The real Warren Buffett of Canada

Calling a successful investor the "Warren Buffett" of X is a journalistic cliché. Often, the people so described have very little in common with Buffett's approach. Many managers cover themselves in the cloak of Buffett. But few are truly close adherents to his strategy. Francois Rochon of Giverny Capital is the real deal.

Francois trained as an engineer but switched course to investing. He started investing family money in 1993, eventually opening to external investors in 2000 as Giverny Capital. In the ~25 years since his start as a serious investor, he is compounding at 15% in his main model (vs 8.8% for his benchmark). He was only down 5.5% in 2008 (though it should be clarified that as an investor primarily focused on US markets, he had some downside protection from his unhedged exposure to the USD during that bear market).

When Francois started Giverny, he was completely unknown and had only worked briefly for another money manager, Montrusco Bolton. Giverny now manages over a billion dollars for clients in Canada and the US. The firm has largely been built on the notion that "if you build performance, the investors will come".

Francois is an old-school money manager, operating primarily through managed accounts charging a 1% annual fee. He has adopted none of the mainstays of hedge fund thinking, whether performance fees, shorting or hedging. His average holding period is more than 6 years.

Like Buffett, Francois does not engage in any market timing, except paying attention to extremes. In early 2009, he called the market level a "generational opportunity" and organized a Quebec-wide series of conferences. Unfortunately, they were not very popular and many had to be cancelled. I have read few people express the opportunity that the crisis represented with as much clarity and conviction as Francois. He reiterated his bullish call during the mini-bear of 2011. That year, Francois also bought Google. Buffett mentioned Google as a missed opportunity for him, so that's one instance of the student outwitting the master. Another instance was Francois' buying of Precision Castparts shares before it was wholly acquired by Berkshire.

Giverny is still a very lean firm and incredibly stable in the decade-plus I have followed them. Francois' younger associate Jean-Philippe Bouchard was his first employee and has been there since 2002. The firm is majority-owned by Francois, while JP has a minority stake. Lean operations and lasting associations with people are some of several Buffett traits you'll find in Francois. Despite the nice selection of lunch spots in his now trendy Old Montreal location, I used to run into him at a humble diner run by a Vietnamese family. Until very recently, Francois also lived in a very ordinary home in a distant Montreal suburb.

Last year, he moved into a much more reassuring executive-type home, though still in a distant suburb. And don’t worry, he’s also more rigorous about lawn maintenance. Don’t judge me, this is research. He also recently moved his office near the Desmarais and Paul Martin.

Francois has always been more active in US names, generally mid-cap and above. For example, he currently has large weights in Berkshire Hathaway, CarMax, Visa and Bank of the Ozarks. He also runs a Canadian model, launched in 2007, that is compounding at 15.5%. A big win on the Canadian side was MTY Food Group.

Francois is a true disciple of Buffett, who regularly attended the Berkshire Hathaway annual meetings. His knowledge of Buffett is encyclopedic. Like the oracle, he is dedicated to relentless learning. His mistakes and lessons learned are a recurring theme in his annual letters. In the 90s, I notice from his letters, that he dabbled in a few tech names, like Yahoo and Vitesse Semiconductor, but I sense that phase is over and his portfolio reflects the Buffett adage that boring companies can make for exciting returns.

Among the many mistakes he highlights is investing in Valeant and that episode is pretty illuminating as to the type of investor he is. He had bought the shares in 2011 at around $45. He chose to overlook aggressive accounting and high indebtedness because of his high confidence in CEO Michael Pearson. Given the risk, he limited the position to 3% and trimmed at a maximum weight of 5% as the stock appreciated. Valeant, of course, crashed and burned starting in 2015, but Giverny was able to get out at $52. Thanks to the trimming over the years, he was still able to more than double his money on the name in less than five years. Mistakes are inevitable but contrast his actions to that other famous Buffett student, Bill Ackman - with the immoderate weight, the doubling down, the bravado. Buffett disciples can disagree over what constitutes proper diversification. I like Francois approach of 20-25 names, with no position exceeding 10% (though he makes an exception for his Berkshire Hathaway holding). He justifies his reasonable diversification by saying: "I don't think we've reached a level of quality in terms of investing that makes us feel that we can have only ten or twelve stocks." Francois really combines confidence in his own judgement with the constant awareness that the risk of misjudgement never goes away. He is still aiming to outperform his benchmark by 5% annualized over the long-term - an ambitious goal by his own admission.

Most retail investors should forget about hedge funds, stop chasing performance and look for money managers in Giverny’s mould: an owner-managed fund, 100% focused on a single equity strategy investing for the long-term. Until recently, few people in Montreal thought of Giverny as the in-vogue investment shop. I know I didn’t. François is the tortoise that won.


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