The Berkshire Special 2018

"Prudence in owning outstanding companies is not necessarily about buying them cheap"

Giverny Capital’s Francois Rochon on sizing up management, and why investing is an imprecise art

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Published 3 years ago on May 28, 2018 17 minutes Read
Photographs by Rajesh Padmashali

A disciple of Ben Graham and Warren Buffett, Canadian value investor François Rochon founded Giverny Capital in 1993. An art connoisseur, Giverny is Rochon’s tribute to the hometown of his favourite artist Claude Monet. The influence of art is evident in Rochon’s investing approach; he looks for beauty in a balance sheet and identifies great managers like he scouts for contemporary artists. Just like artists are independent in their thoughts and actions, Rochon believes so should an investor. If the stock selection process is rational, investment returns will eventually follow, believes the art buff. Not surprising that an engineer by education, Rochon has turned out to be an exceptional investment manager with his portfolio yielding 15.7% CAGR since inception. In a free-wheeling chat, Rochon speaks about his hits and misses and elucidates on why investing is far from easy when errors of omission often prove more costly than errors of commission.

How do you assess a management as you had mentioned that if a management makes a decision that you don’t agree with, you sell?

It is largely subjective and also involves fact gathering. We read up annual letters of the past five to 10 years to see what the management had stated and what they did, besides looking at how they compensate themselves. We prefer managements that own a higher stake in the company. But the most important criteria is the culture of the company and how managements behave during recessions, what kind of acquisitions they made in the past. But at the end of the day it’s a judgment call.

Do you also meet managements? Many private investors have minimal interaction with managements as they believe it will cloud their judgement.

We do try to meet them on most occasions. But, for example, you don’t need to meet Bob Iger of Disney because you have enough to read up on him, lot of interviews on the Internet and in the magazines. However, it’s important to meet managements of smaller and lesser-known companies. 

Are you size-agnostic? Do you want companies to be of a certain market cap before they come up on your radar?

Usually, our threshold is $1 billion. Since we manage about more than a C$ billion, companies have to be of a cer

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