Saturday, August 30, 2008

Lunch with Francis Chou

Last week, Francis Chou gave a talk at the Richard Ivey School of Business at the University of Western Ontario. Francis was very generous with his time; as such, prior to the talk, Reyer and I were afforded the opportunity to have lunch with him at The Wave, a restaurant on Western's campus. Francis' long and outstanding investment track record is well known, and described in numerous articles. Yet, similar to what we found when we met with Warren Buffett, there was not a flash of arrogance to be found. Both Francis' mannerisms and his words convey an air of humility that is difficult to find in even the average person.

About Buffett, Chou told us one thing in particular that separates Buffett from everybody else is that he's a great communicator. This is one thing Chou believes made Buffett successful before the great returns were realized by most.

One sector that Chou believes offers a lot of value right now is in the pharmaceuticals. Although drug pipelines for the larger companies are aging, Chou believes the market is heavily discounting these companies. Their heavy R&D spend should result in at least modest drug discoveries, which he believes current investors are getting for a very cheap price. To avoid choosing a company that ends up with no discoveries, Chou recommends buying a cross-section of companies in this undervalued industry in order to spread out risk.

For budding value investors, Chou recommends having a bargainer's mentality. Having grown up in India, he said he had to haggle for everything he purchased, trying to get the best price possible after determining the value of what he was trying to buy. He has translated that mentality to the stock market.

To make it, Chou said acquiring knowledge is key. A value investor must be prepared to read 100 - 200 pages daily, to gather ideas, obtain information, and increase one's knowledge.

Chou's presentation and Q&A with the MBA class will be uploaded shortly to the Ben Graham Centre for Value Investing.

Finally, I would be remiss if I didn't use this occasion to include a shameless plug. In a note sent to us a day after we met him, Chou wrote: "I read some of the articles in your blog. There are some great articles in there. Keep up the good work."

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