“The most important attribute for success in value investing is patience, patience, and more patience. The majority of investors do not possess this characteristic.” — Peter Cundill
Peter Cundill: Background & bio
The Canadian born investor, Peter Cundill, plunged into the world of financial markets while he was still at McGill University, which he graduated from in 1960 with a degree in Commerce.Cundill earned the designation of Chartered Accountant and then Chartered Financial Analyst before moving from Montreal to Vancouver to become the President of AGF Investment management; he worked at the company for four years from 1972 till 1975.
During that time he was also a partner in the company called the Vanan Financial Management Ltd. which in 1975 took over the All-Canadian Venture Fund. In 1977, Cundill established his very own Vancouver-based firm named Peter Cundill & Associates Ltd. and renamed the All-Canadian Venture Fund to Cundill Value, when the fund became the flagship of his newly established firm. Peter Cundill & Associates, now named Mackenzie Cundill Value Series A after a strategic partnership of PCA with Mackenzie Financial Corporation, best epitomizes the bottom-up value investment outlook of Peter Cundill.
The Cundill Value Fund was launched in December 1974 and immediately lost money during 1975. However, after this dismal start, the star fund manager recovered quickly and reported few losing years after 1975.
From 1974 through to 1988 the fund returned 22% per annum. Over its 35 year history to 2010, the Cundill Value Fund achieved a CAGR of 13.7%, which is especially impressive when you consider the fact that the market was still recovering from the financial crisis when this figure was calculated.
Peter Cundill was awarded the Analysts’ Choice Career Achievement Award for the best mutual fund manager of all time in 2001. At the award ceremony which recognized his 35 plus years of contribution and expertise as a fund manager and value investor, he was referred to as the ‘Indiana Jones of the Canadian Money Managers’, a title which was acknowledged by Cundill with great pleasure. Cundill’s expertise even gained recognition from Warren Buffet, who claimed Peter Cundill had the traits of a good successor and possessed the kind of credentials required that would be suitable for Berkshire Hathaway’s next chief investment officer.
Observing the multi-dimensional personality of Peter Cundill, it is evident that he enjoyed life to the fullest. By no means did he limit himself from challenges or new experiences. He had an innate child-like curiosity and explored various aspects of his interests. His love for travelling turned him to one of the best global investors, and his rapacious reading habit lead him to the writings of the great Benjamin Graham. Cundill also enjoyed and challenged himself with various sports such as handball, rugby, skiing and hiking; being a dedicated marathon runner, at the age of over 40 he was capable of completing 22 marathon races including ‘Sub 3 hour’ (running the marathon under three hours).
His contribution was not limited to the financial world, but to the world of academia and literacy. Being a philanthropist, in 2008, he founded the Cundill Prize at McGill University to recognize the non-fiction publication for authors who have a great impact on literary, social and academic fields.
Despite of his recent death on 23rd January 2011 due to a rare neurological disease, the legacy and investment philosophy of Peter Cundill is kept alive by the firm he founded in 1975 and the numerous contributions made by him in the world of finance and academia.
Peter Cundill: Investment philosophy
Like many value investors, Cundill’s style of investing can trace its roots back to Benjamin Graham; Cundill liked to buy $1 for $0.40. What’s more, Cundill liked to buy stocks that were generally ignored and rejected by the general public, giving his approach a contrarian style.
Unlike Graham, who brought as many companies as he could, as long as each company met his strict criteria, Peter Cundill only considered companies with strong balance sheets and an upcoming catalyst that could unlock value for investors. It’s often the case that deep-value investments languish for years before a catalyst unlocks value. By investing only when a catalyst was upcoming, Cundill increased his risk of success. Peter usually scrutinized each company’s balance sheet to discover off balance sheet financing and assess the company’s true debt load.
Cundill didn’t just limit himself to U.S. investments, he often looked overseas. At one point his fund was 50% invested in Japan. Other investments included African oil companies, German blue chips, Swedish company Volvo AB (ADR) (OTCMKTS:VOLVY) (STO:VOLV-A), Panama bank debt and the distressed debt of Argentina. During the early 1990’s Peter Cundill’s there were over 200 different deep-value securities within Cundill’s portfolio, which as it turns out, was a mistake. The portfolio lost 9.5% that year.
Still, it’s easy to see that Cundill was not afraid to invest wherever he saw value, frequently making use of international markets to profit.
Is should also be noted that Cundill was not afraid to invest in resource companies, a sector often avoided by value investors due to its cyclical nature and lack of pricing power.
