the risk exposure becoming too large. He closely followed what other successful investors were doing and was willing to back down if he liked their case.  

“The intrinsic value was defined as the price that a private investor would be prepared to pay for the security if it were not listed on a public exchange.”

GENERALS INSTEAD OF COMMITTEES. Cundill considered that the investment game is a game best played alone. If investment decisions are to be made jointly, the best – and most inconvenient – investments are almost by definition omitted. He always did his homework himself. Cundill downplayed the glamorous shimmer of his profession and said that 99% of the days were purely routine work – reading, simple calculations and fact checking.

DO NOT SKIMP ON THE SPREAD. When the analysis was finished, he considered it a “fools game” to try to save a few cents when placing the order – if he was happy with the price, he met the seller. His approach to selling was to sell half the position after it had doubled – and then have an open mind for when the other half would be sold. Had he reconsidered a position, he did not try to make a small profit on the deal but took the price the market offered and sold.   

THE NUMBER OF NET-NETS MATTERS. Cundill “timed” the market by letting the number of existing net-nets determine how large the fund’s cash position would be. When there were few net-nets, he became worried about the market valuation and tended to build up cash. When there were many net-nets, he was fully invested. At times, the cash amounted to as much as 40% of the capital. He was generally sceptical of market timing, but by keeping track of the number of net-nets, he was often correctly positioned.

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