Newsletter - July 29th, 2023

Dear Reader,

Attached is our latest list of stocks generated from basic value screens (low p/e, ev/ebitda, debt/equity, etc.), which don’t meet our investment criteria - and our reasoning.

This may help you avoid a few ‘value traps’ or stocks that aren’t sufficiently attractive compared to the opportunities available today.

For reports of stock ideas that pass our quantitative and qualitative standards, join at the link below:

Join Here

---

Peter Cundill

---

Peter Cundill Lecture

Peter Cundill was a renowned Canadian value investor. He was a Chartered Accountant by training, and so we have a special affinity to his investing approach.

He gravitated towards 'cigar-butt' investments throughout his career and did very well.

We recommend his book containing several of his war stories: 'There's always something to do'.

Notes on his talk at Ivey Business School below:

3:00 Magic 6's

Cundill searched for stocks selling at <6x earnings, <60% of book value, and >6% dividend yield - a simple and interesting combination.

6:30 Always change a winning game

Templeton advised Cundill to "always change a winning game"; hard to do when you're on a roll. This was in the context of "growth" stocks that were out of favor at the time.

Adapt tactics, not the investing framework i.e. the margin of safety in price vs. value of the business.

24:30 Intellectual Flexibility

Though Graham pioneered net-net investing in common stocks, he was remarkably flexible - at least theoretically. In the 1960s, he was suggesting formulas for valuing "growth" stocks.

The key is to be mentally flexible in buying businesses below their value to a private owner. This may include examining recent acquisition multiples in distressed, or at best normal business conditions.

30:30 Net-net Caveats

Cundill highlights valuable caveats when investing in net-nets. Net-nets tend to go bankrupt in a declining economy. Other issues include lack of liquidity and geo-political risks.

Discounts to book, low p/e, little debt, shareholder orientation are "useful" - factors we look for in the stocks we report on.

35:00 New Lows

Cundill scoured the new lows list, followed good investors, and read a lot for potential ideas - "experience and curiosity is a winning combination".

40:45 Cigar Butt not Moat

Refreshingly Cundill was more concerned about quantitative discounts from asset value rather than "moats", which are significantly harder to value.

59:45 Your Painting

Rigidity can be your undoing - but you got to invest in a way that's comfortable for you - because sticking to sound principles is more important in investing than brilliant insights.

We like Cundill's description of a portfolio as a palette. Paint it the way you like.

1:09:45 40% Error Rate

Templeton said even good investors are going to be wrong ~40% of the time. When you expect this, you can keep losses in proper perspective. Most important, you can resolve to be patient as required.

---

Until next time, Cheers!