The Peter Cundill Investment Approach

Some notes from the book:  There’s always something to do: The Peter Cundill Investment Approach by Christopher Risso Gill.

1. Buy a dollar for 40 cents.

2. A share is not cheap because it has a low PE, high dividend yield or growth rate, all of which may be desirable, but because analysis of the balance sheet reveals that its stock market price is below its liquidation value: its intrinsic worth as a business. This is what is the “margin of safety”.

3. Investors tend to follow trends and fashion rather than taking the trouble to find value. This leads to short-term mispricing of securities.

4. Forecasting should put problems and opportunities into focus. It is not to predict what will happen. It is not a substitute for strategy or the primary basis for portfolio investment decisions.

5. You will get an opportunity that demands your knowledge, guts, self-esteem and judgment. If you seize it and are successful, you join the first rank, if not, you remain a mortal with feet of clay.

6. The risk that you take should be measured, controlled and understood.

7. You need to be aware of the importance of good housekeeping, attention to detail and the dangers of self-delusion.

8. Management’s ability to predict earnings is universally poor. It is the strategic modelling behind a portfolio that matters most. One needs to develop the sense of spaced maturities in a common stock portfolio in a way that is comparable to a bond portfolio. Spend time anlaysing industries rather than national or international economies. Develop and specify a precise investment policy that can be understood.

9. Share price must be less than book value; preferably less than net working capital less long term debt. Price less than one half of former high and preferably near or at it’s all time low. P/E less than 10 or the inverse of the long term corporate bond rate, whichever is lower. profitable company, increased earnings over the last five years and no deficits over the period. Comapny should pay dividends and the dividends  should be increasing and have been paid for some time. Debt judiciously employed and room to increase the debt should be there.

10. Never seek inside information. Stock manipulations have only a limited and temporary effect. In the end it is the economic facts and value that are important.

11. If an investment is right do not be too clever about the purchase price. If you have to take a loss, then do it decisively, don’t dither.

12. Isolate what the real assets are, what the franchise is and the character and competence of the management and what the outcome would be if the whole business had to be turned into cash.

13. very few people do their homework properly. If you have confidence in your work, then buy.

14. The timing difficulty in selling is not knowing when intrinsic value would be reached, but in judging how much it is likely to be surpassed. The ultimate skill in this business is knowing when to make the judgment call to let the profits run.

15. The value method of investing will tend at least to give compound rates of return in the high teens over longer periods of time. There will be losing years but the art of making money is not to have substantial losses.

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

17. Don’t believe in institutions or mere formulae. Do not rely on a single strategy in a doctrinaire fashion. Strategies and disciplines ought to be always tempered by intelligence and intuition.

18. If you are going to live in the public eye, you will have to accept what’s said about you without taking it too seriously, whether good or bad.

19. When you buy value, you have to average down. None of the great investments come easily. There is almost a major blip for whatever reason and we have learnt to expect it and not to panic.

20. The value method of investing will give better results in down or indifferent markets.

21. Sooner or later the market will do what it has to do to prove the majority wrong.

22. My best advice to individual investors: Be patient and don’t be greedy.

23. Saints have a past and sinners have a future. Focus on liquidation analysis alone. Just be patient and make sure you are confident about the margin of safety in each investment.

24. Do not compromise by subtly changing a question so that it shapes the answer one is looking for..

25. The recurring problem for value investors is to buy and sell too early.

26. The business that you buy must get better, not by a lot, just honestly better.

27. The characteristics of a great investor:

  • Curiosity
  • Patience
  • Attention to detail
  • Concentration
  • Calculated risk
  • Independence of mind
  • Humility
  • Routines
  • Scepticism
  • Personal responsibility

28. Look at whether a company’s accounting is conservative or aggressive.

29. Always change a winning game: there is no investment rule that is immutable except the margin of safety.

30. Go short on markets, not on individual securities.

31. In the short run, people are irrational on the optimistic as well as pessimistic side.

32. Magic sixes: P/E less than 6, P/B less than 0.6 and DY greater than 6%

33. Search out new lows not new highs.

34. There is always something to do. You just need to look harder, be creative and a little flexible.

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