Nevertheless, there’s often value to be found hidden away within the balance sheets of these companies. From an interview Peter Cundill gave to Canada’s Globe and Mail:
“What was your best investment ever? …Cleveland-Cliffs Inc., on the face of it a boring old iron ore company…but in a stock market environment where everyone was focusing on growth stocks, the share price more than halved. No one cared that it had what I like to call extra assets in the form of a power plant in Michigan, which was held at a very low value on the balance sheet….Finally it ran out and the bull market of ’86-’87 carried Cliffs to levels where I was able to sell a good deal of the position at a substantial profit…”
Almost every article about Cundill and his career mentions his first ever investment, and I’m not going to break from form.
Peter Cundill’s first investment was made while he was working as an office boy at Wood Gundy. He bought $500 worth of stock in a speculative mining company and had lost the lot within 48 hours. It was an experience he never forgot.
This was Cundill’s first mistake but not the last. Another was Cable and Wireless.
Peter Cundill started buying stock in C&W for his fund after the dot-com bubble burst and market sentiment had turned against the technology sector. As noted above, Cundill has always been interested in unpopular securities, so C&W was a tempting investment. A low share price, no debt, a cash rich balance sheet and profitable established networks, all convinced Cundill to buy the stock aggressively.
However, over the next few months, C&W over expanded, paying top dollar for business that were loss making. Management believed that by acquiring smaller start-ups and throwing cash at the businesses C&W would be able to consolidate and dominate the global telecoms space. Unfortunately, at the same time demand for bandwidth and telecoms services was collapsing as many start -ups folded — the high demand for internet services had evaporated.
Over 18 months C&W issued four separate profit warnings. After the fourth warning, during September of 2002, investors, fed up with management, turned their back on the company and the stock price collapsed to its lowest level in two years. By November, Cable announced an emergency restructuring and a £4.4 billion loss. Cundill dumped the company following this revelation. By the time he sold, Peter Cundill had invested $100m in C&W. He lost $59 million and the Cundill Value Fund lost a total of 11% loss for 2002. As it turns out Cundill sold at just the right moment. Soon after, C&W black hole in its accounts, another profit warning followed and the company never recovered.
Patience was the virtue highly praised and practiced by Peter Cundill. According to Cundill, patience was the most important trait for the success in the field of value investment. His achievement as a deep bottom-up value investor can be attributed to his ability of distinguishing between being stubborn and being patient. Peter stated that having faith in the future of the invested company based on positive results of extensive research on the certain company is patience, but holding on to the company despite of unfavorable analysis outcomes is being stubborn.
Another factor which gained the attention and interest of Peter Cundill was corporate debt. He realized great earning potential in companies suffering from outstanding debt but possessing strong balance sheet.
Peter also looked at distressed sovereign debt. In early 1995 the market for Brady Bonds (U.S. dollar loans to financially-distressed countries) collapsed when the Mexican peso was devalued. Panama bank debt was trading for $0.35 on the dollar. Peter calculated that the assets of Panama were worth more than enough to cover the debt load.
Peter bought millions of dollars of Panama’s debt. Only one year later, Peter sold the bonds for close to par and a return of over 150%. He later invested in the distressed debt of Argentina and Ecuador in the 90s.
Although, Peter was a value investor, and was not macro oriented he had some spectacular macro-calls. One example: In 1969, Peter stated “If these mainland Asian countries, and especially China, were to ever get their act together economically like Japan they could rival the whole North America and the rest of the developed world without even blinking”. This quote came while Taiwan had the “Chinese” seat on the UN Security Council! China is now the second largest economy in the world. Peter also predicted the bursting of the Japanese bubble in 1987, two years later the economy went into a recession that has basically lasted until today.
Digging through the balance sheets of the companies he was looking at was a trait that separated Cundill from the rest of the crowd. Case and point was his Tiffany & Co. (NYSE:TIF) trade
During the 70s Tiffany, was a fraction of the size it is today, it was also extremely undervalued. When Peter Cundill started looking at Tiffany, Wall Street valued the company’s book value at $10.50 per share. However, after doing some digging, Cundill found that the company was grossly undervaluing several of its assets.
Firstly, Tiffany owned the famous Tiffany Diamond, a 128.5 carat brilliant canary-colored piece that at the time, was the largest diamond in the world. Despite this fact, Tiffany was carrying the diamond on the balance sheet at $1.00. A recent offer for the diamond placed its value at $2 million.
Secondly, Tiffany owned Manhattan real estate (valued at $1 million on the balance sheet and not revalued since the 40s) and a 120,000 square foot factory in Newark. Both of these tangible assets were undervalued on the balance sheet. Further, Tiffany’s goodwill stood at zero, apparently the Tiffany brand was worth nothing, and in inventory was valued conservatively. Cundill quickly concluded that Tiffany & Co. (NYSE:TIF)’s book value of $10.50 significantly undervalued the company’s assets. He started buying at $8.00.
