VIC — Charles de Vaulx (International Value Advisers)

Notes from the Value Investing Congress

By Travis Johnson, Stock Gumshoe, September 16, 2013

Charles de Vaulx’s fund is focused on value investing, of course, but is more diversified and doesn’t hold large concentrated positions. They do hold some cash when opportunities are low, and unlike many value investors they do often hold gold or gold mining stocks (though they’ve avoided mining shares in recent years, he says).

They focus on “safe and cheap”, which is a term I’ve heard most from Martin Whitman at Third Avenue (he’s no longer managing the funds, but I do have money in the Third Avenue Value fund and like their funds in general), and he has a bias toward buying stocks with strong insider ownership.

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Big lessons of the last decade?

Value investing has become truly global — 25 years ago it was only done in the US, he says, and they usually only looked at US companies. That started to expand overseas with Tweedy, Browne and Michael Price in the 1990s, and now they do it everywhere.

The Big Picture matters — the macro economy and the credit cycles matter immensely, including the recent real estate bubbles, the Asian financial crisis, the Chinese credit bubble of the last five years. You can’t forecast the future, but where have credit excesses made stocks look deceptively cheap if earnings are not really sustainable without future steroids?

“Safe and cheap” matters more than ever … so does “to finish first, you must first finish.” That’s a warning, often mentioned by Warren Buffett, against leverage — companies with a lot of debt may look cheap, but they’re often not safe.

Bonds can be equities in disguise.

Emerging markets are tricky — high economic growth does not always translate into good stock market performance.

Individual stock picking still makes a difference. The name of the game will be assessing whether today’s companies can sustain their historically high profit margins.

And gold can indeed play a role in a portfolio. It does great things to moderate a portfolio, particularly during times of inflation or deflation — unfortunately, it does not do well during disinflation (when inflation rates are falling).

How does he see things? He has never been as defensive as today, only 53% in equities.

US is having a slow recovery and most stocks are fully priced. Still muddling through. Do we need to reconsider how strict we should be in assessing ...

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