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Home » Interview » Interview with Jean-Marie Eveillard, Senior Adviser, First Eagle Funds

Interview with Jean-Marie Eveillard, Senior Adviser, First Eagle Funds

According to Jean-Marie Eveillard, Senior Adviser, First Eagle Fund, after 2008 Value Investors should ask themselves if their bottom-up approach should be complemented with a top-down analysis of the macro environment.

This interview gives you a fresh insight on current macro environment and how investors should deal with it. I have made a limited (incomplete) summary of the topics he discusses.

Austrian School Best Analytical Tool to Perceive Current Environment

  • For top-down analysis, according to JME, the best analytical tool is the Austrian School to see through the neo- Keynesian measures taken by governments.
    • JME expects these measures to be discredited in the future
    • Inflation to the Austrians is not the increase of the CPI or asset prices it is the creation of too much money and too much credit.
    • Money is not supposed to be free and this situation will cause significant distortions.

Gold is the Currency of Last Reserve

  • Gold is a protection against extreme outcomes. It is the currency of last resort. Warren Buffett does not seem to get this. We see it as a substitute currency to hold cash in. We don’t see any of the printed currencies as reliable.

Graham vs. Buffett

  • He discusses the difference between Graham’s quantitative and Buffett’s qualitative intrinsic value measurement and describes the struggle of value investors on determining the right moment to sell their investments. At the static quantitative intrinsic value of Graham or the qualitative moat based intrinsic value of Buffett.
  • He describes he was twice illuminated by Graham’s Intelligent Investor and Buffett’s Shareholder Letters

Fund Performance Management

  • About his performance targets when was fund manager of first eagle funds.
    • His absolute target: perform better over time than money market funds.
      • In hindsight he would’ve set the absolute performance target in real terms
    • His relative objective: perform better over time than an adequate benchmark.
  • He mentions the reasons for having so little value investors around are psychological. As Grantham recently spelled out, it is career risk. Nobody wants to diverge too much from the benchmark. Job safety is too important.
  • He notices, now an advisor, value investing on personal account is much easier than doing it on behalve of clients
  • Successful value investing is highly depending on the clients chosen (he mentions Klarman has chosen his clients well)

Bonds are riskier than perceived

  • JME calls the run on bonds a big mistake
    • People working in the bond markets under 55 have never seen a bear market, so are overconfident in safety of bonds.
    • He thinks this is one of the reasons so many institutions move from equities to bonds these days.

Europe

  • Europe has a real problem, the Euro is created for political reasons not for economic reasons
    • Full integration of Germany into Europe requires the Euro
    • National governments kept fiscal power
    • The flaw became obvious from by the
    • Correct the mistake and have a European government
    • Giving up sovereignity is unpalatable
    • Everybody is buying time
    • Most European companies do business beyond Europe
    • Some of these companies are worth looking at right now

Japan

  • JME’s take on Japan
    • JME sees parallels with investing in French undervalued Small Caps in the 80s, patience is key.
    • On bicycle producer Shimano
    • Cultural issues

Other

  • Accounting issues between countries – conservatism vs. aggressiveness
  • Political Risk Premia

http://www.youtube.com/watch?v=qyLMcTJDwpQ&noredirect=1

The interviewers (brothers Mihaljevic) have made a great compilation of investing wisdom and other investors in the Manual of Ideas.


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