Who is Francois Rochon of Giverny Capital?
It is a journalistic cliché to refer to a successful investor as the “Warren Buffett” of X. Often, the people described bear little resemblance to Buffett’s approach. Many executives wrap themselves in Buffett’s cloak. However, few people truly believe in his strategy. Giverny Capital‘s Francois Rochon is the real deal.
Francois studied engineering before switching to investing. He began investing family funds in 1993, eventually opening to outside investors as Giverny Capital in 2000. In the 25 years since he began investing seriously, he has compounded at a rate of 15% in his main model (vs. 8.8% for his benchmark).
In 2008, he was only down 5.5%. (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).
Francois was completely unknown when he started Giverny and had only worked briefly for another money manager, Montrusco Bolton. Giverny now manages over a billion dollars in assets for clients in Canada and the United States. The company was founded on the premise that “if you build performance, the investors will come.”
Francois is a traditional money manager who primarily operates through managed accounts that charge a 1% annual fee. He has adopted none of the traditional tenets of hedge fund thinking, such as performance fees, shorting, or hedging. His average tenure is more than 6 years.
Francois, like Buffett, does not engage in market timing beyond paying attention to extremes. In early 2009, he referred to the market as a “generational opportunity,” and he organized a series of conferences across Quebec. Unfortunately, they were not well received, and many were cancelled. Few people express the opportunity that the crisis represents with the clarity and conviction that Francois does.
During the 2011 mini-bear, he reiterated his bullish call. Francois also purchased Google that year. Buffett mentioned Google as a missed opportunity, so that’s one example of a student outwitting the master. Another example was Francois’ purchase of Precision Castparts stock before it was completely acquired by Berkshire.
In the decade or so that I’ve been following Giverny, the company has remained lean and incredibly stable. Jean-Philippe Bouchard, Francois’ younger associate, was his first employee and has been with him since 2002.
Francois owns the majority of the company, with JP holding a minority stake. Several Buffett characteristics can be found in Francois, including lean operations and long-term relationships with people. Despite his now trendy Old Montreal location’s nice selection of lunch spots, I used to run into him at a humble diner run by a Vietnamese family. Francois had previously lived in a very ordinary home in a distant Montreal suburb.
He moved into a much more reassuring executive-style home last year, though still in a distant suburb. Don’t worry, he’s also more conscientious about lawn care. Don’t pass judgment; this is research. He also recently relocated his office to be closer to the Desmarais and Paul Martin.
Francois has always been more active in US names that are mid-cap or higher. He currently holds significant positions in Berkshire Hathaway, CarMax, Visa, and Bank of the Ozarks, for example. He also runs a Canadian model that was launched in 2007 and has a compounding rate of 15.5%. MTY Food Group was a big winner on the Canadian side.
Francois is a true Buffett disciple, regularly attending Berkshire Hathaway annual meetings. His Buffett knowledge is encyclopedic. He, like the oracle, is obsessed with learning. In his annual letters, he frequently discusses his mistakes and lessons learned.
I notice in his letters that he dabbled in a few tech names in the 1990s, such as 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.
Investing in Valeant is one of the many mistakes he highlights, and that episode reveals a lot about the type of investor he is. He purchased the shares in 2011 for around $45. He chose to ignore aggressive accounting and high indebtedness because he had faith in CEO Michael Pearson.
Given the risk, he kept the position at 3% and trimmed to a maximum weight of 5% as the stock increased in value. Valeant, of course, went bankrupt in 2015, but Giverny was able to exit at $52. Despite the trimming, he was able to more than double his money on the name in less than five years.
Mistakes are unavoidable, but compare his actions to those of another famous Buffett student, Bill Ackman, with his excessive weight, doubling down, and bravado. Buffett devotees may differ on what constitutes proper diversification.
Francois’ approach of 20-25 names, with no position exceeding 10%, appeals to me (though he makes an exception for his Berkshire Hathaway holding). “I don’t think we’ve reached a level of quality in terms of investing that makes us feel that we can only have ten or twelve stocks,” he says, justifying his reasonable diversification.
Francois combines trust in his own judgment with the constant awareness that the risk of error never goes away. He is still aiming to outperform his benchmark by 5% annualized over the long term, which he admits is an ambitious goal.
Most retail investors should avoid hedge funds, stop chasing performance, and instead seek out money managers in the Giverny mold: an owner-managed fund that is 100% focused on a single equity strategy and invests for the long term. Until recently, few people in Montreal associated Giverny with the trendy investment shop.
Read more work here.