54 / Rotman Management Spring 2017
EK: Charles, back in 1987—after the largest sin-
gle-day loss in market history, Black Monday—you
were asked on national television, what you would
be doing differently as a result. Your now-famous
answer: ‘Nothing’. Please explain.
CB:That’s a typical mistake investors make: They
get really concerned about short-term stock mar-
ket price movement and think it’s going to continue
forever. It happens all the time. I get clients asking
me ‘When the market’s going down, what should I do?’ And, of
course, the first part of my answer is, ‘Do nothing’, because the
market does come back, and if you like what you have in your
portfolio, you should leave it alone. Never try to out-guess the
market. Of course, an even better answer to that question is, ‘Buy
more if prices are down’ — but over many years, we’ve found that
our clients have difficulty doing that.
KS:I absolutely agree with Charles: If you have a
robust portfolio, you should never move it around
on a day like that, but you can look around for oth-
er opportunities. For me, as a value manager, one
of the best times to do that was, sadly, in the aftermath of 9/11.
Canadian markets reopened on the Thursday or Friday, but the
U.S. didn’t reopen until the following Monday. After the trag-
edy, every stock in the market was down by 20 or 30 per cent.
Enormous bargains were available all over the floor—but you
had to realize that your portfolio was also down 20 to 30 per
cent. It was easy at that moment in time for an active manger
to be shell-shocked — and I certainly was.
Investing is as much about being an emotional human be-
ing interacting with the world as it is about underlying funda-
mentals. The beauty of having some extra time that week was
that I could come to work on Monday and say, ‘Wait a minute:
We’re all upset, but rationally, this is one of the best buying op-
portunities of my career. I have to act.’ It’s very tough to step in
after big drops like that, but value managers have been trained
to do the opposite of what most people are doing.CB:The stock market really has nothing to do with
true investing. Most of the time, you should be to-
tally ignoring the market and stock price move-
ments and volatility. Instead, you should be look-
ing at the companies you own, and how they are doing over a
long period of time. That has nothing to do with stock market
fluctuations.EK: Charles, your firm has been investing in emerg-
ing markets since 1982. You were among the first
to start pursuing that area. How do you go about
distinguishing opportunities in emerging markets?CB:Terms like ‘emerging market’ and ‘developed
market’ aren’t what investors should focus on. In-
stead, they should be looking at individual markets
and individual companies within them. Where
they are based is less important. As Kim indicated earlier, this
is a bottom-up-type of thinking — rather than a top-down ap-
proach that puts all emerging markets into the same bucket.
The fact is, each emerging market is different: Brazil is
very different from Russia, which is very different from South
Korea. What is not that different is how businesses operate
around the world. As always, the main thing we take into ac-
count is, how a company is priced today in the public market,
compared to its long-term intrinsic value.
In building our portfolio, we look all around the world,
including emerging markets and developed markets—even at
so-called ‘frontier markets’, trying to find the largest margin of
safety, no matter where the company happens to be located.
Emerging markets had been doing very poorly until about June
of 2016, but they’ve done extremely well since then. Because
they were doing so poorly for so long, people got scared andEvery sector of the market is ‘open season’ for a value investor —
but not always at the same time.