There's Always Something to Do - The Investment Methodology of Peter Cundill

I am currently going through a list of must-read value investing books. I will continue to post summaries with passages and notes that I take away from these books and post them here as I finish them.

Although rarely known outside of value investing circles, Peter Cundill is likely the most famous Canadian value investor of all time. I recommend his book for any aspiring investors to get a glimpse of the mentality needed to build a career in investing management as well as his thinking in regard to financial markets.

The reason I was drawn to learn about him is two-fold:

• Peter is a Canadian investor like myself. 
• Peter has been recognized for his ability to find value in markets beyond North America - often investing in developing countries that many investors will not even consider. Although finding value in publicly traded stocks has gotten more competitive with increasing globalization and access to data, there are bound to be neglected opportunities if one is to look beyond the comfortable waters of the US stock markets. Remember that there are over 50,000 stocks in the world!

Investing Methodology

• Suspicion of most of the models used by the investment research departments. Extrapolating history and making market calls involves far too many variables, and is generally conditioned by herd instinct. 
• Investors ought to focus on buying unrecognized, neglected, out of fashion, or misunderstood situations where inherent value, a margin of safety, and the possibility of sharply changing conditions creates new and favorable investment opportunities.
• Although a large number of holdings might be held, performance is enhanced by concentrating in a few holdings- ten being a referenced number.
• Always buy stocks trading below book value, and if possible buy stocks trading below net working capital less long-term debt (net-net investing).
• The company must be profitable and pay dividends. Preferably it will have increased its earnings in the past five years.
• Studies should be made of past and expected future rates of profitability, managerial ability, and the various underlying factors and hypotheses that govern sales volume, costs, and profit after taxes. 
• Although investing is often a solitary endeavor, Peter found much value in building a network of collaborators and mentors with whom he discussed investment ideas, and provided as well as obtained feedback. This helped him in many investments, one of which was his discovery of Volvo in 1977.

Attributes and Mentality Needed to be a fund manager

• Forensic attention to detail. He made a habit of never skipping the reading of footnotes in financial reports. At times this would save him money in prospecting investments as well as get him to discover valuable assets in the balance sheet.
• Maintain an open mind and beware of any character traits that may lead you to neglect inconvenient facts. Self delusion is a danger the investor must avoid.
• Boundless curiosity. Peter was also a believer in the athletic ideals of ancient Greece, often proposing that athletic stamina and mental resilience go hand in hand.

Investing Related Activities

• Review the stocks of the worst performing stock market in the previous eleven months.
• Analyze industries instead of national or international economies.
• Refrain from knowing what the analysts think or hear any inside information. It's preferable to be dispassionate.
• Investigate companies that may have hidden assets such as insurance companies owning stock portfolios or real estate portfolios being held at very low prices in the balance sheet.

Notable Passages

"I believe that there is probably one opportunity in every man's life which demands his knowledge, his guts, his self-esteem, and his judgement. If he seizes it with both hands and it is successful, he joins the first rank, if not he remains a mortal with feet of clay."