Two recent articles by Francois Rochon

[Liberty]

I'm sure there's already a thread for Valeant.  At this point its probably pretty long.  Let's not get derailed.  lol

 

There is and Liberty, you are a smart and thoughtful investor and I guarantee you have thought more about Valeant than I have and thus it is more squarely in your circle of competence than mine.

 

No worries if you don't want to discuss it. I'm always looking for more info in case I come across a line of thinking or a piece of info that I hadn't considered before, which might make me change my mind.

 

Just promise that if you have something groundbreaking, you'll private-message me or post it in the Valeant thread ;)

[Liberty]

I've known some people from his firm for several years too.

 

They have their niche. They invest mostly in great companies managed by great people for a fair to good price and sometimes keep the shares for a very long period of time. I know that everybody is unique when there no "next something" or "next someone", but even if they are not the same, their investment style reminds me the one they have at Sequoia Fund.

 

I would feel good to put some part of my family's money in their fund. There is not a lot of investment firms in wich I have that level of trust and confidence!

 

Cheers!

 

Partner, has your thinking on the firm changed in the years since you posted the above? Same question for Sanjeev or anyone else who wants to share their current opinion on Giverny. Thanks.

[Partner24]

Liberty,

 

I've known them since 12 years now. My very good opinion about them have not changed over the years because they keep their discipline, determination, their investing style in good and bad years, their candor and desire to keep getting better by learning from past mistakes. Those are great qualities for investors and these can easily be put to test especially in the money management business. They are in an industry filled with "sharks", big egos and volatile clientele that sometimes reach for the savor of the day. So it would be easy to lose the focus and they do not.

 

Their long term investing results have not been achieved because of chance. To me, they are the testimony of who they are.

 

Cheers!

 

 

[Liberty]

Thank you Partner24, I appreciate you sharing your perspective.

[peter buffet]

Minimum for investment with Giverny is 250 000 CAD. 

[Alekbaylee]

Minimum for investment with Giverny is 250 000 CAD.

 

Really?

Used to be CAD 100 000 a few years ago.

[Liberty]

I heard 100k from a good source too.

[Parsad]

It's been a couple of years since I last spoke to Francois, but my opinion would not change about him.  He's an honest, good guy and a good investor.  He has a good team as well. 

 

The one caveat I would give, and I always give this...doesn't matter who the manager is:

 

In examining a manager's long-term results, I never look at what he did managing his personal portfolio, or money for family or friends.  It's not the same thing...not at all...not even if it is audited.  Managing capital from people you have more than an arms-length fiduciary responsibility to is completely different. 

 

Why?  Because your parents and your best friend's Mom or Dad most likely won't pull the capital from you...and they also won't question you when you put 100% of it into Berkshire Hathaway or some other company.  So whenever I see personal portfolio or family/friends data incorporated into long-term results, that caveat always comes to mind. 

 

That being said, Francois has still done very well if you exclude the 1993-1998 years...so the caveat is somewhat irrelevant in this case.  Cheers!

[Aurelius]

Guy Spier recommends him:

http://aquamarinefund.com/who-would-i-invest-with/

[Liberty]

Thanks Sanjeev and Aurelius!

[Aurelius]

Another interesting article:

http://montrealgazette.com/business/francois-rochon-the-experience-of-investing-in-carmax?__lsa=3de4-f83a

 

"There are many lessons from the last eight years. First, even if I paid a higher P/E than usual for CarMax, it turned out OK in the end. EPS went up 250 per cent and the stock went up 250 per cent. In the long run, the stock market reflects the increase in the intrinsic value of a company.

 

But in the short run, I had to be able to live with wide fluctuations in CarMax’s stock price. I made 250 per cent on my initial investment but I had to live through a 70 per cent temporary drop in the stock price. Thankfully, this does not happen often but when it does happen, you have to be able to bear it."

[VersaillesinNY]

Here goes Giverny’s 13F and its top positions.

