European Value Investor - Anthony Deden

Thanks to Grant Williams (Real Vision) I managed to hear some new / lost words:

·         Intergenerational means of preserving capital

·         Permanent , irreplaceable capital

·         Investment counselor

·         Endurance (in investment )

·         Difference between American and European investor

The above words were brought during an interview with Anthony Deden (Chairman of Edelweiss Holdings) is one of those guys who falls in the tradition of participating in business and not investing in stocks. For a change I and the world was introduced to an European Value Investor.

I can surely say that I can add one more name along with Warren Buffet , Charlie Munger i.e. Anthony Deden.

What I liked about the interview:

The Interviewer (Grant Williams) was not rushing with questions

The interview was done in two days ( not the usual few hours in a studio)

Interviewee (Anthony Deden) possessed clarity in thoughts, ease in presenting / articulating

Interviewee shared some examples which are irreplaceable / will be etched in memory

The interview is worth watching despite its length (i.e. 02:25:39). We have to remember that this interview was edited from a footage of 4 hours.

I was shocked to hear that men like Anthony Deden were common in Europe but they were reclusive and not interested in participating in Twitter, Face book etc

My learnings / valuable insights from the interview is shared below:

Investment Counselor and his approach

(05:20) – But when you are an investment counselor to a family, and in essence, you are asked to provide guidance for the entire wherewithal this family has, you come to the inevitable observation, to start with that, this is all the wealth this family possesses and no one is ever going to give them any more. Yeah. And there's a sense of irreplaceability to this capital. So you have to start respecting it, respect the fact that it is really irreplaceable. It represents a lifetime's worth of savings. That is, that you must avoid the kind of error that would put this family out of business. And you also learn fairly early on, something that takes men far longer to do-- that is, it's easier to actually make money than to keep it.

Separation of Securities prices from economic results / activity

(18:10) But then came the period of 1995, '96, '97, where-- monetary policy has always played a role in financial matters, but all of a sudden the monetary policy became the driver and industrial activity took a backseat to financial activity. That was the beginning, I think. Maybe I will disagree on that about the timing, but prices of securities were going up, independent of economic results or economic activity. And that's mostly in the United States, but the rest of the world followed along with the American policy. At some point, prices became untethered from the reality of the situation. And I saw this in, possibly, in 1998, and I became certain that there must be an error, and the error must be either outside or it could be mine. I couldn't see the fact that the world had changed. And I went through a period of soul searching because, I felt, perhaps, I was too old-fashioned. I had too many rigid ideas and the world was changing. Remember, those were the days of Mr. Greenspan, who advocated a complete revolution in productivity, and other such factors. And I asked myself, perhaps I'm wrong. Perhaps what I believe is wrong, and perhaps everyone else is right. And now, it seems insignificant, but back then, it was an enormous burden on me, because if I were wrong, that means my actions, or inactions, would have an effect on other people's savings. So I had to do something about it. What you do in this case is sort of like when you get lost on the road and you don't know where you are. You might have a map. The map doesn't help you unless you know where you are.

Focus of investment

(22:34) Now, if you are merely in front of a Bloomberg machine and you think that you can anticipate these matters and you can anticipate interest rates and foreign exchange rates, you're deluding yourself, because no one really knows when the next boom or bust will take place or where. But the problem comes in not trying to impress your customers, but trying to protect what you have spent years accumulating.

Impact of QE (Quantitative Easing)

(27:42) In the beginning of the QE period, the global QE period, I became convinced that the world, the system, was going to destroy the nature of money itself. I became convinced that the rules of the game had changed completely. When the rules change, the basic framework with which you make a decision needs to change.

How to stay away from herd

(43:29) The only thing I have is that I have purposefully extracted myself and our team and our organization from the financial world. That's all I've done. So when you extract yourself from it, your vocabulary changes. Your practice changes. Your philosophy changes. Everything changes.

On Forward Guidance

(50:26) Now, you asked me about this nonsense about earnings estimates and forecasts, and what do they call them? Forward guidance. Forward guidance. Yeah. I mean, I think that every CEO that I know personally would tell you in person that they have no clue. And first of all, even if they did have a clue, why would they give you forward guidance? There's nothing in it for them. No, no, there's something for them, if they have the options involved. Well, you're exactly right. We're talking business owners here, not CEOs. I mean, what is the purpose for having forward guidance? The only purpose is the price of the stock. And then therefore, the price of the stock becomes a product, so then it becomes a game. So the focus is not on making something, the focus is on how to make money. So the idea behind the business is money is made as a result of doing something well. I mean, that's the principle foundational aspect of it, is you do well financially as an individual because you contribute something worth-- someone else is willing to pay what you contribute. So to the extent that the only objective is to make money, or to acquire something of a purpose, or reselling it, or what have you, you lose track of those essential components, of this idea of independence and endurance that I spoke to you about. It becomes a game.

