In addition to taking a historical perspective at why value investing works, the Ben Graham Centre’s 2015 Value Investing Conference also showed how value investing professionals and corporate executives put the principles to work every day.
The conference, held in Toronto on April 15, included panel sessions where experts shared their personal advice and investing strategies. Here are some of their messages.
Related to this story
Value Investor panel session:
Richard Oldfield: Patience is a virtue
The Chairman of Oldfield Partners LLP in London, U.K., stressed that value investing can be a painful process so it takes a particular kind of emotional character to do it. Value investors need to be patient, resilient, and passionate about investing as the process involves buying stocks at bargain prices and then waiting for them to reach their intrinsic value.
“There will be many periods in an investment in which the thing you are patiently waiting for takes an awful long time to come through and you may suffer a great deal while it is not happening,” he said. “It’s very difficult emotionally to do because very often you’re buying things that 75 per cent of people think you are daft to buy and quite often those people will be right.”
He compared scenarios between the Russian market and Coca-Cola to show how patience can pay off. In 1997, he told a group of investors it was safer to invest in Russia than Coca-Cola. He was haunted by those words six months later when the Russian market fell by 90 per cent (U.S. dollars) while Coca-Cola remained static. By 2007, the Russian market was up by 400 per cent and Coca-Cola was just breaking even.
“It seemed a silly thing to say at the time (in 1997), but what happened later has tremendous messages about patience and volatility. Volatility only matters if you sell at the wrong time. It can also provide great opportunity,” he said.
William Browne: Don’t fall victim to behavioural biases
The Managing Director of Tweedy, Browne Company LLC in Stamford, CT, said the key to success in value investing is to manage your temperament. He pointed out there are many behavioural biases that may prevent investors from making objective decisions, including:
- Overconfidence – We are overly optimistic about the decisions we make;
- Anchoring – We give disproportionate weighting to data that is comforting to us;
- Herding – We do what others are doing;
- Selective retention – We only hear what we want to hear; and
- Institutional imperative – The feeling that you have to always take action and can’t sit still and do nothing.
“We as individuals are poorly wired to keep an even temperament in many things and certainly in the investment business,” he said. “If you are going to have any reasonable success in this business, you can’t rely on your wits and intuition. All of the forces and factors out there are working to defeat you. They’re working to take some of your behavioural weaknesses in the wrong direction.”
To counteract such behaviour biases, Browne recommended investors have a simple appraisal process where they think like an owner and do quantitative analysis of businesses to determine if they are sound and have the ability to bring returns over time.
Value Investor panellists:
William Browne, Managing Director, Tweedy, Browne Company LLC; Francis Chou, President, Chou Associates Management Inc.; Richard Oldfield, Chairman, Oldfield Partners LLP; Ole Nielsen, Founder & Chief Investment Officer, Nielsen Capital Management; Guy Spier, Founder & Managing Partner, Aquamarine Capital.
Value investor panellists Guy Spier, William Browne, Richard Oldfield, and Ole Nielsen
Corporate Executive panel session:
William Weldon: Manage for the long term
Weldon, former Chairman of the Board and CEO at Johnson & Johnson, discussed the company’s business model and why it creates shareholder value.
The model focuses on having a defined company culture, vision, business imperatives, and sense of accountability, and alignment across the organization on those aspects. He also stressed the importance of the company’s credo, or mission statement, which was established when the company first went public about 70 years ago. The credo indicates that Johnson & Johnson puts the people it serves as well as its employees and the community, first, before shareholders and profits. The credo hasn’t changed, except for minor tweaks to the wording. Today about 40 per cent of Johnson & Johnson’s net income is given back to the community and 80 per cent of its employees are involved in philanthropy on their own time.
“If you do three thing well: you take care of your customers, your employees, and the communities in which you live and work, you get a fair return. You don’t always get the best return, but you get a long-term sustainable return that is fair and well-appreciated,” he said. “The other side of this is companies that deliver really good short-term returns. You can deliver really good short-term returns, but you’re not going to be there for the sustainable period that you want to be there.”
Weldon also discussed the importance of managing for the long term by having a balance of sustainable, compliant products. The company used to be known mainly for its consumer business products, such as baby powder and bandages, but is now invested 40 per cent in pharmaceuticals, 40 per cent in medical devices, and 20 per cent in consumer business.
Corporate Executive panellists:
Fokion Karavias, Chief Executive Officer, Eurobank Ergasias; Mark Leonard, President and Chairman of the Board, Constellation Software Inc.; Evangelos Mytilineos, Chairman and Managing Director, MYTILINEOS Holdings S.A.; William C. Weldon, Former Chairman of the Board and CEO, Johnson & Johnson.
The conference also included presentations from two keynote speakers: Russell Napier, author and founder of the Electronic Research Interchange, a research and investing information company in London, U.K.; and Frank Martin, Founder and Chief Investment Officer of Martin Capital Management LLC, a U.S.-based investment advisor company. Read about their presentations.
Corporate Executive panellists William Weldon, Fokion Karavias, Evangelos Mytilineos, and Mark Leonard
