rotmanmagazine.ca / 55lots of money was coming out of them, and suddenly they were
very, very cheap.
We find certain markets are a lot better than others: We
still think Brazil and South Korea are very interesting; and
we find Russia and some of its major companies interesting.
You have to discriminate between companies, from a bottom-
up standpoint, rather than just looking at ‘emerging markets’
in general.
EK: How do you avoid the ‘gambler’s ruin’ risk—of
being right about a country, but wrong about in-
dividual selections?CB:Our whole job is to try to understand the fun-
damental risks involved with each company and
industry, the changes happening in management,
the balance of the company and its historic rates
of return on equity. We look at these factors to try to determine
whether, in actuality, the intrinsic value we come up with is
fairly close to the company’s long-term value. Our whole job
is to make that determination. Of course, sometimes we’re
wrong; but that’s why it’s so important to have a diversified
portfolio.
Some investors rely on indexes, like the Morgan Stan-
ley Capital International Emerging Markets Index (MSCI
EM)—but they are very biased from the standpoint of market
capitalization: You are only able to buy the four or five biggest
companies in a country like China, India or Russia — which is
extremely limiting with respect to the actual potential of com-
panies in these markets.
EK: Value investing has its roots in the 1930s, when
it was called Fundamental Analysis, and over the
years it has enjoyed a 2.5 to three per cent advan-
tage over growth indexes. Do you believe that it is
as relevant today as it always has been?
CB:Yes, because it is based upon economics and
wealth creation over a long period of time in a free
enterprise economy. Looking back to when Ben
Graham started on Wall Street in 1914, there has
been lots of change in terms of information availability, but not
much difference in the cyclicality of businesses and the way
wealth is produced over a long period of time. And there has been
little to no difference in human behaviour.Charles Brandes is the founder and Chairman of Brandes Investment Part-
ners, L.P., and a member of the firm’s Investment Oversight Committee.
He is the author of Brandes on Value: The Independent Investor (McGraw-Hill
Education, 2014). One of the most closely followed value investors working
today, he is a disciple of the Benjamin Graham school of value investing. Kim
Shannon (Rotman MBA ‘93) founded Sionna Investment Managers in 2002.
She was previously Chief Investment Officer and Senior Vice President at
Merrill Lynch Investment Managers Canada Inc. She is a past president of the
CFA Society of Toronto. Eric Kirzner is the John H. Watson Chair in Value
Investing and Professor of Finance at the Rotman School of Management.This interview took place at the Rotman School of Management on January 12, 2017.