Rattibha

1/ François Rochon recently released Giverny Capital's 2022 Annual Letter
It was once again refreshing after a tough year in the stock market, and the podium of errors was pretty interesting
🧵 with some highlights

2/ The Rochon Global Portfolio was down 15.2% in 2022, its worst year on record. It was Giverny's second down year since 2008 and its 4th down year overall (30 years)
Since 1993, Giverny has compounded at a CAGR of 14.5%, leading to a total return of 5355%:

3/ 2022 performance enjoyed a 4.6% tailwind from currency (as it's reported in CAD). This said, currency has "only" been a 0.2% annual tailwind during the 30 years.
Many investors over-obsess with currency (which they should do if they invest ST) but LT its impact is low

4/ Of course, the above applies to relatively strong currencies. If someone invests in emerging markets with extremely volatile currencies then currency risk should definitely be a consideration imho

5/ In 2007 Giverny introduced a portfolio exclusively focused in Canadian equities
The portfolio is concentrated and its companies have performed well, leading to pretty outstanding outperformance

6/ Diversification is important for risk management, but the more stocks an investor holds, the more will their performance gravitate towards those of the indices

7/ François makes some comments on 2022, from which I would highlight the following paragraphs talking about how government intervention can only defer (but not avoid) economic forces
Capitalism is not a perfect model, but it creates wealth over the LT

8/ These comments are followed by some comments related to the stock market
François attributes underperformance to not owning:
1. Natural resources companies
2. Low growth companies
These were the most resilient sectors but were absent from the portfolio

9/ He also makes the case for residential construction despite the short term challenges that might come in 2023

10/ The letter advises against buying companies with a lot of growth embedded in their stock prices. Sometimes these companies don't make money and thus don't have a floor on their valuations

11/ Uses $CSCO as an example.
Stock traded at 120 times earnings in the year 2000. Since then, EPS have compounded at 8% over 22 years, but the stock is down 20%

12/ There's a good discussion on stock options and how they are an expense.
The bottom line is that companies spend quite a bit of FCF buying back stock to offset dilution from options and this FCF could have been used for other things, such as paying dividends to shareholders

13/ Giverny's outlook for 2023 is what you would expect: agnostic and aiming to stay invested through thick and thin

14/ The "flavor of the day" continues to be crypto despite its bad performance in 2022:
"In our humble opinion, the intrinsic value of these objects of speculation appears to be totally arbitrary; so we continue to stay away from them."

15/ The podium of errors is pretty diverse. Two errors of omission and an error of selling too soon.
Bronze medal: Texas Roadhouse $TXRH
Missed a 150% return over 5 years:

16/ Silver medal: O'Reilly $ORLY
Selling too soon made Giverny miss on a +100% move in three years, which would have equalled to a 22% CAGR since 2004

17/ Gold medal: Louis Vuitton $LVMH
Giverny missed a 20% CAGR since 2011 waiting for a better entry point

18/ The letter ends with a discussion of a vital quality for any investor: humility.
This was my favorite part:

19/ And last but not least, François makes a list with the conclusions of his newly launched autobiography which can be summarize in:
1. Patience
2. High quality companies
3. Constant monitoring

20/ François was very kind to accept an invitation to the Best Anchor Stocks podcast, if you want to check that out you can do so below!
bestanchorstocks.substack.com