Rochon calls investing an art. (Photo: freepik)
It is well known that fund managers aim to achieve a special return for their investors, but in the end they often lose the competition against the benchmark index. They often fail because of their own strategy, be it through short-term thinking, poor timing, high cash holdings, excessive diversification or overconfidence.
Fund manager Francois Rochon has been taking a different, more successful path with Giverny Capital for 30 years.
Over 30 years on average plus 14.8 percent per year
In the early 1990s, Francois Rochon was inspired by the investment strategies of Warren Buffett, Benjamin Graham and Peter Lynch. Initially he managed a family portfolio.
After 5 years of successful performance, he decided to start his own investment company. This led to the founding of Giverny Capital Inc. in 2002.
Rochon calls investing an art. Investors should make decisions regardless of turbulent market conditions. With his strategy he achieved impressive returns over 30 years. Its portfolio, which includes Berkshire Hathaway, Ametek, Meta, Heico and Alphabet, focuses on long-term growth.
The essential principles of Francois Rochon
- Know what you own: That left an impression on Rochon. For Rochon, a deep understanding of the financial situation and business model is essential when making a long-term investment. This reduces the risk of the common mistake of selling out of uncertainty when prices are falling and instead buying more when prices are attractive.
- Valuation matters: In addition to the financial indicators and the business model, the assessment of the growth prospects must be consistent. A fair valuation is essential in order to benefit from an investment in the long term.
Source: Rochon Global Portfolio
- No market timing: As a fund for long-term investors, Rochon does not build up large cash holdings. He considers holding cash and attempting to time the market to be the biggest threat to wealth creation. The stock market always creates more long-term returns than cash.
- Growth as a driving force: Rochon ignores short-term stock market fluctuations and relies on growing intrinsic value by increasing profits and cash flow. The long-term perspectives are crucial. The higher the growth rates, the higher the price of the share can be.
- Patience, humility and rationality: The market often takes time to recognize the true value of a company. With a strong business model, competent management and a successful past, the share price will adjust to the intrinsic value in the long term. Patience means sticking with a well-thought-out investment, even if short-term setbacks occur. At the same time, rational decisions should be made and bad investments should be sold.
Rochon’s selling rules
Rochon’s selling principles allow selling when the analysis is flawed, significantly overvalued, or when there are significantly better investment opportunities. Building up cash is not an issue because assets always provide more returns than cash over time.
“Holding on to a company that is going through serious troubles is not patience. “It’s denial.” Francois Rochon
Book losses are part of long-term success
Giverny Capital also has to repeatedly admit defeat to market volatility. In the last 30 years there have been:
- 15 corrections of 10 percent
- 8 corrections of 15 percent
- 5 corrections of 20 percent
- 2 corrections of 50 percent
On average, the corrections were 30 percent. A not insignificant fluctuation that had to be endured in order to be rewarded with a clear performance over the years.
Investments that Giverny Capital avoids
It can sometimes be helpful to know which areas are generally excluded from investment. For Giverny Capital, there are clear criteria that allow certain companies to fall off the grid. Rochon avoids companies that produce basic or raw materials and instead focuses on companies with high levels of intangible assets because they are less dependent on external resources.
He also stays away from industries that are difficult to predict, such as fast-growing sectors such as solar energy or artificial intelligence, which are associated with considerable uncertainty and whose winners only emerge in the long term. Unprofitable companies are also out of the question for him, as they can lead to significant losses in a bear market. For Rochon, a generous safety margin in the evaluation is a central aspect of the selection process.
Disclaimer:
Not investment advice. No call to buy or sell securities.