Chapter 139 - There's Always Something to Do: The Peter Cundill Investment Approach
Today’s Chapter is based on the book “There’s Always Something to Do: The Peter Cundill Investment Approach” by Christopher Risso-Gill.
Peter Cundill was a Canadian value investor born in Montreal in 1938, known for founding the Cundill Value Fund in 1974 and for his strict adherence to the investment style of Benjamin Graham. Throughout his career, he was recognized for his patient and disciplined approach to deep value investing.
“When asked if he would look beyond the US border in his search for a new chief investment officer, Mr Buffett said he wouldn’t rule out a Canadian candidate: “Someone like a Peter Cundill.””
— Christopher Risso-Gill
Here’s what I learned:
Patience
“The big money is not in the buying and the selling, but in the waiting.”
— Charlie Munger
One of the biggest lessons we can learn from Peter Cundill, as an investor, is the concept of patience. As a matter of fact, Cundill understood that markets could remain irrational far longer than investors could stay solvent, often ignoring value for a long period of time until a catalyst emerged. This patience wasn’t passive waiting but a disciplined endurance, allowing time for mispricings to correct while avoiding the temptation to sell prematurely or chase other opportunities. As John Maynard Keynes said, “The market can remain irrational longer than you can remain solvent.
Cundill’s experiences taught him that great investments rarely come easily; there’s almost always a “major blip” that tests resolve. He observed that patience separates elite investors from the crowd since markets can stay overvalued or undervalued beyond rational limits, making investing an art, not a science. As he explains, “But I tell you statistical overvaluation is a funny thing—it can go on for a very long time, far beyond the limits of rationality, and it is a problem for the value investor in two ways: it can tempt one to compromise standards on the buy side and it may lure one into selling things far too early. I have less of a problem with the selling temptation because I have always loved cash—if you’ve got lots of it you will never have to pass up a great opportunity.”
“The most important attribute for success in value investing is patience, patience, and more patience. The majority of investors do not possess this characteristic.”
— Peter Cundill
Cundill’s patience led to his funds to be heavily in cash when net-net situations are scarce. He mentions that “When there aren’t a lot of net-net situations around, I get worried about the market and start to sell into cash. The tough market will force a lot of companies into a net-net situation and then I can put my money to good use.”
More importantly, Cundill believes in a concept he coined as “Cundill’s corollary”. He explains that “There are cases when Cundill’s corollary applies. That’s when you’re beyond Murphy’s Law, which says that if anything can go wrong it will, and beyond O’Brien’s Law, which says Murphy is an optimist. Cundill’s corollary says that when Murphy’s Law is still in play one should wait, but when things get so bad that you’re really scared, that’s the time to buy.”
As such, **Cundill warns us to not be too eager into buying shares of a company that is on a downturn as things can always get cheaper. On this note, he mentions that “This is a recurring problem for most value investors— that tendency to buy and to sell too early. The virtues of patience are severely tested and you get to thinking it’s never going to work and then finally your ship comes home and you’re so relieved that you sell before it’s time. What we ought to do is go off to Bali or some such place and sit in the sun to avoid the temptation to sell too early.”
“My best advice to individual investors can readily be summed up in two closely linked precepts. Be patient and don’t be greedy.”
— Peter Cundill
This reminds me of what we have learned from Lawrence Goldstein of Santa Monica Partners. Goldstein believed in investing in overlooked companies which requires patience in order for their value to unlock. In fact, he once said “I believe that neglected stocks win hands down over longer periods of time and with less risk. Clearly, patience is the key to investing successfully in our kinds of securities.” As such, he frequently advocates for a long-term perspective, emphasizing to his partners in his shareholder letters that true value creation takes time. As he once wrote, “My belief of course is that patience is a virtue to be rewarded.”
By having a long-term perspective, Goldstein is able to ride out market volatility without panicking. He recognizes that short-term price fluctuations are inevitable but he doesn’t let them distract him from his long-term goals. Similarly, he reiterates to his partners that “Riding out the volatility and noise is essential to successful long-term investing. Put another way, we must keep control of our stomachs (though others around us may not) when sailing through stormy seas.”
By consequence, Goldstein practices an investment methodology that prefers holding investments for the long haul and allowing them to compound over time. By consequence, Santa Monica Partners have an “extremely low turnover [of companies in the portfolio] is the norm for us, of course, as ‘buy and hold’ is not just my preference and practice, but something that permeates my very being.” This low turnover not only reduces transaction costs but also allows him to defer capital gain taxes, further enhancing returns.
“For all we are concerned with is the long-term beyond the horizon. When we invest we like to think in terms of forever. We can care less about a quarter or a year and rather focus on the far away pot of gold on the distant horizon. Sometimes we reach it sooner because of the occurrence of a value-creating catalyst. Most of the time it is because the company over time just grows like a weed or like topsy and in the fullness of time we reach the horizon and the great value realization outs.”
