François Rochon, a distinguished investor and founder of Giverny Capital, is renowned for his profound insights into the art of long-term investing. Drawing inspiration from investment titans like Warren Buffett and Philip Fisher, Rochon has cultivated a philosophy centered on acquiring high-quality businesses at reasonable prices and holding them for the long haul. His annual letters and interviews are a treasure trove of wisdom for aspiring and seasoned investors alike.

On Investment Philosophy

  1. "I have the simplest of tastes: I only like the best."[1] - This quote, borrowed from Oscar Wilde and featured in his 2001 letter, encapsulates Rochon's core investment philosophy of focusing on outstanding businesses.
  2. "Our philosophy remains very simple: we own approximately twenty companies with solid balance sheets, conservative accounting, a durable competitive advantage, and a management team dedicated to shareholders. And, of course, we are always cautious about the price we are willing to pay for such companies."[1] - A succinct summary of his investment criteria, articulated during the market volatility of 2020.
  3. "To me, investing is owning great companies."[2] - A simple yet profound statement on his fundamental view of investing.
  4. "The key to doing better than average is owning superior than average companies.”[1] - From his 2022 letter, emphasizing his focus on quality.
  5. "We're looking for 20 to 25 companies we can own for the long run that we believe can increase their intrinsic values by about twice the rate of the S&P 500." - This highlights his goal of owning a concentrated portfolio of high-growth businesses.
  6. "I’m a value investor. In essence, I think every good investor is a value investor: you try to buy companies for less than what they’re worth."[3] - While emphasizing quality, he grounds his approach in the principles of value investing.
  7. "Value investing is not just about finding cigar butts that trade at a very low price-to-earnings multiple or below their book value. You should also take the quality of the business and future growth into account."[3] - His nuanced view on value investing, which incorporates growth and quality.
  8. "The margin of safety is not just in the price you pay, it's also in the quality of the business, it's in the balance sheet of the business and the accounting and also in terms of the quality of top management." - A holistic view of the margin of safety principle.
  9. "Investing is all about delayed gratification. It's about short-term pain for long-term gain."[3]
  10. "What matters in investing is humility, rationality and patience."[3]

On Market Perspective and Long-Term Thinking

  1. "One of the biggest mistakes investors make is to look at the last few years and assume that's the new norm."
  2. "The worst mistake made by stock market investors is trying to predict the direction of the market over the short term.”[4]
  3. "Over the short term, the stock market is irrational and unpredictable (though some may think otherwise)."[5][6]
  4. "Over the long term, however, the market adequately reflects the intrinsic value of companies."[5]
  5. "Time in the market beats timing the market." - A classic aphorism he frequently emphasizes.
  6. "I know that stocks represent fractional ownership in businesses and that, over time, the stock market will reflect their true intrinsic values. And crises bring worries and fears that make many investors forget that simple fact."
  7. "By owning great companies, you can just forget about all the noise and the irrational market fluctuations."
  8. "You have to learn to profit from market fluctuations rather than suffer from them."
  9. "Think in terms of decades instead of quarters."[3]
  10. "The best protection against bear markets and economic crises is to own great companies that aren't too sensitive to general economic conditions."[3]

On Company Selection and Analysis

  1. "We want to own great businesses, and the best way to identify them is to look at their past numbers, their past performance."[2]
  2. "We look at the numbers of the company from the last 5, 10, or 15 years to understand how they did during recessions."[2]
  3. "We want to find strong companies with strong numbers. But also, we realize the limitations of an approach that focuses too much on the past because past numbers only reward past shareholders."[2]
  4. "The business model (market share, product innovation, etc.)." - One of the key aspects he evaluates in a company.
  5. "The financial (balance sheet and profit margin) structure."[1] - A critical component of his analysis.
  6. "Quality of management."[1] - A recurring and vital theme in his investment process.
  7. "Long-term growth perspectives (which are linked to the first three)."[1] - His forward-looking assessment.
  8. "Market valuation compared to intrinsic value."[1] - The final step in his decision-making process.
  9. "Only buy companies with a competitive advantage." - A core tenet of his strategy.
  10. "A lot of opportunities can be found in monopolistic and oligopolistic markets."

On Management and Leadership

  1. "Rochon believes that the management of a company primarily needs to be two things: extremely skilled, and passionate about their work."
  2. "He only invests in companies where the management has high levels of ownership."
  3. "We're in the same vehicle as them!"[4] - His enthusiastic endorsement for high insider ownership.
  4. "When managers have their own money invested (i.e. skin in the game), their interests align with those of shareholders, leading to better decisions for the company (2007)."

On the Art of Investing

  1. "He firmly believes that investing is an art."
  2. "To go back to the art analogy … if you want to become a great painter, you want to study the great masters of the past, so you go museums and you just look at … all those great artists and you learn from them. And that's what I did when I started and still doing it today.”
  3. "I think Constellation Software...it's really a masterpiece. It's really something quite unique, and a great culture, and great artists at the helm."[7]
  4. "There’s an element of beauty, sometimes you recognize it."[7]
  5. "I think the most beautiful thing in the investment business...There's no called strike."[7]
  6. "Investing is not a science, it's an art. And the artist is the man."

On Portfolio Management and Selling

  1. "Owning between 20 to 25 high-quality stocks gives you the right mix of diversification and concentration for long-term success."[8]
  2. "You're diversified enough so you don't have a big weight in one single security that could really hurt you if something goes wrong...It's also concentrated enough so that you have some odds of beating the index.”[8]
  3. "I believe the reasons for selling a stock should be harmonized with the reasons for buying it."
  4. "In the end, we have to sell when basically the reasons for purchasing a company in the first place are not valid anymore."
  5. "We're not very interested in investing in utilities or healthcare-related businesses where there's lots of exposure to Medicare or Medicaid,”[8] due to their unpredictability.

On Personal Qualities of an Investor

  1. "Being humble when you invest in the stock market is first and foremost not trying to predict the stock market."[2]
  2. "One key ingredient to be able to think differently and beat the index over the long term is to have what I call the missing gene."[9]
  3. "You have to be very patient. When you invest in a company, it can take years before your investment bears fruit."[3]
  4. "If you have the right investment philosophy and right behavior, eventually you'll do well in the long term."[3]
  5. "You want always to think what not to do if you want to beat the index."

Sources  

  1. substack.com
  2. latticework.com
  3. compoundingquality.net
  4. substack.com
  5. tmx.com
  6. amazonaws.com
  7. wordpress.com
  8. acquirersmultiple.com
  9. youtube.com