"There's Always Something to Do"
He may be the best investor you’ve never heard of. Beginning in 1975, he delivered to his investors a compound annual return of 15.2% for the next 33 years! If you’d put $10,000 with him and left it there, you’d have had $1 million by 2007.
Peter Cundill was his name. His investment approach is the subject of a new book by Christopher Risso-Gill, who was a director at Cundill Value Fund for 10 years. Titled There’s Always Something to Do, it is a summary of the Cundill approach. The book takes its name from a line from Irving Kahn, a doyen of investing (born in 1905) and still chairman of Kahn Bros., which manages $450 million. Kahn said, “There is always something to do. You just need to look harder, be creative and a little flexible.”
In my investment letter, Capital & Crisis, I have always made the study of great investors part of the regular diet, every bit as valuable (and perhaps more so) than winning stock ideas. So let’s continue that tradition and take a look at what kind of thinking produced 33 years of 15% returns.
Cundill was, like so many great investors, a devoted follower of the ideas laid out by Ben Graham back in the 1930s. Graham has a long list of followers and admirers, including Warren Buffett, the aforementioned Kahn, Cundill and many others besides (including your editor).
While there is much to Graham’s thinking, a cornerstone of the approach is the idea of a margin of safety. You buy only what is cheap and well supported by a realistic estimate of intrinsic value. It is a persnickety, unfashionable, patient approach that demands a great deal of discipline. It is one that takes more interest in what is happening in the folds of balance sheets than what is issuing from the mouths of Federal Reserve Chairmen or CNBC talking heads. “I’m agnostic about where the market will go,” Cundill often wrote. “I don’t have a view.” His goal was to find undervalued securities. Period.
The book has lots of “war stories” to show how Cundill applied these ideas in his career. But the book also has plenty of pithy how-to investing wisdom drawn from Cundill’s speeches, shareholder letters and personal diaries.
I enjoyed Cundill’s thinking on when to sell, as he used an idea I’ve endorsed numerous times: “When a stock doubles, sell half – then what you have is a free position.” Selling is the most difficult thing in all of investing. No one is good at it. But this seems a reasonable approach that protects hard-earned profits and helps buttress mistakes. In the pages of Capital & Crisis, I have often recommended selling half positions often after a stock doubled, but now we can give this tactic a name in honor of this great investor. We’ll call it the “Cundill Sell.”
There are also many good insights into the investing process. Cundill notes that “99% of investment effort is routine, unspectacular inquiry, checking and double-checking – laboriously building up a web of information with single threads until it constitutes a complete tableau.” I agree completely. And I think back on all the time spent doing routine stuff like listening in on quarterly conference calls, perusing 10-Ks, 10-Qs, proxy statements and the like.
Unglamorous, perhaps, but necessary work. Cundill, too, did his own work. “All I really need is a company’s published reports and records; that plus a sharp pencil, a pocket calculator and patience.”
There are other aspects of Cundill’s ideas that are good to highlight. One: He had an egalitarian perspective when it came to investing. “If it’s cheap enough,” he wrote, “we don’t care what it is.” Cundill was also international in his approach. “I’ve traveled pretty extensively,” he noted. “So I don’t really see much more risk investing in foreign countries than I do investing in North America.”
Where did Cundill look for ideas? “You find bargains among the unpopular things, the things that everybody hates. The key is that you must have patience.” He liked to look at stocks making new lows. He liked to read the news to see what was troubled. He also liked checking in to see what other great investors were doing. “You know good poets borrow and great poets steal. So see what you can find out.”
He was also not afraid to hold cash. Cundill often held large cash positions, sometimes as much as 40%. Many investors would do well to take a page from Cundill’s playbook here.
His idea that investing is a game of generals, not committees, is also one that resonates with me. “To my knowledge, there are no good records that have been built by institutions run by committees… In reality, outstanding records are made by dictators.” Most of the best investors are solitary eagles, though there are, of course, some famous partnerships that work well, too. (Think Warren Buffett and Charlie Munger.)
Cundill liked to concentrate his ideas, rather than spread his money out thin. “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.”
Cundill also had the habit of traveling to the world’s worst stock market. He started this practice while he was living in Vancouver and it was rainy in November. He would skip town during the grim weather and travel to the world’s worst stock market to that point in the year. Sounds like a good idea that I may have to try.
There was a stock screening idea in the book that I thought was interesting. It’s called “The Magic Sixes.” Basically, you screen for stocks trading for 60% of book value, at 6 times earnings and paying a 6% dividend yield. I ran this screen in today’s market for stocks above $500 million in market cap and found one stock that met the criteria: Navios Maritime. (It happens to be in the portfolio of my Mayer’s Special Situations newsletter.)
To Cundill, investing is not a matter of smarts alone. “Just as many smart people fail in the investment business as stupid ones. Intellectually active people are particularly attracted to elegant concepts, which can have the effect of distracting them from the simpler, more fundamental truths.”
Another idea: “Sooner or later, the market will do what it has to do to prove the majority wrong.” This is a good thought. It’s important to think about what unexamined assumptions you hold. What do you take as a given? Perhaps you shouldn’t.
I smiled when I read the following remark from Cundill: “I’m lucky to have the kind of life where the differentiation between work and play is absolutely zilch. I have no idea whether I’m working or whether I’m playing.”
Cundill died earlier this year at the age of 72. This book ensures that future investors will not lose his hard-earned wisdom. A nice addition to the investment library.