I just finished “There’s Always Something To Do” and enjoyed the book. It is a quick read about one of the greatest investors of all time, Peter Cundill. Peter was a fascinating and wise individual. In addition to successfully navigating the markets, Peter also valued fitness and regularly ran marathons in under 3 hours.
Sadly, Peter passed away at the age of 72 after a struggle with a rare neurological disorder, ActiveX.
Peter Cundill’s Epiphany
Peter Cundill was a Canadian investor who began investing in the late 1950s and 1960s. He had value instincts, but never took a true value-oriented approach during that period and was disappointed by his results.
In 1973 at the age of 35, Cundill read “Super Money” by Adam Smith on a plane ride. “Supermoney” took a close look at the insane money culture of the 1960s (not dissimilar from the insane money culture that rears its ugly head during every bull market) and found one group of people who stuck out as different: the disciples of Benjamin Graham. Featured prominently were a young Warren Buffett and Walter Schloss.
Reading the book was an epiphany for Cundill. He absorbed all of Graham and Dodd’s work. Of particular interest to him was Chapter 41 of Security Analysis, “The Asset Value Factor in Common Stock Valuation”. After a careful evaluation of Graham and Dodd’s work, Cundill decided to launch his value-oriented strategy. He explained the shift in strategy in a letter to his investors in which he said:
“The essential concept is to buy under-valued, unrecognized, neglected, out of fashion, or misunderstood situations where inherent value, a margin of safety, and the possibility of sharply changing conditions created new and favorable investment opportunities.”
The Peter Cundill Stock Screen
In addition to explaining the overall strategy, Cundill also set strict quantitative criteria for his fund. The criteria included:
- The price must be less than book value, preferably less than net working capital.
- The price must be less than one half of the former high and preferably at or near its all-time low.
- The price-earnings multiple must be less than 10 or the inverse of the long-term corporate bond rate, whichever is the less.
- Over the last five years, the company was profitable each year and increased its earnings over the five year period.
- The company must pay dividends
- Low levels of long-term debt.
Peter also set sell rules for his fund, agreeing to sell at last half of any given position after its price had doubled. Peter looked throughout the world for bargain stocks. He didn’t restrict himself to North American markets and scoured the world for bargains. Every year, he visited the worst performing market in the world while searching for investment opportunities.
He launched his fund at an opportune moment for value investing in 1974, after the calamitous bear market of 1973-74 when everything was crushed.
To give some perspective on how many bargains were available on the market in 1974, here is a great exchange between Forbes magazine and Warren Buffet. Forbes: “How do you feel?” Buffett: “Like an oversexed guy in a whorehouse. Now is the time to invest and get rich.”
Peter’s first decade of deep value investing was extraordinarily successful: from 1974 to 1984, his fund delivered a 26% rate of return.
International Cigar Butts
Peter pursued investment opportunities of the “cigar butt” variety. He didn’t adhere to the Buffett style of buying wonderful companies and holding for the long term. Cundill bought deeply undervalued securities and sold when they reached fair value.
He also didn’t restrict himself to stocks and he took up large positions in distressed debt.
Peter was called the “Canadian Buffett,” but I think his approach shares more similarities with the investment style of Seth Klarman.
The book is a short, quick read and covers Peter’s investment career and his unfortunate illness. I wish the book covered Peter’s personal life a bit more in depth, but it was still a good read and filled with bits of Peter’s wisdom. Some of my favorite Peter Cundill quotes are below:
- “The most important attribute for success in value investing is patience, patience, and more patience. The majority of investors do not possess this characteristic.”
- “The value method of investing will tend to give better results in slightly down to indifferent markets and less relatively sparkling results in a raging bull market. What matters, however, is that the method will provide a consistent compound rate of return in the middle teens over very long periods of time.”
- “I’m buying your stock because it’s cheap and for no other reason.” – Peter’s response to the management of J. Walter Thompson, who didn’t understand why Peter was buying their stock!
- “I think that the financial community devotes far too much time and mental resource to its constant efforts to predict the economic future and consequent stock market behavior using a disparate, and almost certainly incomplete, set of statistical variables.”
- Particularly relevant: “Computers actually don’t do much more than making it quicker for investors to react to information. The problem is that having the information in its raw state on a second by second basis is not all the same thing as interpreting and understanding its implications, and this applies in rising markets as well as falling ones. Spur of the moment reactions to partially digested information are, more often than not, disastrous.”
- “If it is cheap enough, we don’t care what it is.”
- “Curiosity is the engine of civilization. If I were to elaborate it would be to say read, read, read and don’t forget to talk to people, really talk, listening with attention and having conversations, on whatever topic, that are an exchange of thoughts. Keep the reading broad, beyond just the professional. This helps to develop one’s sense of perspective on all matters.”
- “I think it is very useful to develop a contrarian cast of mind combined with a keen sense of what I would call “the natural order of things.” If you can cultivate these two attributes you are unlikely to become infected by dogma and you will begin to have a predisposition towards lateral thinking – making important connections intuitively.”
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