James Montier’s answer to a follow-up question at the European
Investing Summit 2012 (for those interested, the next Investing Summit is on Japan and will take place November 7-8....more information can be found HERE).
Question: Going
back to the lowest point of the markets in late 2008/2009, what was going
through your mind? How did you retain the courage and confidence to carry on?
James Montier: In
late 2008 and early 2009 I was getting very excited because I was seeing a
large number of stocks appearing on my value screens, and seeing cheap
valuation at the market level. So whilst a lot of people were focusing on the
things that could go wrong (and there was no shortage of them back then),
because I was focused on valuations I was getting buy signals. The key point is
to have a good process and to stick to it. This cuts down on the amount of decision
making under duress that you are forced to conduct. Sir John Templeton used to
talk about doing his analysis on quiet days in the market and placing limit
orders with brokers, he knew when the stock was down 50% he wouldn’t want to
buy it (emotionally) but his pre-commitment strategy forced him to do so.
Seth Klarman puts it this way “One of our strategies for
maintaining rational thinking at all times is to attempt to avoid the extreme
stresses that lead to poor decision making. We have often described our
techniques for accomplishing this: willingness to hold cash in the absence of
compelling investment opportunity, a strong sell discipline, significant
hedging activity and avoidance of recourse leverage, among others.”
