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SOGEN FUNDS'
JEAN-MARIE EVEILLARD ET AL.
(continued from preceding
page)
Eveillard: No hindsight should have been necessary. As value investors, we should be driven by valuations. And in 1986 and 1987, we cut down on American equities on the basis of their valuations. Then, in 1988, we cut down on Japanese stocks on the basis of their valuations. And our timing in both instances was not very good. But, eventually, in both of those cases, we were proven right.
But valuations of American stocks in 1990 weren't excessive. My big mistake was that I got scared by what I saw happening in the American banking system. I wrongly thought that its difficulties would either spell real trouble for the economy or in order to avoid that, the Fed would try to bail everybody out which would lead to more inflation.
However, Greenspan managed to keep banking difficulties from degenerating into any Great Depression and managed to do so without resuscitating inflation.
So over the past seven years, we've been too defensive. And that hasn't helped our returns.
OID: Despite your laments, Morningstar says that your returns put you in the top 26% of all managers for the past five years. So the returns you've earned on the invested portion must have been pretty nifty - something around 20% compounded I gather.
Eveillard: We've done well. But as my wife asks, "Why did you have the cash?" And, of course, she's right. If I'd been smart, I'd have had no cash.
CONSIDER FRENCH HOLDING COMPANIES.
OID: And I know that you've told us about some truly classic ideas in the past - most of which, I gather, have done quite well, too.
Eveillard: I was able to do that in the past because we got some help from financial asset prices generally. Today, it's another story. The advance in equity prices since 1990 in the U.S. and since 1992 in Europe has been so tremendous that it's much harder today.
We keep at it. However, as I mentioned earlier, in SoGen International Fund, we're about 60% in equities. We are finding some things. But I'm not sure how good they'll prove to be.
OID: Could you give us a few examples?
Eveillard: Immobiliere Marseillaise by definition is a $1 bill selling for 50¢ or less - there's no doubt about it - because it sells at a discount to net asset value of 64%. And it's not like this management has been a laggard at compounding net asset value. Quite the contrary.
Even though the prices of French stocks generally have risen over the last year or so, most of the French holding companies continue to sell at major discounts. So if you want to buy $1 bills for 50¢...
OID: Always.
Eveillard: Then the French holding companies are an excellent place to look. And in the past 12 to 18 months,
Page 4 of 20
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