— Lawrence J. Goldstein
Margin of Safety
“The main underlying principle of value investing is that you should invest in undervalued securities because they alone offer a margin of safety.“
— Seth Klarman
Peter Cundill’s investment philosophy was deeply rooted in the principles of value investing, a approach he discovered through the works of Benjamin Graham and Warren Buffett, which emphasized buying securities at a significant discount to their intrinsic value. This method wasn’t just about picking cheap stocks; it was about ensuring a margin of safety that protected against downside risks while positioning for substantial upside potential.
Cundill’s early experiences shaped this view, as he veered toward solid companies in unfashionable industries that had seen sharp price declines without corresponding negative fundamentals. His first major investment in Bethlehem Copper exemplified this: the shares were trading at the price of the company’s cash on the balance sheet, with no debt and a profitable mine backed by long-term contracts. This kind of exhaustive analysis revealed opportunities hidden from the casual observer, turning apparent bargains into profound value plays.
“The essential concept is to buy under-valued, unrecognized, neglected, out of fashion, or misunderstood situations where inherent value, a margin of safety, and the possibility of sharply changing conditions created new and favourable investment opportunities.”
— Peter Cundill
Cundill quickly formalized his own investment philosophy which can be summarized with the following:
The share price must be less than book value. Preferably, it will be less than net working capital less long term debt.
The price must be less than one half of the former high and preferably at or near its all time low.
The price must be less than one half of the former high and preferably at or near its all time low.
The price earning multiple must be less than ten or the inverse of the long term corporate bond rate, whichever is the less.
The company must be profitable. Preferably it will have increased its earnings for the past five years and there will have been no deficits over that period.
The company must be paying dividends. Preferably the dividend will have been increasing and have been paid for some time.
Long term debt and bank debt (including off-balance sheet financing) must be judiciously employed. There must be room to expand the debt position if required.
Furthermore, Cundill’s willingness to concentrate holdings in a few undervalued securities, even in a single market, reflected not only his confidence in this value investing approach, but is a perfect example of how focus can reduce risks. As Cundill explains, “The portfolio has been concentrated. The number of holdings has been decreased by approximately one-third and the average size of position increased by 20%. Our focus, but especially my own, has consequently been considerably sharpened. My father was a very good birdshot and he always said “never shoot into the brown.” In other words, never shoot into a flock of birds without first choosing a single bird—at least in your mind.”
This is a perfect opportunity to reminds ourselves of what we have learned from Warren Buffett and Benjamin Graham. According to Buffett, he took three main principles from Benjamin Graham’s investment philosophy:
A stock is the right to own a little piece of a business. A stock is worth a certain fraction of what you would be willing to pay for the whole business.
Use a margin of safety . Investing is built on estimates and uncertainty. A wide margin of safety ensures that the effects of good decisions are not wiped out by errors. The way to advance, above all, is by not retreating.
Mr. Market is your servant, not your master . Graham postulated a moody character called Mr. Market, who offers to buy and sell stocks every day, often at prices that don’t make sense. Mr. Market’s moods should not influence your view of price. However, from time to time he does offer the chance to buy low and sell high.
On the topic of margin of safety, Benjamin Graham mentions that value investors must have it when investing, meaning that they must leave plenty of room for error. Buffett illustrates this concept of margin of safety with the following saying: “Buy one dollar for fifty cents.”
“You also have to have the knowledge to enable you to make a very general estimate about the value of the underlying businesses. But you do not cut it close. That is what Ben Graham meant by having a margin of safety.You don’t try and buy businesses worth $83 million for $80 million. You leave yourself an enormous margin.”
— Warren Buffett
The reason why having a margin of safety is important is due to the fact that mistakes can be costly. In the case of investing, you must avoid losing money at all cost. As a matter of fact, “If someone has a dollar and she loses fifty cents, she has to double her money to make back what she’s lost. That’s difficult to do.”
On this subject, Buffett is known for this following saying: “Rule number one, don’t lose money. Rule number two, don’t forget rule number one. Rule number three, don’t go into debt.”
Do Your Own Research
“The more you learn, the more you earn.”
— Warren E. Buffett
Peter Cundill’s success as an investor is also stemmed from his unyielding commitment to through, independent research, eschewing reliance on others’ analyses or market consensus. In fact, he believed that few investors did their homework properly and as such, he always verified facts himself, taking initiative without waiting for validation. This hands-on approach on research went far beyond mere numbers, Cundill always took the time in researching countries his invested companies are doing business in.
