During this presentation at the Ivey Business School Value Investing Program 2024, Francis Chou emphasizes the principles of value investing, highlighting that success in both bonds and equities stems from selecting companies based on their intrinsic worth rather than their market price.
He explains that even underperforming companies, which he refers to as C-R-A-P (cannot realize a profit), can yield good returns if bought at a low enough price relative to their true value.
Chou underscores the importance of management in these investments, stressing the need to understand how company leaders think, allocate capital, and handle weaknesses. Trust in their judgment is crucial.
Here’s an excerpt from the presentation:
Chou: Than whatever the companies were, you can see value investing, what really works. Because of that, because you’ve done so well in bonds and equities, even in equities, if you notice, we have some great companies, some crappy companies.
Crap means C-R-A-P, cannot realize a profit. Those types of companies we have, and it doesn’t matter if you buy them cheap enough. It will work out well, cheap enough not in terms of the price going down, but in terms of the relationship to what the company’s worth.
In all these companies that you buy, the person running it is really important. You have to get into his head. After a while, you’ll see how this guy is thinking, how he’s allocating capital, where he’s putting it.
If there are weaknesses in the company, does he sell it or waste money? Do you trust his judgment in buying companies and disposing of them at a good price?
When you get excess cash and don’t know what to do with the company or with that cash, you’re supposed to give it to the shareholders.
You can watch the entire presentation here:
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