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CUNDILL INVESTMENT CONFERENCE
PETER CUNDILL, SETH KLARMAN ET AL.
(continued from preceding page)
Very few securities today are even fairly valued....
Cundill: What about fair value? Well, fair value has to do with growth and other things. But we fooled around with the idea of fair value being about 14 times earnings, 1.4 times book and a dividend yield of 4% or more. And, believe it or not, there are even very few of those....
But if you will grant me that an overvalued security - good companies or not would be over 60 times earnings, 6 times book and a dividend yield of 6/10 of 1% or less, there are hundreds of those in the United States.
With the exception of the 1968/69 and 1987 markets - which were even more extreme - today's stock market is probably as overvalued a share market as we've seen in our professional lives.... So that's how U.S. stocks look on a valuation basis.
Valuation defines risk, but has nothing to do with timing....
Cundill: But does value matter? Is it relevant? Well, I think it is - at least in the long run. This is a line that Bob Farrell used: "Valuation defines risk. It has nothing - and I do mean nothing - to do with timing...."
However, with respect to timing, I'm of two minds. In some ways, because we already have a big position there, I'd like the Japanese market to go up tomorrow. On the other hand, we're in the process of raising a lot of money....
I think the change in Japan will happen somewhere between two days and two years from now.... But maybe I'm being overoptimistic. Maybe the time frames will be longer.... Again, these things can last longer than you'd ever imagine. And if the American market were to go bad, I think it would affect every capital market - even Japan which in some ways has historically been uncorrelated....
Investing primarily outside the U.S. is relatively new for us.
Cundill: But in the Cundill Value Fund, we made our bones from 1975 until 1985 with 75% or so of our assets in the U.S. Even as recently as 1989, we had 75% of our assets in the U.S. Well, that's now down to about 3%....
We have lots of cash. We're pushing the button on Japan - and maybe we'll push it harder. And we have for defensive purposes S&P futures - if U.S. capital markets go bad for whatever set of reasons.... So our exposure to the U.S. is less than 3% net today....
We're just going where the values are....
Cundill: We may also talk a bit about net-nets in Singapore. They tend to be better businesses and have more transparency than those in Japan.... Although Japanese companies give very good financial data in terms of cash and securities and where real estate is located, they don't give you a lot of divisional breakdowns or other material which a good analyst would like to have in order to be able to analyze a business better.
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