I am pleased to publish a guest post by Christopher Risso-Gill, author of There’s Always Something to Do: The Peter Cundill Investment Approach. I am in the middle of reading the book and enjoying it immensely. I will be posting a book review within the next few days.
Peter Cundill’s Last Major Investment Call
Think back to the mood amongst investors at the beginning of 2009 after the decimation of 2008. Practically no-one felt confident in the incipient recovery – certainly not enough to commit precious cash to new investment. Even though cash was returning next to nothing it was safe. If you had miraculously avoided a hammering in the market, you might still have been a victim of the Madoff fraud. It was fashionable to preach extreme caution, which suited the majority of investors who were content to sit tight licking their wounds and hoping that some sort of bounce would materialize and bail them out of such investments as they had left.
At this juncture I had just begun research for my book, ‘There’s Always Something To Do – The Peter Cundill Investment Approach ‘and it involved a lot of discussion with Peter himself. He was very open with me about his personal investments and his current thinking. 2008 had also been pretty painful for him but it had ended with his having accumulated liquidity of over 50%. Fortuitous you might think with hindsight, but actually not for very long. Fortunately Peter was nothing if not a contrarian and an investment vulture. In a macro sense he had come to the conclusion that governments had made broadly the right moves and that financial melt-down had been averted, if only narrowly. If that were the case, he argued, it was now time to commit, but to what? The 50% of his fortune that remained invested was almost 100% in equities through a variety of value funds. He felt that this was sufficient direct exposure to stock markets for the time being.
However, the conventional alternative of high grade bonds was unappealing – very low yields whether at short or long maturities, so not much to go for even if interest rates remained at rock bottom as he expected. As he watched economic developments in the early months of 2009, he noticed that there was a consistent lift in commodity prices suggesting that inventory liquidation was at an end and real demand was resurfacing from somewhere. Still, there was little sign of anything but a sluggish pick up in the developed economies. The priming of the money pumps had shored up the dyke but it would still be some time before consumer confidence and corporate investment revived in the US and Europe. By contrast Peter was feeling much more confident that a robust economic rebound was starting to happen in the emerging economies. Even so the sovereign debt of these economies did not for the most part offer a sufficiently juicy yield premium over triple A credits to make them compelling.
Peter then began to look at emerging market corporate debt and quickly perceived that within this asset class there was debt outstanding from a significant number of companies with solid balance sheets for which a resumption of economic growth would transform the earnings outlook. As he worked his way through the lists of the outstanding corporate debt he realized that, even if he set strict constraints on rating and maturity (below 4 years) one could construct a geographically and sectorally diversified portfolio with an overall yield above 20%. This was what Peter was after and he promptly rang Marc Coombs at Ashmore, who are specialists in the area. By the end of April he had invested over three quarters of the cash. The rest is history. The annual return to date has been just over 40%.
But what do I think Peter would be doing now? I spent a few days with him in Egypt where he was visiting at the end of December and had plenty of opportunity to chat with him. The answer is that he still believed that there was some good mileage left in the emerging market corporates and he was sleeping easy over his value equity investments. However, I had the distinct impression that the visit to Eqypt was not merely a tourist whim and I am sure that he would have been keeping a very watchful eye out for opportunity in the Islamic world. As he had remarked years ago civil unrest more often than not spells opportunity for the long term investor.
To purchase the book on Amazon.com click on the following link-There’s Always Something to Do: The Peter Cundill Investment Approach
Disclosure: I receive free books from book publishers and authors asking me to review them. In addition I sometimes request specific books that look interesting. I try to review the books that I think will be the most interesting. I have a material connection because I received a free copy of this book from the publisher. In addition I receive a small commission if you click on the above link and buy the book (or anything else) from Amazon.com. However, it does not cost you a penny more.