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Francis Chou: “Look for a good deep-value fund”

Since its inception in 1986, the Chou Associates Fund has posted an annualized return of 10.7%

Where do you see investment opportunities now?

In Greece, a lot of stocks are beaten-up, and are trading around five or six times normalized earnings. We've been buying real estate investment trusts there. We're also looking at the Chinese market, but you have to be careful about potential fraud. We think we can invest prudently in China by keeping positions small, and looking for companies that are run by honest managers. We also like cheap U.S. banks like JPMorgan, Bank of America, Citigroup and Wells Fargo, but we prefer to take a basket approach there, too.

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What was your best investment?

In 2009, we bought the bonds of The Brick. They came with warrants as a sweetener, and you could buy shares of the furniture retailer at a strike price of $1. We converted the warrants a while ago. Leon's announced in November that it was buying The Brick for $5.40 a share, so we've made four to five times the money.

What was your worst investment?

I made a mistake investing in Chinese handset maker Qiao Xing Mobile Communications. I bought its shares for about $1, but it turned out to be a fraud.

What advice would you give investors today?

I am biased, but investors should look for a good deep-value fund. That kind of fund should beat the market because the manager is buying companies that are cheap, so there is a margin of safety.

What would you do with a $100,000 windfall?

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I would invest in my own mutual funds. That's where I have most of my money.

What keeps you awake at night?

I worry if my valuations are wrong. If they are wrong, then you don't make money. I am looking for something that I believe is worth 100 cents, but which I can buy for 50 or 60 cents. But is my 100 cents accurate? Did I miss something? Is the earning power there? Are the assets really worth what they're saying? And is management honourable, or will they run off with the money?

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