To cut a long story short, within the space of a year, Peter Cundill sold his whole Tiffany position for $19.00 per share, a return of 138% in around 12 months. Unfortunately, six months later, Avon Products made an all-share offer of $50.00 per share for Tiffany.
Exclusive ValueWalk series
- Peter Cundill – Part One: Introduction
- Peter Cundill – Part Two: When to Sell
- Peter Cundill – Part Three: Learning From Mistakes
- Peter Cundill – Part Four: What to Look For
- Peter Cundill – Part Five: Value in a Falling Market
Peter Cundill: Books
There’s Always Something to Do: The Peter Cundill Investment Approach by Christopher Russi-Gill
There’s Something To Do, chronologically elaborates on the investment style of Peter Cundill. The underlying theme of the book is value investment approach of his, which was inspired by Benjamin Graham and his writing Security Analysis. The book was to be written by Peter Cundill himself, but as his health deteriorated, he had no choice but to ask the author, Russi Gill, his friend of over three decades, to write on his behalf. The book provides reader with a compelling outlook on the financial world and illustrates the analytical methods adopted by Cundill to outperform the financial market. The title of the book is inspired by the quote of Irving Kahn, another one of Cundill’s close companion, “There’s always something to do. You just have to look harder, be creative and a little flexible,” which perfectly epitomizes the investment philosophy of Peter Cundill.
The newly released: Routines and Orgies: The Life of Peter Cundill, Financial Genius, Philosopher, and Philanthropist by by Christopher Russi-Gill
“There will be losing years; but if the art of making money is not to lose it, then there should not be substantial losses.”
“To put money into anything, anywhere, provided that the downside is measurable and acceptable and the chances of a good profit appear to be better than 50%. I will not take gambles, but it is part of my job description to be ready to take very carefully calculated risks.”
“I think that intelligent forecasting (company revenues, earnings, etc.) should not seek to predict what will in fact happen in the future. Its purpose ought to be to illuminate the road, to point out obstacles and potential pitfalls and so assist management to tailor events and to bend them in a desired direction. Forecasting should be used as a device to put both problems and opportunities into perspective. It is a management tool, but it can never be a substitute for strategy, nor should it ever be used as the primary basis for portfolio investment decisions.”
“…As I proceed with this specialization into buying cheap securities I have reached two conclusions. Firstly, very few people really do their homework properly, so now I always check for myself. Secondly, if you have confidence in your own work, you have to take initiative without waiting around for someone else to take the first plunge. I haven’t yet found a solution for determining timing on the sell tack. People say it ought to be largely dependant on one’s perception of the trend in the overall stock market, but I am suspicious of this. 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. It makes me wonder what might be accomplished if all this time, energy, and money were to be applied to endeavours with a better chance of providing reliable and practically useful. The timing difficulty in selling does not lie in knowing when the trading discount to intrinsic value has been eliminated, but in judging by how much it is likely to be surpassed…”
Peter Cundill: Articles
- Peter Cundill’s obituary.
- Peter Cundill, a Canadian investment star, dies at 72
- Peter Cundill’s investment legacy: a posthumous bestseller
- Cundill history prize is value philanthropy
- Former Montrealer sets up $75,000 prize for history writing
- Canada fund grabs stake in Japan’s Nikko-filing
- Bustle in a hedge row
- Japan is still cheap
- Cundill’s style tried, tested, proven true ; Veteran value manager’s flagship fund has averaged 15.5% a year since 1974 Strengthening Canadian dollar ‘most important theme for investors now’
- MARKET WATCH ; Looking For Cheap Stocks? Try Japan
- Don’t be afraid – try japan the nikkei’s wild ride might make some traders more than queasy, but long-term investors should get on board.
- Solid returns from a value investor Peter Cundill has a low profile but has built an impressive long-term record
- Picking the winners – the losers
- Who is keeping trico’s stock from further gains?
- more firms interested in buying trico company’s stock climbs 14% to hit a five-year high(Limited View)
- Market Report: Blue chips take the lead as shares rally
- Raises stake in trico to 10.15%
- dow cut 20.57 points to 2701.85
- Stockholder Meeting Briefs
Peter Cundill: Newspaper cuttings
- Setting it straight
- Cundill fund expands by 22%
- What pros like in jittery market
- Mutual fund managers don’t know where to put all the money
- Bargains showing up
- The psychology of stock market investing
- Mutual funds enjoy a revival in Canada
- Among the new acquisitions
- A lesson Investors Should be Learning
- Those buy lists have begun to melt away
Cundill lectured at the Richard Ivey School in 2005. Watch the video here.