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L-G-0015356774-0049120279.Pdf THE VALUE INVESTORS THE VALUE INVESTORS Lessons from the World’s Top Fund Managers Second Edition RONALD W. C H AN Copyright © 2021 by John Wiley & Sons Singapore Pte. Ltd. Published by John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appro- priate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628, tel: 65–6643–8000, fax: 65–6643–8008, email: [email protected]. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any damages arising herefrom. Other Wiley Editorial Offices John Wiley & Sons, 111 River Street, Hoboken, NJ 07030, USA John Wiley & Sons, The Atrium, Southern Gate, Chichester, West Sussex, P019 8SQ, United Kingdom John Wiley & Sons (Canada) Ltd., 5353 Dundas Street West, Suite 400, Toronto, Ontario, M9B 6HB, Canada John Wiley & Sons Australia Ltd., 42 McDougall Street, Milton, Queensland 4064, Australia Wiley-VCH, Boschstrasse 12, D-69469 Weinheim, Germany Library of Congress Cataloging-in-Publication Data: Names: Chan, Ronald W., author. Title: The value investors : lessons from the world’s top fund managers / Ronald W. Chan. Description: Second edition. | Solaris South Tower, Singapore : Wiley, [2021] | Includes index. Identifiers: LCCN 2020039214 (print) | LCCN 2020039215 (ebook) | ISBN 9781119617068 (cloth) | ISBN 9781119617037 (adobe pdf) | ISBN 9781119617051 (epub) | ISBN 9781119620662 (obook) Subjects: LCSH: Investment advisors. | Financial planners. | Investments. Classification: LCC HG4621 .C425 2021 (print) | LCC HG4621 (ebook) | DDC 332.6—dc23 LC record available at https://lccn.loc.gov/2020039214 LC ebook record available at https://lccn.loc.gov/2020039215 Cover Design: Wiley Cover Image: © samxmeg/Getty Images Typeset in 11.5/14 point Bembo Std by SPi Global, Chennai, India 10 9 8 7 6 5 4 3 2 1 For my wife, Jacinth, whose faith in and love for me have no boundaries; and to my four children, Chelsea, Wellesley, Brighton, and Ronald Jr., who I hope will become stewards of their own future endeavors and find everlasting joy in their lives. Contents Foreword xiii Preface xv Chapter 1 Master of the Market Cycle 1 Howard Marks, Oaktree Capital Management From Equity to Credit 6 A Priority on Avoiding Losses 10 The Pendulum Swing 14 The Negative Art of Investing 17 Nobody Knows 20 Chapter 2 Free to Choose in Value Land 24 Walter Schloss, Walter & Edwin Schloss Associates Living through the Great Depression 28 The Meaning of Survival 31 vii viii CONTENTS Net-Nets 32 Setting the Right Pace 36 Know Thyself 39 Chapter 3 Once Upon a Time on Wall Street 42 Irving Kahn, Kahn Brothers Group Becoming Graham’s Disciple 48 Preaching Value 51 A Centenarian Diet 56 Chapter 4 The Making of a Contrarian 59 Thomas Kahn, Kahn Brothers Group A Modified Graham Approach 64 The Case for Obscure Securities 69 Market Reflection 72 Chapter 5 On the Shoulders of Value Giants 75 William Browne, Tweedy, Browne Company A Valuable Detour 81 Statistics and Beyond 82 Setting a Global Standard 85 The Social Science of Investing 88 The Market Ahead 91 Chapter 6 A Journey to the Center of Value 94 Jean-Marie Eveillard, First Eagle Funds Valley of Tears 99 The Inefficient Market 101 The Meaning of Value 105 The Courage to Say No 108 Seeking Protection 110 Contents ix Chapter 7 The Self-Taught Value Spaniard 114 Francisco García Paramés, Cobas Asset Management On a Solo Value Hunt 119 Investing Made Simple 122 Austrian Economics and the Market 125 A Global Rebalancing 129 Chapter 8 The Law of Value Attraction 133 Álvaro Guzmán de Lázaro and Fernando Bernad Marrase, AzValor Asset Management A Value Cross-Path 137 A Value Reunion 141 The Art of Concentration 144 The A to Z of Value 148 Chapter 9 The Odyssey of a Value Broker 151 Philip Best, Quaero Capital S.A. Establishing the Best Contacts 157 Acquiring the Best Techniques 162 Investing Off the Beaten Path 164 A Sustainable Investment Platform 168 Chapter 10 The Income-Conscious Englishman 173 Anthony Nutt, Jupiter Asset Management A Victorian Mindset 178 Finding the Right Investment Culture 181 Trusting Only Tangible Income 184 The Courage to Keep Going 188 x CONTENTS Chapter 11 The Frequent Value Traveler 190 Mark Mobius, Mobius Capital Partners Reading between the Minds 195 Thinking Big and Small 197 Trouble Is Opportunity 200 Feeling the Market 205 Chapter 12 The Value-Oriented Businessman 208 Teng Ngiek Lian, Target Asset Management Learning the Numbers 211 The Art of Contrary Thinking 214 Targeting Good Businesses in Asia 217 The Relativity of