François Rochon and the Art of Investing

1. Unique Philosophy: Rochon treats investing as both a science and an art, blending analysis with intuition.

2. Engineering Influence: His engineering background fosters logical thinking and precise data analysis.

3. Long-Term Focus: Rochon prioritizes the true value of businesses over short-term market movements.

4. Stock Criteria: He targets companies with strong financials, solid models, and market leadership.

5. "Skin in the Game": Emphasizes management teams investing their own money for alignment with shareholders.

Introduction

François Rochon is a well-known Canadian investor and the founder of Giverny Capital, an investment firm based in Montreal that has performed exceptionally well over the years. Since starting in 1998, Giverny Capital has achieved a total return of over 5,300%, which means an annual return of about 14.5%. These impressive results have made the firm one of the top performers in the investing world. But there's more to Rochon than just these numbers. He is admired for his unique way of investing, which combines careful financial analysis with a deep understanding of human behavior and market trends. He treats investing as a science and an art, making his approach both unique and valuable for those aiming for long-term success.

An Engineering Mindset

François Rochon's background in engineering has greatly shaped how he invests, focusing on logical thinking, accuracy, and careful analysis of information. His education and early work taught him to solve problems based on facts and to make decisions in a structured way - skills that are crucial when choosing where to invest. However, unlike engineering, where decisions are made with almost complete certainty once all facts are known, investing often involves making choices even when not all information is available. Rochon uses his engineering mindset to analyze data thoroughly while also understanding that some level of risk is always present. This mix of careful analysis and flexibility helps him handle the unpredictable nature of the financial markets with confidence.

Investing as an Art

François Rochon believes that investing is like an art, combining both numbers and judgment and focusing on the true long-term value of businesses rather than short-term market changes. Inspired by his love for art, especially the works of painter Claude Monet, Rochon thinks that just like a painter looks for hidden details in their work, an investor should look beyond financial statements to find a company's real value. This means looking at not just the numbers, but also how strong a company's business model is, how good its management is, and how it stands against competitors over time. By blending these artistic insights with careful data analysis, Rochon has developed a way of investing that values patience, deep understanding, and steady growth, offering a balanced way to deal with the challenges of investing.

Business Masterpieces

When choosing stocks, François Rochon looks for what he calls “business masterpieces” - companies that show strong financial health, a solid business model, and leadership in their markets. He uses specific criteria to find these companies, starting with a Return on Equity (RoE) of at least 15%, showing they use shareholders' money effectively. He also looks for steady growth in Earnings Per Share (EPS) of over 10%, indicating the company can increase its profits. Rochon prefers companies with a debt-to-profit ratio of less than four, meaning they aren't weighed down by too much debt. His strategy is to buy stocks at prices he thinks are half of their expected value in five years, aiming for an annual return of about 15%. This disciplined approach helps him focus on high-quality companies that could double in value over time, offering solid returns while managing risk.

The Role of Management: Skill, Passion & Ownership

For François Rochon, the quality of a company's management team is key to its long-term success. He puts great emphasis on investing in companies run by skilled and passionate managers who are not only experts in their fields but also have a clear vision for creating something that lasts and makes a difference. Rochon believes that great management should aim beyond short-term profits and focus on creating value that lasts over time. He especially values leaders who show their commitment by having significant "skin in the game," meaning they invest their own money in the company they run. For Rochon, this alignment between management's interests and the company's long-term goals ensures that decisions are made for the company's future, not just to meet short-term targets.

The Importance of "Skin in the Game"

"Skin in the game" is a core part of François Rochon's investment approach. He strongly believes that when management invests their own money in their company, it aligns their interests with those of the shareholders. Rochon lives by this principle by investing his own money alongside his clients in Giverny Capital’s portfolios. By doing so, he shows his commitment to his investment choices and assures his clients that they share the same risks and rewards. This approach builds trust and a sense of partnership between investors and managers. Rochon’s focus on "skin in the game" reflects his belief that this alignment is crucial for success, as it promotes responsibility, dedication, and a genuine desire for the company to thrive in the long term.

Conclusion

François Rochon's approach to investing combines careful analysis, wise judgment, and a creative mindset, similar to how Warren Buffett invests in strong businesses with good fundamentals and capable leaders. By focusing on long-term growth, understanding the value of "skin in the game," and mixing both art and science in his strategy, Rochon has created a method that brings consistent results. If you have any questions or thoughts about this article, feel free to reply to this email! We're here to help you on your investing journey with clear guidance, inspired by some of the best in the field.

Happy investing!
Josh

P.S. I want to give a special shoutout to the newsletters I currently enjoy reading:

• Capitalist Letters

• Make Money, Make Time

• Quality Stocks

• The Weekend Investor

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.