 

http://whalewisdom.com/filer/giverny-capital-inc

 

In addition to Berkshire & Sequoia, their third source of ideas seems to be Markel (CarMax, Disney & Markel).

 

AUM at $ 456 M, François & his team are doing well.

 

[100 Shares]

2015 Letter is out: http://www.givernycapital.com/en/doc/206/Giverny_Capital_-_Annual_Letter_2015_web_.pdf

 

If anyone here is a investor in the fund, do you mind posting the full letter?

[Charlie]

2016 letter is out: http://www.givernycapital.com/en/doc/214/Giverny_Capital_-_Annual_Letter_2016_web_.pdf

 

Cheers!

[Cigarbutt]

Thank you Charlie.

I tend to read the report every year.

He may not be well known as he comes from the other solitude.

He is one of the fund managers I respect a lot. Has a very satisfactory long term record, a consistent approach and recognizes and even discusses mistakes.

I like the quote from Mr. Munger: "I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn".

And I'll add this one too: "There’s no way that you can live an adequate life without many mistakes.  In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke".

Time to read and think.

[Cigarbutt]

--Interesting comment about turnover:

 

"In other words, average "passive" investors hold their ETFs only about 47 days!  It’s even worse with the SPY index fund (linked to the S&P 500), with an average holding period of around 12 days, or an annual turnover rate of around 3,000%.  This compares with an average turnover rate of 120% for stocks in general.  Just to give you an order of magnitude for the purpose of comparison, the turnover rate of our model portfolio is around 14%, which means that we keep our stocks on average for about 2,500 days at Giverny Capital!"

 

So now long term investing is when you hold your investment for more than 3 months? How will this crowd behave if/when somebody shouts fire?

 

-Mr. Rochon talks about his podium of errors. Impressive.

 

--On Valeant: "Our confidence in the CEO was, in retrospect, a serious misjudgment of the person and his leadership qualities.  Clearly, under pressure to maintain a high rate of growth, deleterious decisions were made.  This was coupled with a significant increase in indebtedness."

 

Valeant has a separate thread. Mr. Rochon considers the investment a mistake even if they made money on it. I prefer this kind of mistake but like, the Giverny guys, it may be important to learn from those as well. Leverage is beautiful when there are no headwinds.

 

--On Alimentation Couche-Tard: "In 23 years, the stock has multiplied by more than 200 times." "This omission mistake has been haunting me for more than 20 years."

 

Me too (in a big way). For those who are not familiar, this company is not about technology or revolutionary products. It has become a global consolidator in the convenience store industry! The history is fascinating. I am reading (in the huge pile on my desk) the founder's biography. This may be an idea for another thread.

The conclusion here is that, if you can spot, a true long term wonderful compounder, be ready for pay for a good price. When I was in university, I bought myself a car (VW). If, instead, I would have put the money in ATD.B, today the investment would be worth around 3 millions (that's a lot of Ferraris). Food for thought. I know, we should not think like that. Shakespeare had something to say about this line of thinking: "We know what we are but not what we may be." (Hamlet, Act 4, Scene 3) I say that, maybe, it is better not to know. This story is particularly frustrating because I was able to witness (scuttlebutt) first hand the transformation that the acquired stores went through after the serial acquisitions and this was within pretty much anybody’s circle of potential competence. In the years 2000's, I was always behind the ball on this one. In 2008, I finally put my finger on the trigger. Chose other targets.

The founder CEO Alain Bouchard pulled the trigger himself in 2008 and  purchased 16.9 million shares. Since then the share price went up at least 12x and they introduced a dividend since. Do I need to say more?

 

One of my long term goals on this Board (my take of long term is not 3 months, it's more like 10 years) is to help uncover and dissect such a long term compounder going forward.

 

--On Mohawk industries (carpet manufacturer): The Giverny group did not double down in the 2008-9 downturn.