Valuation 219 A Value Lifestyle 222 Chapter 13 Value Investing in the Lost Decade 225 Shuhei Abe, SPARX Group A Musical Beginning 230 Breaking the Language Barrier 232 Learning from the West 232 The Evolution of SPARX 235 Building a Westernized Asia 238 Searching for Value 239 Chapter 14 Eternal Sunshine of the Value Mind 243 V-Nee Yeh, Value Partners Group A Multidisciplinary Path 246 Seeking a Comfortable Price 250 Finding a Value Partner 251 Spotting Value Minds 255 Becoming a Man of Value 257 Contents xi Chapter 15 The Formless Value Deal Maker 260 Kin Chan, Argyle Street Management Ltd. Navigating in the Slum 266 Specializing in Distressed Investing 269 An Atypical Investment Structure 271 The Rise of the “Can’t Do” Spirit 276 Chapter 16 The Accidental Value Investor 279 Cheah Cheng Hye, Value Partners Group Starting an Investment Hobby Shop 286 Building a Value Temple 288 An Industrialized Process 291 A Value March Forward 295 Chapter 17 The Making of a Value Investor 298 Investment Stewardship 301 Intellectual Humility 303 Developing Your Own Rhythm 306 Be Unconventional 308 The Balance Between Diversification and Concentration 309 Temperament Is Above All 311 Acknowledgments 313 About the Author 316 Index 317 Foreword tudents of investing look for a formula, a way of combin- ing accounting and other information that will produce Sinfallibly good investment results. Even Benjamin Graham, the founder and leading spirit of by far the most successful school of investment practice, spent a good deal of his time looking for such a formula. To this end, students read both tech- nical works and the retrospective testimonies of high-performing investors. In both areas, they are largely disappointed. The technical approaches have a meager record of success. A few notably good books have been written (for example, Joel Greenblatt’s You Can be a Stock Market Genius and Graham and Dodd’s Security Analysis). But reported technical investment approaches rarely, if ever, lead to consistent, high-level returns (if they did they would be adopted by everyone and would become self-defeating). Investment memoirs generally also disappoint students. They tend to be long on philosophy and short on advice for how to buy particular securities. However, as the works of successful xiii xiv FOREWORD investment practitioners, the memoirs do have much to recom- mend them. They describe, however, nonspecifically, investment approaches that worked in practice. And they capture an impor- tant aspect of investment success: that it depends more on char- acter than on mathematical or technical ability. This is the consistent message of investment memoirs as a group. The problem is that each memoir presents a unique perspec- tive on the character traits necessary for investment success. Different authors emphasize different characteristics: patience, coolness in a crisis, wide-ranging curiosity, diligence in pursuit of information, independent thought, broad qualitative as opposed to detailed quantitative understanding, humility, a proper appreciation of risk and uncertainty, a long-time horizon, intellectual vigor and balance in analysis, a willingness to live outside the herd, and the ability to maintain a consistently critical perspective. Unfortunately, an investor with all these qualities is a rare bird indeed. That is why Ronald Chan has done such a valuable service in writing this book. He has put together a set of thorough and rigorous portraits of a comprehensive range of notable value investors in a manageably short number of pages. His descrip- tions cover multiple generations from Walter Schloss and Irving Kahn to William Browne, multiple geographies from Asia to the United States to Europe and the full gamut of value investing styles. By combining descriptions of investment approaches with investor background, he illuminates the connection between individual character and effective investment practice. Taken as a whole, the book provides each practical value investor with the necessary material to sift through the historical records to find the style that is most appropriate to them. Ronald Chan’s work is an essential starting point for any nascent value investor and an invaluable reference for experi- enced investors. Bruce C. N. Greenwald Director, Heilbrunn Center for Graham and Dodd Investing Robert Heilbrunn Professor of Finance and Asset Management Preface Try not to become a man of success, but rather try to become a man of value.
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