François Rochon, a famous canadian value investor discusses Giverny Capital’s annual letter to partners for 2013, called a ’20th Anniversary of the Giverny portfolio’ by the fund itself.

François Rochon

For the year ending December 31st 2013, our portfolio’s return was 50.2% versus 38.9% for our benchmark. Both returns include a gain of approximately 8% due to fluctuations in the Canadian currency. So in 2013, we have outperformed our benchmark by 11.3%.

Since our inception on July 1st 1993, our compounded annual growth rate has been 15.5% versus 8.3% for our weighted benchmark, representing an annualized outperformance of 7.2% over this period. When we exclude the effect caused by the appreciating Canadian currency since our inception, which represents an annualized increase of 0.9% since 1993, our portfolio has returned 16.6% annually versus 9.3% for our benchmark. Our long-term and ambitious objective is to maintain an annual return that is 5% higher than our benchmark.

The Artwork on Our Letter

Since 2004, we have illustrated the cover of our letter with a copy of an artwork from our corporate collection. This year we selected a photographic artwork by Gabor Szilasi entitled “Giverny”.

The Giverny Portfolio (in Canadian dollars): Returns Since July 1st 1993

Giverny Capital François Rochon
François Rochon

The Giverny US Portfolio

We have been publishing the returns of the Giverny US Portfolio, which is entirely denominated in US dollars, since 2003. The Giverny US Portfolio corresponds to the American portion of the Giverny Portfolio. In 2013, it realized a return of 40.6% compared to 32.4% for our benchmark, the S&P 500 (INDEXSP:.INX). The Giverny US Portfolio therefore outperformed our benchmark by 8.2%

Since its inception in 1993, the Giverny US Portfolio has returned 1893.7%, or 15.7% on an annualized basis. During this same period, the S&P 500 has returned 512.7%, or 9.2% on an annualized basis. Our added value has therefore been 6.5% annually.

Giverny Capital 2

We outperformed the S&P 500 for a sixth consecutive year. No single stock alone was a factor for this outperformance and, when we looked to our performance attribution for 2013, we noted that seven out of our top ten holdings outperformed the S&P 500.

Giverny Canada Portfolio

We introduced a portfolio that is 100% focused on Canadian equities in 2007. This corresponds closely to the Canadian portion of the Giverny Portfolio. In 2013, the Giverny Canada Portfolio returned 49.4% versus 13.0% for the S&P/TSX, therefore outperforming the index by 36.4%.

Since 2007, the Giverny Canada Portfolio has returned 208.6%, or 17.5% on an annualized basis. During this same period, our benchmark had a gain of 29.3%, or a gain of 3.7% on an annualized basis. Our annual added value was therefore 13.7%.

Giverny Capital 3

Our primary Canadian holdings performed very well in 2013. The all-star in our portfolio was Valeant Pharmaceuticals, which rose 96%. Dollarama (+50%) and MTY Foods (+54%) also excelled.

For six out of the last seven years, the Giverny Canada Portfolio outperformed the TSX. It is also worth repeating that our Canadian portfolio is very concentrated and has little correlation to the TSX. So the relative performance, whether positive or negative, will therefore often be high.

2013: The year of the “triple play”

Legendary investor Peter Lynch always emphasized the importance of being patient: “Frequently, years of patience are rewarded in a single year”. The year 2013 was such a year. We could qualify it with the baseball term: “triple play”. Our 50% return includes three components:

  • An earnings growth rate of 15% for our companies with an additional 1% from dividends
  • An increase of the average Price to Earnings ratio (P/E) of our stocks from 14x to 17x
  • A currency gain of 8% linked to the drop of the Canadian dollar from 0.99$ to 0.94$.

We believe our return for 2013 was justified. It reflects a return to a more normal valuation level for our holdings. We went through a period from 2006 to 2009 where we had to cope with a P/E compression for our stocks and a huge rise in the Canadian currency. As we stipulated in our annual letters during those years, we believed those events were temporary in nature and were not justified by our long term fundamental analysis.

Yet, it would be unrealistic to extrapolate our 2013 return into the future. In the the long run, the number one factor influencing a portfolio’s return is the overall intrinsic value increase of the companies owned. But we believe that our stocks are still undervalued and that the Canadian dollar is still overpriced by 10 to 16%. So the next few years could also bring additional rewards to the intrinsic value of our holdings, but not at the same level as this year.


Since 1993, the cornerstone of our investment philosophy is based on Benjamin Graham’s book “The Intelligent Investor”, first published in 1949. In it, Graham wrote: “In the short term, the stock market reflects the irrationality and unpredictability of human investors. But in the long term, it reflects adequately the intrinsic value of companies”.

Over the last two decades, we have been witnesses to strange market movements and numerous irrational behaviors from investors (the list would be too long to mention here). But in the end, the strangeness cleared up and common sense prevailed. If there is one thing that we have learned since 1993 is that market fads come and go but fundamental principles endure.


Twenty years of the Giverny Portfolio


I started to manage the Giverny portfolio in July 1993. So we celebrate our twenty year anniversary with this letter. Results over those two decades have been more than satisfactory. But most important, I’ve learned some valuable lessons which should be useful in enhancing portfolio values going forward. Last summer, I wrote in my Gazette column an article highlighting the ten most important lessons learned since 1993. You will find the article in Appendix A at the end of this letter.


I would like to emphasize the most important lesson of the last twenty years: It is futile to try to predict the stock market over the short run. All previous lessons are useless if you try to predict the stockmarket over the short run. I have heard people say hundreds of times that they were waiting to buy great companies because they had negative views on the short-term direction of the stock market. Owning great businesses, managed by great people and acquired at reasonable prices is the winning recipe. The rest is just noise.


The stock market and Bridge


Investing in the stock market has similarities with the game of bridge. As you probably know, a member of the Giverny Capital team, Nicolas L’Écuyer, is a great bridge player. He was Canadian champion six times. To succeed in bridge, you have to be able to combine logic and rationality. Another important point: in duplicate bridge, the points are never given in absolute terms but relative to what others have done with the same hand being played. As with the stock market, what counts is the result relative to the average.


Nicolas likes to say that two things are important in bridge: to have a plan to play the hand and always favor

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