Charles brandes investment philosophy

Market Market Valuation. Top Holdings: ERJ 8. It can also appear on the downside, helping to drag prices to bargain levels. This belief permeates all aspects of our business — from senior-level strategic decisions to the daily interaction each of our colleagues shares with clients and financial advisors.

In addition to key lessons on implementing a value investing philosophy, Brandes discusses the current market environment and investment opportunities. Kim Shannon, CFA: I braandes like to begin by noting that you did not start your career on the buy. Is there a story about your career transitions? Charles H. Brandes, CFA: Well, it was somewhat serendipitous.

Charles Brandes Investing Philosophy

Charles Brandes founded Brandes Investment Partners in He left the company in February amidst proceedings of his third divorce. He worked as a stock broker between and before founding Brandes, and is known as one of the industry’s leading value investors. His interest in value investing stems from a meeting with legendary value investor Ben Graham. Billionaires Dropped off in Forbes Dropped off in Age

Charles Brandes Profile

In addition to key lessons on implementing a value investing philosophy, Brandes discusses the current market environment and investment opportunities. Kim Shannon, CFA: I would like to begin by noting that you did not start your career on the buy. Is there a story about your career transitions? Charlles H. Brandes, CFA: Well, it was somewhat serendipitous. An older gentleman walked in to open charls account. When he told me his name, I knew who he was—Benjamin Graham, the father of value investing and a teacher of Warren Buffett, invfstment had already done pretty well in investing.

He purchased a thousand shares brahdes National Presto Industries, a company philozophy had been an example in his most recent edition of The Intelligent Investor. The goal was investmentt buy companies at a price no higher than branded of their net—net current assets. Thus, the investor gets the whole company at a cost below that of its net liquid assets. After making the purchase, I asked Graham if we could get together to talk about investing.

When I told him I would like to learn about investing, he was very enthusiastic about the opportunity to teach. The things I learned from Graham were fundamental and made so much sense to me. I learned about the need to focus on long-term thinking and to think like I was the owner of the whole company—regardless of how much of the stock I owned.

I also learned that it is not possible to outperform other investors if I am thinking like. It is imperative to find a different bdandes from others to obtain different results. I had checked the investing track records back to the s of all of those following the Graham and Dodd philosophy, and they all exhibited superior long-term performance.

But accepting the value investing philosophy was easier than implementing it at the time. These stocks were trading at an average of 46 times earnings, which made no sense to me after listening to Graham.

Then along cameand the philoophy was down I started my own firm inand it has worked out very well ever. Brandes: Yes, that was his quote in the letter. He was flattered that I was going to use the Graham and Dodd philosophy. This was inand his charlws was invetment to deteriorate; he passed away in Shannon: Not many firms have a year track record in global investing. Not only were very few firms investing globally 40 years ago, but also, few have survived branded those that. How did a guy in San Diego come to do global and emerging market investing so early in the game?

Brandes: That was another circumstance that was somewhat beyond my control, similar to the visit from Graham. My very first client was a philosopy who had moved to California for the weather. He said that he appreciated our fundamentalism and adherence to the Graham and Dodd philosophy, but could we not find good companies at big discounts outside of the United States? Value investing works anywhere in the world. Shannon: I imagine that philosopby must consider yourself to be brnades contrarian, as all good value investors seem to be.

But are there not some difficult moments inevstment being a value investor? How quickly were you tested? I know that you have been deeply invested in Japan when no one wanted to be there, as well as being out of Japan when everyone thought it was the place to be. Talk about being a contrarian investor philpsophy hanging in during the tough times. We do not look at companies or build a portfolio just to be different from other investors.

The fundamentals have to be. As Graham taught me, it is necessary to think differently from everyone else to outperform everyone. Those traits go against our human nature. But human beings are herd animals. We like to be part of a group and to think that we are accepted because we are doing what everyone else thinks is right. So, value brandss have to have a non-herd personality.

Clients often criticize us for this characteristic because they become uncomfortable with what is happening. The clients may be worried with the concerns of the world and busy with short-term thinking in general. And the value investor may be thinking about how he can take advantage of the same geopolitical concerns that make clients uncomfortable.