On understanding business

(55:23) But what do you do is you learn about business. Not about stocks, but about business. You learn the food business, the fertilizer business, engineering. You learn about specific endeavors, and you acquire an understanding-- a businessman who grows, say, carrots. I'm using this example. Yeah. He's completely uninterested in spending time learning about semiconductors. Because no matter how much he knows, he will not ever know what could go wrong. He knows carrots. He knows what can go wrong in the carrot business. He knows the components that contribute to successful carrot business. So you can never tell me that there's a young man 25 years old, however many degrees he may have from Harvard, who can sit in New York and know what can go wrong in some biotech business in Japan or some machinery business in Spain. He sees things superficially on financial information, on a superficial-- look at what it looks like, or what it has looked like. When you buy for the purpose of selling, you don't really need to understand what can go wrong.

Scarcity, Endurance and Independence

(61:51) And we defined it by the word scarcity, and that scarcity is the most important law in economics, in that no one can have all that they want. Scarcity is a natural law. It's just part of life. There's scarcity in material goods, in resources- - everywhere you look at the scarcity, in real savings, in terms of money, other than, perhaps, credit is being created. But there's not just scarcity only in visible, tangible resources, there's also scarcity and skill sets. There's also scarcity among the kind of characteristics and character in men that you and I would consider to be attractive. So scarcity, in all of its permutations, is an important ingredient in any action that deploys capital for the future. What makes a Van Gogh painting valuable is not the canvas or the paint, but the fact there is only one. By the same token, there's a second component, which we call permanence. I sometimes think we should have called it endurance, but nonetheless. It's the idea of creating a framework not only within your collection of investments, but by extension within each investment, the nature of the investment itself, and the people, the participation that it represents, in the kind of policies and the kind of practice and the kind of purposeful behavior that is designed to endure, rather than merely grow. You can grow but become fragile and then die. That's not interesting to me. So if my mandate is to protect capital from both inflation, taxation, and bad decisions, then the idea of seeking to find endurance is very important. It's really important. And the third part was the idea of independence. So it was scarcity permanency. And independence is even of significant value as well in the sense that much of what we see today in our world is interdependent today. We depend on so many external factors. We depend on suppliers. We depend on the light coming on when we turn on the switch. We take it for granted that the light will come on. We depend on the water company. But more so, in a business sense, we depend on, perhaps, key suppliers, that often, perhaps, their situation is not as strong as we think it is. We have competitive pressures that come as a result of competition that would not have been there had there not been credit. So credit creation. The debasement of money has created an environment in which there is falsity within the competitive arena in which companies operate. And in order to survive, they have to, more or less, adapt to the conditions. So there's dependence on government for subsidies, or for tax abatements, or other such things. Sometimes there's dependence on one customer. So dependence makes a system fragile. So the more independent an organism is from external weaknesses, the more likely is to add to its endurance, or its strength. So independence is very valuable, and is actually costly. There's an element of freedom.

Quote on wisdom

(66:34) The ancient Greeks said that the revisiting of definitions is the beginning of wisdom.

View of savings due to debasement of money

(69:44) It's hardly anyone who works to provide for another generation. People want to consume what they have. They see their investments as an extension of their current account. It isn't always true, but this debasement of money has changed. It has had a moral impact on man's view of his savings or his world.

Participating in business and buying shares

(76:17) The story is a real story about this man who often did this sort of thing. But one day, he came to me, and he says, I need your help. He says, there's going to be a dry-cleaning store in our neighborhood and I have a chance to invest money. And I said, well, that's wonderful. He says, well, but I've got to do some research. So he says, I went around, found out that the nearest dry cleaners is only 2 and ½ miles and they're very busy. So there's likely to be demand for this cleaning shop. I also went to industry to find out what the operating margins are for cleaning stores and what is the nominal labor component versus the amortization, and equipment, and on and on. And so this man was a dentist, actually, he was a educated man by nominal standard. The moment he had an opportunity to invest in something that was not quoted, and he didn't really know what he would like to do, he became fascinated with the idea of being an owner in a dry cleaners. But he saw the necessity of understanding those ingredients that would otherwise contribute to the success or failure of this investment. Whereas on the other hand, because throwing money on a tip is the kind of thing that allows you, well, the next day to sell it, or buy more, et cetera. That liquidity gives you an excuse not to want to know anything, not to understand anything.

