There’s Always Something to Do: The Peter Cundill Investment Approach
by Christopher Risso-Gill, published 2011
A short read, There’s Always Something to Do was nonetheless an entertaining and informative one. Peter Cundill’s life serves as an example of what a value investor can be and should be– consistent, disciplined, well-traveled, philosophical and patient. One of Cundill’s comments in a journal entry stood out from the rest, and not just because it was over-emphatically written in all caps:
THE MOST IMPORTANT ATTRIBUTE FOR SUCCESS IN VALUE INVESTING IS PATIENCE, PATIENCE AND MORE PATIENCE. THE MAJORITY OF INVESTORS DO NOT POSSESS THIS ATTRIBUTE.
As an investor, you always have to ask yourself what your edge is in any particular situation. For a value investor who tries to “buy dollars for 40 cents” (the slogan of the Cundill Value Fund) and who insists on a margin of safety, often that edge is patience. Buying at a steep discount to perceived value with no concern for relative and contemporary outperformance of arbitrary benchmarks means the patient value investor is often in a position to be paid to wait. This puts him ahead of the game because, as Peter Cundill observes, most investors can’t or aren’t this patient.
The other prime lesson to be learned from Peter Cundill’s life is that value investing is hard work. As the title of the book, an Irving Kahn quote, implies,
There’s always something to do. You just need to look harder, be creative and a little flexible.
Cundill traveled thousands of miles every year, establishing networks of trusted value investors and other local eyes-and-ears he could get ideas from and visiting the world’s stock exchanges in search of the ones with the worst performance record over the previous 11 months. “Given the dearth of bargains today, it pays to search for them everywhere,” Cundill said.
Unending effort and determination came with the territory. Cundill reveled in the difficult, a complicated or hard to decipher balance sheet, particularly one belonging to a foreign company, was not a reason to get upset about the hardships of the business but was rather an opportunity in disguise because such a balance sheet represented a “barrier to entry” for other investors. Cundill’s creativity often led him to look for a “colony of success”, believing that if he found one amazing business story in a particular industry or country that was otherwise depressed, there might be others nearby. In time, Peter came to surround himself with people who believed that “having a hangover was a waste of a day.” Time spent nursing oneself of the effects of the night before was time one couldn’t spend pursuing investment excellence.
Cundill embraced the constant struggle, philosophically choosing to focus on enjoying the journey rather than focusing on the destination. In a piece of personal poetry Cundill observed “no fortunes are made in prosperity, ours is a marathon without end: enjoy the passing moments.”
Cundill was not just a great investor but a great thinker. He spent a lot of time in moments of reflection, contemplating the perfection of his process in various aspects of his investing career and personal life. Below I have captured and organized a few of my favorites to come back to for inspiration in the future.
The Investment Process and Understanding Business
- I think that intelligent forecasting should not seek to predict what will in fact 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 the desired direction.
- In a macro sense it may be more useful to spend time analysing industries instead of national or international economies.
- It must be essential to develop and specify a precise investment policy that investors can understand and rely on the portfolio manger to implement.
- In the end, it is always the economic facts and the values which are the determining factors.
- It is also dangerous to rely on a single strategy in a doctrinaire fashion. Strategies and disciplines ought always to be tempered by intelligence and intuition.
- The boards of charitable foundations are convenient meeting places for influential people. Their ostensible purpose is intimately bound up with the social and commercial ones.
- I will never use inside information or seek it out. “All you get from inside information is a whiff of bad breath.”
- If there’s no natural skeptic on an investment maybe it would be wise to appoint one of the team to play Devil’s Advocate anyway.
- Being out on a limb, alone and appearing to be wrong is just part of the territory of value investment.
- Very few people really do their homework properly, so now I always check for myself.
- The great records are the product of individuals, perhaps working together, but always within a clearly defined framework. In reality outstanding records are made by dictators, hopefully benevolent, but nonetheless dictators.
- Accounting is a bear market phenomenon. (on people overlooking accounting oversights in bull markets)
- Every company ought to have an escape valve: inventory that can readily be reduced, a vision that can be sold, a marketable investment portfolio, an ability to shed staff quickly.
- We always look for the margin of safety in the balance sheet and then worry about the business.
- We go short on markets, not individual securities.
- When there aren’t a lot of net-net situations around I get worried about the market and start to sell into cash.
- When things get so bad that you’re really scared, that’s the time to buy.
- You have to be willing to wear bellbottoms when everyone else is wearing stovepipes.
- The problem with big businesses that have moats around them is they tend to over-expand.
- Search out the new lows.
- IPOs for the most part are dreams engineered by the hope that pro forma estimates will be met. We deal to a certain degree with the nightmares that everyone knows about.
- I am a bear market buyer; I like to sell into strength.
- When a stock doubles, sell half — then what you have is a free position.
- I pay much more attention to the balance sheet than the profit and loss statement and am always looking for hidden assets on the books.
- Good poets borrow and great poets steal.
- Retirement is a death warrant.
- An ability to see the funny side of oneself as it is seen by others is a strong antidote to hubris.
- Routines and discipline go hand in hand. They are the road map that guides the pursuit of excellence for its own sake.
- Patience, patience and more patience.
- Curiosity is the engine of civilization.
Other Notes
- Peter got together conferences of people with different perspectives and interests and invited guest speakers who were experts on things other than investing to broaden everyone’s mind through inter-disciplinary thinking
- Peter moved his fund’s operations to London when it was the finance capital of the world; where is today’s London?
- Peter would automatically sell investments as they got far beyond their intrinsic value (as measured by P/B), thereby creating a “safety valve” that caused him to go to cash heading into bubbles/crashes
- In emerging markets, Peter looked for an asset-based margin of safety through large fixed assets, which were a lot more difficult to steal or carry off than a pile of cash.
- Peter sometimes used the “Magic 6s”– stocks trading for 60% of book value, a 6x P/E multiple and a 6% dividend yield.
A House Rises 