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CUNDILL INVESTMENT CONFERENCE
PETER CUNDILL, SETH KLARMAN ET AL.
The annual Cundill Investment Conference - organized and presided over by Cundill Group founder Peter Cundill - is one of the events which we look forward to most each year. One of the reasons why is its all-star cast. Besides Cundill and his associates, attendees include other notables and quotables including half a dozen or so other OID contributors. For example, those attending his latest conference included Baupost Group's Seth Klarman, Deltec's Arthur Byrnes, Kahn Brothers' Irving and Alan Kahn and M.J. Whitman's Marty Whitman - to name just a few.
Another reason we look forward to it so much is that it's always one of the most enlightening events we attend - providing invitees with a sampling of the perspectives and outlooks of Cundill, his associates and selected guests and a smattering of anomalies that they're finding currently.
Even by Cundill Investment Conference standards, however, the most recent event set a new high water mark - opening your editor's eyes to a variety of facts, circumstances and developments worldwide.
Even our format couldn't fully capture the two days of virtually non-stop, in-depth, birds-eye-view briefings. However, we're pleased to bring you selected portions of comments made by Cundill, associates Tim McElvaine, David Briggs and Jim Morton and attendee Seth Klarman of the Baupost Group. We hope you find their comments as illuminating and intriguing as we do.
HAPPY MEMORIES &, WE HOPE, VERY HAPPY RETURNS.
Values remind us of 1975. We hope the returns will, too.
Peter Cundill: In a way, today represents the rebirth of the Cundill organization. Some of you sitting here invested with us in the early days during the decade from 1975 to 1985 during which time the Cundill Value Fund earned a compound annual return of 26% per year without a single losing year. Longer term, over the 23-odd years since I first began to manage Cundill Value Fund, our compound annual return has been 18.3% or thereabouts. Still, the 13 years following our first decade have not been as distinguished as the first 10.
I'd like to suggest that part of the reason why we earned those very high returns in 1975-85 is that there were lots of net-nets kicking around in 1975. A vast number of securities [in the U.S. and Canada] traded below net-net working capital (current assets less all liabilities divided by total shares outstanding).
Based on the values, at least, that we're finding in Japan (and this explains some of the excitement I feel today), there's a chance of us getting back to those kinds of compound rates of return.
As many bargains in Japan today as in the U.S. in 1975....
Cundill: For example, if you adjust for the market value of their share portfolios, today 35% of the 3,000 companies listed in Japan are trading below book value. Roughly 10% are trading below net-net working capital. And many of them trade below net cash (which I'll come back and define) and at big discounts to their intrinsic value if their businesses are worth 6 times EBIT.
Roughly 150 companies are trading below net-net working capital with market caps of $125 million or more - which is reasonably sizeable. And there are roughly as many in Japan today as there were in the U.S. in 1975 - some of them very big businesses indeed....
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