Tuesday, January 27, 2015

Francis Chou

Francis Chou immigrated to Canada in 1976 with $200 to his name. Without a college degree, Chou worked as a telephone repairman for Bell Canada, then formed an investment club with co-workers after reading about Benjamin Graham's teachings. Today, Chou is the fund manager of Chou Mutual Funds. Below are his answers to questions from GuruFocus readers.

Who is your all-time favorite investor – and why?

Benjamin Graham is my favorite investor. His 'margin of safety' principle is so profound that it is applicable everywhere. I have bought equity securities of good and mediocre companies in the United States, Canada, Europe, China, Japan, as well as distressed securities such as junk bonds, and they have worked out really well as long as 1) my valuations are accurate and 2) I bought them at a severely discounted price.

You run a very concentrated portfolio. How do you (from an emotional standpoint) deal with large swings in positions that have such heavy weightings? Do you have any tricks to help deal with becoming emotionally attached to a security?

We only look at intrinsic value and what the ratio of the stock price to intrinsic value is. That's all that matters. Everything else is noise.

How do you know if you have enough information to make a purchase decision?

I will make a purchase when I think the odds are 80% in my favor, given all the information provided. You also ask yourself whether you are willing to put 10% of the assets of your fund in that one stock, and if the answer is 'no,' your subconscious mind is telling you that you have strong doubts about your valuation or the company and therefore you need to take a few days off and then come back and reassess the company and your valuation.

How much research do you do before you have conviction to take a position?

For most stocks, I’ve been following them for 30 years, and when it falls within the range of undervaluation, I may then begin to start thinking about buying it. You should always feel like the odds are at least 80% in your favor before taking a position. Don't commit unless you have high certainty.

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