Risso-Gill explains that “Peter’s approach had much in common with that of the old style merchant banker, who believed it was as important to sniff the air and gauge the commercial temperature as it was to examine the numbers. He always felt that an understanding of local politics and the culture and character of the people was an important factor in inspiring enough confidence to make investments in unfashionable and even positively outlandish locations and, even when the numbers might appear compelling, if he became uncomfortable with the “feel” of a place, he would pass on an investment.“
“As I proceed with this specialization into buying cheap securities I have reached two conclusions. Firstly, very few people really do their homework properly, so now I always check for myself. Secondly, if you have confidence in your own work, you have to take the initiative without waiting around for someone else to take the first plunge. I haven’t yet found a solution for determining timing on the sell tack.”
— Peter Cundill
Furthermore, Cundill’s approach to investigating a security was to arrive at a “predicted judgement of likely price appreciation”. By doing so, he needed to define “what he considered to be the most important variables and give each of them a weighting that he could adjust later in light of the outcome.” These variables could be book value, dividend growth, growth in earning per shares, frequency of senior management changes/philosophy, etc.
However, Cundill warns us that with the arrival of computers, there is an over-reliance for raw data without interpretation which can lead to disastrous decision-making. He mentions that, “As I have watched events unfold I have come to the conclusion that computers actually don’t do much more than make it quicker for investors to react to information. The problem is that having the information in its raw state on a second by second basis is not at all the same thing as interpreting and understanding its implications, and this applies in rising markets as well as falling ones. Spur of the moment reactions to partially digested information are, more often than not, disastrous.” By consequence, Cundill tend to rely solely on reports and records published by the company when analysing a company.
“There’s almost too much information now. It boggles most shareholders and a lot of analysts. All I really need is a company’s published reports and records; that plus a sharp pencil, a pocket calculator, and patience.”
— Peter Cundill
This reminds me of what we have learned previously from Robert Caro on investigation writing. One of his motto in investigation work comes from one of his old employers Alan Hathway who once said to him: “Just remember, turn every page. Never assume anything. Turn every goddamned page.” This reminds him of the fact that whenever you need any information from someone, you have to find some way to get it no matter what. As Elon Musk once said, “If conventional thinking makes your mission impossible, then unconventional thinking is necessary.”
“One of the reasons I believed I had become a reporter in the first place was to find out how things really worked and to explain those workings, and, as my focus had narrowed to politics, that reason had become to explain how political power really worked.”
— Robert Caro
For example, when Caro was preparing to write his biography on Lyndon Johnson, he decided to move to Hill Country and live there in order to better understand the people he was interviewing. Once he rented a house and lived in Hill Country for the next three years, everything changed. The people there started to open up and to talk to him in a different light: they were now including details that were not mentioned previously in their anecdotes about Lyndon Johnson.
Furthermore, when writing a biography, Caro was aware that it was primordial to obtain as much facts as possible when researching. This is because he was aware of the fact that “there is no Truth, no objective truth, no single truth, no truth simple or unsimple, either; no verity, eternal or otherwise; no Truth about anything, there are Facts, objective facts, discernible and verifiable. And the more facts you accumulate, the closer you come to whatever truth there is.”
By consequence, Caro took a long time to write his books because accumulating facts can take a long process as it can only be done through reading documents and through interviewing and re-interviewing individuals. This process cannot be rushed. Here’s how Caro explains the research process he took to write his book on Lyndon Johnson, in his own words:
“First you read the books on the subject, then you go to the big newspapers, and all the magazines—Newsweek, Life, Time, The New York Times, The Washington Post, The Washington Star, then you go to the newspapers from the little towns. If Johnson made a campaign stop there, you want to see how it’s covered in the weekly newspaper. Then the next thing you do is the documents. There’s the Lyndon Johnson papers, but also the papers of everyone else—Roosevelt, Truman, Eisenhower—whom he dealt with. Or for The Power Broker, Al Smith’s papers, the Herbert Lehman papers, the Harriman papers, the La Guardia papers…. (…) Then come the interviews. You try and find everybody who is alive who dealt with Johnson in any way in this period. Some people you interview over and over. There was this Johnson speechwriter, Horace Busby. I interviewed him twenty-two times. These were the formal interviews. We also had a lot of informal telephone chats. I came to love Buzz. But none of this is enough. You have to ask yourself, Are you making the reader see the scene? And that means, Can you see the scene? You look at so many books, and it seems like all the writer cares about is getting the facts in. But the facts alone aren’t enough.”
— Robert Caro
Beyond the Book
Read "Margin of Safety: Expect the Unexpected" by Farnam Street
Read "Active Patience" by Farnam Street
Read "Boredom & Impatience" by Farnam Street
If you enjoy reading my newsletter, please consider becoming a paid subscriber. You’ll be able to keep this newsletter going! Here’s what you get when you upgrade:
Voting on polls: you’ll get to vote on who I should write about next.
Requesting biographies: you can request a biography for me to read and write about next.
Supporting my next book purchase: all payments received will be used to purchase a new biography.