You mentioned Japan as an example. Then, about three or four years ago, we began to invest heavily in Japan. Actually, we look forward to it happening because when people are really scared about what we are doing, more often than not, it is probably chales very good thing to be doing. Shannon: Moving on to valuation methodology, what are the key valuation criteria that you use branes invest? What sort of companies do you avoid? Brnades do you pick stocks at your firm, and do you ever break the rules?

Brandes: I have charlss expressed one basic principle to the people in our research department: Never buy an airline! But they have ignored this rule, and we have lost a great deal of money on some airlines philoosphy done charles brandes investment philosophy well on. We try to be totally flexible while relying on basic fundamentals.

We start with basic value charlees, such as price to book, price to earnings, price to cash flow, onvestment solid balance sheets.

And when we identify something that may have value, it is time for our research analysts—who are industry specialists rather than ;hilosophy specialists—to conduct deep fundamental research from the standpoint of really understanding the company in relationship to the industry it is in and the part of the world it is in.

Our analysts come to understand the markets, the technology, the balance sheets, and the long-term history of earnings. It is not that complicated, unvestment it is intense, fundamental research. Shannon: Do you think that valuation using value investing principles is philsophy challenging today with the current market structure?

Is it more difficult to identify opportunities? Brandes: No, I do not think so. Whether it is high-net-worth clients or institutional clients, the human behavior of short-term thinking and acting on fear chrles greed does not change.

Obviously, some of the more recent developments, such as the credit crisis, put certain companies at values that, in hindsight, were ridiculously low. Now we know that if investors had purchased early inthey would have made a lot of money. But markets were inefficient for all of ibvestment reasons that we know, including such things as mark-to-market accounting that forced banks and other financial firms to raise capital at very pphilosophy prices.

These sorts of events will continue to happen in the future, and value opportunities will continue to exist. Shannon: Is a focus on dividend investing important to you? Are dividends or share repurchases more important? Brandes: Dividends are not something that we look for as a basic fundamental characteristic of a business; they are a secondary characteristic.

The basic fundamental characteristics include, of course, earnings, cash flows, and the necessity of reinvestment, as well as changes in technology. None of these items have anything to do with dividends, but I admit that, generally, the portfolios of value investors have a higher dividend yield than their benchmarks.

I was looking at our large-cap international portfolio today, and its dividend yield was 4. So, yes, the dividends are. Shannon: Where are you chagles investment opportunities globally—Japan, Europe, emerging markets?

Brandes: Taking your last question, yes, there are such places. What is so great about value investing is that the values do not tend to disappear altogether; something is always available. We like to have the flexibility to follow value opportunities anywhere, and our clients typically provide that flexibility. Considering simple criteria, such as price to earnings or price to book or dividend yields or decent economics, the best values today are generally in emerging markets. Although emerging markets did experience a recovery after the financial crisis, they have offered no performance at all over the past three years.

We are finding some good companies that are very cheap in China and in South America. Brazil, for example, is a scary place now from branves geopolitical perspective, but there are some good companies there that are very cheap. Also, people are afraid of Europe because of the potential for recession or because of the euro, but we are finding good companies. There are even some good values based in France. If a company has good global dispersion of sales, the euro—US dollar exchange rate will be less important.

In Japan, we were overallocated during its major rally inalthough we have reduced our current exposure closer to benchmark.

Regarding the yen, Japanese exporters are now in pretty good shape, so we still own Japan. Brandes: It can be less than a year, but only if the stock price has increased a tremendous amount in a short period of time. Shannon: How do you define risk from the perspective of concentration in individual securities? Do you take big bets or small bets?

Brandes: We tend to take medium bets. If you look at the rest of the institutional investor world, our portfolios appear to be fairly concentrated with 50—70 different positions. Over the years, there have been several studies on the issue of proper diversification. Some of the studies have stated that adequate diversification is possible with as few as 10 securities when they have no correlation. But we have found that we can handle 50—70 positions well and that it is a good way to build a portfolio.

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Charles Brandes slams indexing

Others shun banks and companies whose complicated structures make it too difficult to project future earnings. Accordingly, we expect to realize significant rewards as the market recognizes the true worth of our purchases. InBrandes used the new fund to start marketing to institutions. His father, who had a Ph. The amount of money it manages has fluctuated dramatically. Term of Use.