 

I have held MHK too and my mistake is different. I picked it up in the 2008-9 period as a investment that was blasted by the real estate downward spiral of the subprime unraveling and that would recover to intrinsic value relatively rapidly. I got that right but failed to see the long term compounder characteristics of the firm after. It became a bagger. Could have been a multi-bagger. Food for thought.

 

--On politics, Mr. Rochon says: "It would be a mistake to let our political ideas, as valid as they may seem in our point of view, to blurry our investment decisions". I would tend to agree but then again who I am to say?

[mranski]

I watched a Google Talk YouTube video with Francois dated dec 5/17, and thought it was good. Apologies if it was posted elsewhere.

[Cigarbutt]

You are probably referring to his "art of investing" talk.

Liked it too. Refreshing and full of candor.

 

Have you looked at the latest 13-F?

https://whalewisdom.com/filer/giverny-capital-inc

 

Often see common targets on the radar.

[mranski]

Thanks, I didn't have current holdings.

[Charlie]

2018 annual letter is out: http://www.givernycapital.com/en/doc/224/Giverny_Capital_-_Annual_Letter_2018_web_.pdf

 

Cheers!

[John Hjorth]

Thank you for sharing, Charlie,

 

It's much appreciated. Somehow, over the last few years [since I got aware Mr. Rochon, his doings and his writings], reading stuff written by Mr. Rochon has been growing on me - quite a lot.

 

There is however one paragraph in the client letter that I'm a bit puzzled about:

 

A few words about big American banks ...

 

... That's why we own shares in four US banks at the time of writing this letter.

 

How do you perceive it? -Personally, I read it as if Mr. Rochon has bought more big US Banks since after the "as per" date of the last 13-F/HR filing for Giverny Capital [in 2019, as per EOP 2018Q4]. - Please note the word "big" in the paragraph header. In the last Giverny Capital 13-F/HR I only see JPM as one of the "big ones".

[Cigarbutt]

^This is all speculation of course but the wording and the overall philosophy of the firm would tend to confirm that they would, like the Oracle, tend to build positions in the US-based too-big-to-fail banks.

 

I have a media article from 2012 (not in Danish or English) that features a member of the Giverny team (who came from the banking sector) who described his line of thought on the topic. He underlined the long-term orientation and the capacity for strong banks to eventually benefit from more difficult environments.

 

As you likely know, the Giverny group still had (as of Q4 2018) a large position in the Bank of the Ozarks and that bank was not mentioned in the 2012 article. What was discussed then was a position in Wells Fargo and M&T banks and it was explained that both could reasonably be expected to double in the next five years, which is a typical benchmark for them. For M&T, they have historically described respect for Bob Wilmers, the previous leader of the bank and the stock has basically doubled. For WFC, a double would have been within reach absent a temporary lapse in governance but that was hard to predict.

 

Hope this helps.

 

BTW Charlie, thank you. The Giverny letter usually comes out contemporary to Mr. Chou's letter who has been a big fan of large US banks through warrants.

[Charlie]

I find Mr. Rochon doings and writings always interesting, too and always learn something.  :)

 

I thought his arguments about the index investing were a little bit weak and his comparison with 1998. He wants to keep his clients.  ;)

 

I have no idea, but it looks like he bought the additional US banks in 2019. As a Buffett student I would guess he bought BAC, US Bancorp and

Wells Fargo.

 

[investmd]

Thank you for sharing link to 2018 Giverny letter.

Annual outperformance of index by >4%/yr is amazing. Rochon is one of only a very few managers that has done that consistently over 5/10/15 year periods. Whilst there are some historical comparisons for consistent outperformance, who are the comparisons to Rochon's results that are actively managing money today?

 

I looked at Giverny a year ago and they were not accepting new money from Canadian investors outside Quebec & Ontario I think. Had to do with them applying for some regulatory approval.

[Charlie]

2019 annual letter is out:

 

http://www.givernycapital.com/en/doc/236/Giverny_Capital_-_Annual_Letter_2019_web_.pdf

 

 

Cheers!  :)