Manual Of Ideas Exclusive Interview With Charles de Vaulx, And Ten Other Investment GreatsVW Staff
Charles de Vaulx joined International Value Advisers, LLC (IVA) in May 2008 as a partner and portfolio manager, and serves as chief investment officer, partner, and portfolio manager.
Until March 2007, Charles was portfolio manager of the First Eagle Global, Overseas, U.S. Value, Gold and Variable Funds, together with a number of separately managed institutional accounts. He was solely responsible for management of the Sofire Fund when it won an Absolute Return Award for “Fund of the Year” in the global equity category in 2005 and 2006. In addition to sharing Morningstar’s “International Stock Manager of the Year” Award in 2001 with his co-manager, Charles was runner-up for the same award in 2006. From 2000 to 2004, Charles was co-portfolio manager of the First Eagle Funds. He was named associate portfolio manager in 1996. In 1987, he joined the SoGen Funds, the predecessor to the First Eagle Funds, as a securities analyst. He began his career at Societe Generale Bank as a credit analyst in 1985.
Charles graduated from the Ecole Superieure de Commerce de Rouen in France and holds the French equivalent of a Master’s degree in finance.
The Manual of Ideas: It’s a pleasure to have with us Charles de Vaulx, Chief Investment Officer at International Value Advisers. Charles, welcome.
Charles de Vaulx: Thank you.
MOI: Charles de Vaulx, how did you become interested in investing?
Charles de Vaulx: I became interested at an early age. My first investment was a gold coin in late 1975 at the age of fourteen years old. My first stock was in 1976, after what had been two very difficult years following the 1973-’74 oil crisis and recession. At that time I was in Paris, but I had just been there for a few years.
Prior to that, from age five to twelve-and-a-half, I was living with my parents in Johannesburg, South Africa, and before that I was born and spent five years in Morocco. My father worked in the oil industry with Total. I think that my time in South Africa and my exposure to business through my father helped me get interested as a child in understanding businesses. Even before the oil crisis of ’73-’74, there were major ideological challenges. Communism was still a major threat worldwide. We tend to forget.
Both of my grandfathers had been in the military. It occurred to me at an early age, perhaps at the age of 9, that going forward the real wars may no longer be military, but more economic wars, ideological wars and, hence, I felt that I needed to understand money, industry and finance as opposed to doing what my grandfathers had done and go into the military.
As a young child in Morocco and later traveling with my family through Southern Africa, I was exposed to poverty growing up, which scared me. It impressed upon me the importance of saving so that you can at least have the essentials — shelter, clothing, food. These experiences made me realize that nothing is a given.
After I bought my gold coin and my first stock my interest only grew. I read the financial newspapers each day and during my lunch breaks at school I would sometimes take a quick subway ride to the Paris Bourse. Much later, in 1983, as a part of my studies in France, I was able to get a six-month internship in New York City in 1983. I was twenty-one years old at the time, and three out of the six months I spent with Jean-Marie Eveillard, with whom I worked subsequently for a long time. Jean Marie taught me what I knew nothing of at the time, which is value investing-the concept that investing is not necessarily about finding growth stocks, and that markets can be inefficient enough sometimes that some stocks can trade at times at a 30% or 40% or 50% discount to what the companies are actually worth.
MOI: How did working with Jean-Marie Eveillard influence you? Can you share with us perhaps the single biggest lesson from working with Jean-Marie?
Charles de Vaulx: There are several things I want to mention, but if there was one overriding theme, it’s the clarity with which he conveyed to me the obvious if one is mathematically inclined: if you can minimize drawdowns, and if you can minimize losses one stock at a time in your portfolio, that is mathematically one of the surest and best ways to compound wealth. This is opposed to shooting for the moon, betting the farm and trying to find stocks that may go up ten times – the ten baggers.
Other related themes would be that conventional wisdom among money managers, back then and still today, was that the only form of active money management was a concentrated approach — having only ten, fifteen, twenty stocks and trying to do as much homework as possible on those stocks. You’re supposed to have conviction, go for it.
Jean-Marie understood that there was another way — his way — which was to have a highly diversified portfolio, oftentimes a hundred, hundred and fifty, two hundred names, be benchmark agnostic, and be willing to make large negative bets by owning little or nothing of what would sometimes become the biggest part of the benchmark. Oftentimes, what becomes the biggest part of the index is the stuff that has gone up the most, which can be the least desirable whether it’s Japan in the late ‘80s, or TMT stocks in the late ‘90s, or financial stocks in ’06-’07. It’s important to note that diversification is okay as long as it has nothing to do with the benchmark, as long as you’re willing to make big negative bets and as long as you know your companies well enough to have accurate intrinsic value estimates. We define intrinsic value as the price a knowledgeable investor would pay in cash to own the entire business.
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