About inter-generational wealth

(81:32)This date farmer I met is Arab. And he had inherited an orchard, right? It's called an orchard? Yes. --of roughly about 1,000 trees. He showed me around. And he showed me something like 100 trees that were recently planted. And I said to him out of curiosity, I have this curiosity about, I said, how long will it take for this to bear fruit? And he says, well, this particular variety, it will bear fruit in about 20 years. But that's not good enough for the market. It may be about 40 years before we can actually sell it. I've never heard of this. I did not know this. Now, there are other date trees that could produce faster. But anyway, so I said-- so all of a sudden, it became odd. Because I looked at all these trees that were being harvested. And you realize that he couldn't have possibly planted them. Yes. He said, oh, yes, yes, yes, that was my grandfather, and my father, great grandfather. It was fascinating. Why would a man do something today for which he will receive no reward in his lifetime? The only reason he would do this if his time preference is so low that he's concerned about his family's wealth a generation or two from now. Because he receives no reward by planting a tree that will have no— You know, in your world, they would call it an economic loss, a loss of opportunity, or god knows what they would call it. But he saw the world differently. I'm in a supermarket and I see dates, I think about this story now. And I'm sure there are other, similar kind of situations. Everyone has heard me tell the story about Antoine Fievet, the chairman of Bel—Fromagerie Bel. And the first time I met him, something had happened in the company that was notable. Anyway, so I said, I want to congratulate you for something. I don't remember what it was. And he says, oh, Tony, you don't need to congratulate me. I found myself in this family that several generations built this wall. And I'm adding one or two bricks. And I'm going to pass it on to someone else. Think about what this man said. I mean, I was instantly in love with this man. It made no difference if he made cheese or made furniture. He had a perspective of what his role was, a perspective of what his task was, that his mission was to protect, to preserve, and to enhance what he was handed. It was not the business of quickly selling it, and making money, and doing things. They do make a great deal of money. But they do make money as a result of making great products. So how many people in the world can I find that I can buy 2%, 3%, 4%, 5% of their business that think like that? Because that way I can sleep very well at night. And I can assure you the capital that I command and is deployed is going to be around 50 years.

On watching stock price frequently

(86:45) Yesterday, we have one holding in which someone sold 14 shares. Right. The prior closing price was 505 euro. Yes? Yes. The new bid was 480, asking 540. Ask 540, bid 480. Somebody sold 14 shares at 540. The last price came down 2 and 1/2%. And I calculated that for the family that owns the company that translates to something like 400 million euro worth of change. Right. Now imagine they were watching it. It is immaterial. For us, it was something like 600,000 of dollars or euros, or I don't know what. But the fact is that the more often, the more frequently you look at something, the more frequently you'll second guess why you own it and what else you could own instead.

On Responsibility and Accountability

(96:37) Today, you're suffering from a culture of unaccountability. Look how many times you've heard recently the word transparency. Everybody says this, huh? When I was a young man, no one really knew the word transparency. When a company is owned by an owner, there is no need for transparency. Right? Yes. When a company is owned by someone who is responsible to the owner, that's all we need is a responsibility. We used to have this word. No? Now we have manufactured all this bureaucracy to satisfy our nominal need that things are being reported, et cetera, et cetera. Every fraud in the world had an audited, financial account. Yes. Everyone. So that doesn't mean anything either, does it? Nope. No, it doesn't. It doesn't.

On Two stock ideas

(141:16) A year and half ago, they asked me to speak in New York-- I told you-- in this forum. And they told me, he said, look, you have to say whatever you say, but then you give us two good investment ideas. People are used to this sort of thing and they want them. So I said to the organizer, I said, imagine you ask a doctor, can you give me the names of two good drugs? It's the same question. Yes. First of all, an investment idea is worthless unless you understand whether it's suitable to someone, appropriate. So the fact that you take particular medicine and it's useful for you, you don't say, Tony, you need to take that too. Try this stuff. --really good for me. Yes, right. Well, maybe I don't need it.

Link for the must watch interview: