CUNDILL VALUE & CUNDILL SECURITY FUND'S
PETER CUNDILL & TIM MCELVAINE
(continued from preceding page)

Also, today's bubble is primarily a U.S. phenomenon.
   Cundill: But it is different from 1987. [At that time, there was] global overvaluation. Today, by contrast, valuations ex the U.S. are modest in many cases -- like Paribas in France. And there are things to do in almost all jurisdictions -- including Canada.
   And continuing the excerpt from my memo, "Therefore, buy non-U.S. securities and maintain the short positions in the United States."

But cheaper prices won't protect non-U.S. markets....
   Cundill: "But U.S. capital in the form of mutual funds and pension funds dominate global equity markets. So in the event of a severe market sell-off in the U.S., all markets would crack."
   I don't think that there's going to be a severe crash or anything like that. However, particularly in the U.S., I think there's an increasing chance that you will have a turndown sometime next year -- perhaps even sooner.

The particulars are different, but the prescription's not....
   Cundill: On the other hand, I will finish off on the line that I have over the years by saying: "Probably in all forms of investing, but particularly in the kind of value investing we do, [you need] patience, patience and more patience."

We've never seen an IPO priced on a Graham formula.
   Shareholder: There's an incredible number of IPOs going on worldwide. Does your Ben Graham strategy preclude those because they're all overvalued? Or are there good IPOs in the Cundill-Graham concept?
   Cundill: Not usually. Remember that IPOs are usually being hyped. And I don't think ... we've ever seen an IPO priced on a Graham formula....

IPOs tend to be dreams. We deal in nightmares....
   Cundill: IPOs for the most part are dreams. We deal to a certain extent in nightmares. But just on that point, a fella named Douglas Eu, a friend of mine from Hong Kong who now manages money for Jardine Fleming and invests in the People's Republic, says that investing there is a nightmare -- which, of course, gets my interest. But the guy who runs Jardine Fleming's office in Sri Lanka (because Sri Lanka is actually even worse than the People's Republic) said, "No, no, no. They're day-mares."

Internet valuations seem out of whack....
   Shareholder: There have been some new issues in the U.S. of Internet search engines like Yahoo, Excite and Lycos. These stocks have a lot of promise, but they don't have a lot of reality right now. How do you evaluate those?
   Cundill: You go short the Internet index. And that's what we have been doing to a certain extent -- because those valuations just seem out of whack.
   They remind me of 1983 when the same kind of thing happened. And that particular branch of the share market inevitably falls out of bed. I don't know when -- which is going back to the comment I made in my formal remarks. But I just have a lot of trouble with it.

We don't think we're the ones with the guts....
   McElvaine: In January, someone said to me, "You guys have a lot of guts to be buying Paribas at 250 francs."
   I explained the rationale to you before. So I said, "No. We don't have guts to be buying Paribas. The people buying the internet stocks are the ones with the guts."

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