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CUNDILL INVESTMENT CONFERENCE
PETER CUNDILL, SETH KLARMAN ET AL.
(continued from preceding page)
Given today's rates, there's an easy way to raise ROE....
Cundill: Or let's assume the company distributes its cash one way or another and borrows money at 2% interest. Wouldn't it be nice to buy a company for less than net cash, get all of your cash back and own a business for nothing?
SG Warburg has written two pieces about how by giving back cash and maybe borrowing a little money, Japanese companies in general can increase their returns immediately - without any improvements whatsoever in their revenues, their margins or anything else.
AND TODAY, HAPPILY, OUR BARREL'S JAM PACKED.
I feel like Buffett in '74: but talk about shooting birds is safer.
Cundill: So again, there are a vast number of companies like this in Japan today.... And as a result, I feel the way Buffett felt in 1974. But it was a different time culturally and I'm likely to get myself in trouble saying the same thing he did today. Nevertheless, at that time, Buffett said, "I feel like an oversexed man in a harem."
Well, now we've seen the Japanese harem. But to avoid digging myself into a hole, let me try a slightly different approach: My father was a very good birdshot. And he always said, "Never shoot into the brown." In other words, never shoot into a flock of birds without first choosing a single bird - at least in your mind.
Shooting fish in a barrel is rewarding - when there are fish.
Cundill: But in "The Renaissance of Value" - one of the pieces done in 1974 or 1975 - Ben Graham said that by just buying securities when they were selling below their net-net working capital and not doing any other analytical work whatsoever - and selling them when they rose 50% or, in any case, in three years - that you would have earned a compound rate of return from 1927 to 1957 of 20% per year. That was just by shooting into the brown. You didn't even have to know what the companies did.
We began buying plain cheap. Now we're discriminating....
Cundill: To a certain extent, what we had been doing was the old Graham stuff - just buying things which were statistically cheap. Now we're trying to determine which are the best companies among those trading below net-net - to identify which ones have the best long-term potential. I'm not sure we'll get that one right. Graham himself felt that was hard to do. But if we can find companies below net-net that have operating characteristics we like, foreign shareholders and no big controlling shareholder, then I think we'll take bigger positions as we go along....
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THE PRECEDING WAS EXCERPTED CUNDILL FUNDS' |
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For additional
information Peter Cundill &
Associates, Ltd. (800) 663-0156 (Canada Only) |
The preceding feature appeared in the March 13, 1998 edition of Outstanding Investor Digest.
Disclaimer
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