Reporter David Berman spoke with the legendary investor, who died this week, for the February issue of Report on Business magazine. There's Always Something to Do: The Peter Cundill Investment Approach, will be released by McGill Queen's University Press on Feb 26. Here is Mr. Cundill's last interview.
How would you invest a $100,000 windfall right now? Now that I am semi-retired, I mostly don't stock-pick anymore, except in a very small way with a tiny amount of my money (less than 2%). What I do is pick managers worldwide who operate within the value framework to which I have always adhered.
What was the first investment you ever made? The first investment I ever made was while I was still at McGill in 1959. I was doing a vacation job as an office boy at Wood Gundy, and I bought $500 worth of a speculative mining stock and in less than 48 hours I had lost the lot. It was an experience I never forgot.
What was your best investment ever? One of the best investments I have ever made was Cleveland-Cliffs Inc., on the face of it a boring old iron ore company based in Cleveland that specialized in producing iron ore pellets. In the '80s, Cliffs had 40% of the pellet market in North America, but in a stock market environment where everyone was focusing on growth stocks, the share price more than halved. No one cared that it had what I like to call extra assets in the form of a power plant in Michigan, which was held at a very low value on the balance sheet. I bought and bought as the price went on dropping, and there seemed to be an endless supply of stock. Finally it ran out and the bull market of '86-'87 carried Cliffs to levels where I was able to sell a good deal of the position at a substantial profit. The icing on the cake was the crash of October '87 that allowed me to buy back all I'd sold plus a bit and do it all over again.
And your worst? Cable and Wireless would have to be the investment where I had my head handed to me. To paint the picture, the dot-com bubble was over and the share price was plummeting. Market sentiment was against this company in particular, as well as the telecoms sector in general, so I started to get interested. My history has always been in buying securities when they're unpopular. However, Cable and Wireless is an illustration of the fact that despite careful analysis and a strict adherence to Benjamin Graham's value principles—a low share price, no debt, a huge amount of cash and profitable established networks— things can still go wrong, spectacularly so.
Where do you see the biggest opportunities right now? In the past 18 months, I have been a big player in emerging market corporate debt through a specialized fund run by Mark Coombs of Ashmore Investment Management. The rationale is fairly straightforward. Emerging market economies have by and large recovered more robustly than their developed counterparts so that the substantial yields obtainable have looked increasingly secure. In fact, in many cases, the corporate credits actually look more attractive than their sovereign counterparts. The returns have been excellent thus far— over 40%—but I suspect that, with the continuing turmoil being experienced in the euro and the spreading pressure on some of the Eurozone sovereign debt, the appeal of emerging market corporate debt will continue for some time yet.
What keeps you awake at night? I have to confess that I sleep like a baby. I now let my managers suffer the sleepless nights, although I trust not too many of them, since they will have paid attention to the Benjamin Graham principle of the margin of safety in all their investments.
Any advice for regular investors? Pick some first-rate money managers with whom you feel comfortable because you have done your homework on them. Then stick with them. The mantra is patience, patience and more patience. Think long-term and remember that the big rewards accrue with compound annual rates of return.
David Berman