“I didn’t want to wait until I was 65 or 67 to retire and I wanted to have a lot more time for myself, for my family, to read, to do sport. My idea was to retire actively at 50, which I told Microsoft early enough so that after two four-year cycles, there could be an influx of new blood.” In October 2022, Candi Carrera put his plan into action and headed for Malaga.
While he returns to Luxembourg more than once a month, the former Microsoft country manager took an MBA at Insead and began to share the knowledge of 25 years’ experience with an online student community of around 5,000 people today. Not to mention his role as an independent director at the Luxembourg Institute of Science and Technology and lecturing for the University of Luxembourg and École supérieure des sciences commerciales d’Angers (Essca).
Speaking from his office, filled with books, and which indeed seems to be bathed in sunshine, Carrera lifts a corner of the veil on what he will be saying at the Swissquote Investment Day on 14 March 2024.
Thierry Labro: The basis of the financial analysis war is data. And data is not structured in the same way everywhere or in all companies. How complicated is it to be a value investor?
Candi Carrera: It’s not as complicated as you might think. American companies are something of an exception when it comes to IFRS accounting standards. Only six countries do not follow this standard, including the United States, which follows US Gaap. But a lot of financial flows revolve around American companies, especially around the Magic 7, with Nvidia and Tesla joining the . Instead of calculating the value of a company on the basis of relative indicators, I’m more in favour of looking at what the assets are worth. ‘The funny thing,’ says Peter Lynch of the Magellan fund, ‘is that people really think about the value of a house, a car or a fridge, but not at all when they buy on the stock market. They hear a rumour or someone advises them to buy and they put their savings into it without having thought about what the asset is really worth. But hard-earned money should not be invested on a whim.’
Where’s the crux of your strategy?
You have to calculate the value of the business and look at where that stands in relation to what the market is offering you today. That takes practice: every quarter, go and read the financial reports of the companies in which you are a shareholder. This develops certain vocabulary reflexes, as you are reading something for the first time in a company report. Whether in the United States or elsewhere, you are increasingly quick to detect what is going on.
Now, you’re talking about ‘big companies’, but how do you deal with those that might be interesting in three, five or ten years’ time?
Today, when we talk about financial analysis, we’re talking about the Magic 7 and very large caps, which are covered by a lot of analysts and journalists. But there are different circles of expertise and investment universes. In 25 years, I’ve never changed my investment universe: blue chip companies, not necessarily in tech. With overpriced companies, you often run the risk of being disappointed. For companies that go through private equity or an IPO--we’re talking more and more about DPOs for ‘direct public offering’--my analysis is that there’s a lot of bluffing going on. After the first listing, especially in IPOs, you have to be very lucky to get out the one that will multiply your assets by 30, 40 or 50. I’m more traditional, I’m aiming for 7% a year over 30 years, and I’m very happy. You double your capital in ten years thanks to the snowball effect.
If traditional manufacturers build ten times as many cars as Tesla and sell them, at some point they will be able to recover Tesla’s volume of data.
Yes, but at the same time, you might want to change the world and direct your capital towards new, more virtuous companies in one way or another?
Generally speaking, we always talk about success stories. Tesla is a success story. However, like any company, what was innovative that drove their growth? They went up against the combustion engine lobbies, which created a religion for the first buyers. Then they spent a lot of money on the first networks of charging points. Today, this element is being diluted because even Europe is subsidising the networks. It’s a question of capital intensity. Tesla is opening up the charging points to other companies to prevent other companies from launching their own networks... and that’s generating revenue.
Take Stellantis, Mercedes or BMW, compared with Tesla: they have put capital on the table to compete with them on vehicle autonomy, on networks... Tesla is a computer that records a lot of data, which is not made available to Waze or other services because it is so valuable. If traditional carmakers build ten times as many cars as Tesla and sell them, at some point they will be able to recover Tesla’s volume of data.
What about the 2,000 Chinese companies in the same niche that are gradually breaking into Western markets?
The Americans and Europeans are facing a challenge: China has understood car marketing. Some people say that Chinese cars are cheaper and perhaps less demanding than others, but they are responding to a demand. Quality and safety will increase. With 30% less to pay, these brands will find customers, except perhaps those who are attached to BMW, Mercedes or Tesla.
What about the human factor in a company’s success, when you're an investor? There are companies that are very successful because their managers are very good, visionary or charismatic.
I’m thinking of Phil Fisher, who has developed a method called the ‘scuttlebutt method’. The subject is how I can get a fairly accurate idea of employee satisfaction without having to travel. Comparably, Glassdoor or Customerguru, for the big brands, allow you to collect a ‘net promoter score’, the NPS, and the ENPS, the ‘employee net promoter score’. It’s a shame we can’t collect supplier satisfaction, what they say about the company. If the argument of the statistical sample and its biases is often put to me, I reply that out of 4,000 people who talk about Microsoft, Microsoft doesn’t have the capacity to bias everything... There are ten data points per company. So I wanted to automate the human element, to try and make it tangible at the lowest possible cost.
I like to invest in everything that is fundamental to people, food, comfort, luxury, to put it simply, the world’s top 100 brands.
What advice do you give to your students?
Buy at 25% or 30% below the intrinsic value of the asset. There’s a human trade-off that has to be made, which is how you calculate that intrinsic value. The second lever is a well-known phrase: in the short term, the market is an electoral machine; in the long term, it’s a machine that weighs. Nothing is ever perfect. Even if you buy at a low point, the price can still fall.
How do you become a value investor? These days, we’re hearing more and more that you should forget about retirement and build up your capital when you’re younger, even if you’re prepared to make mistakes.
It was by chance that I came across Benjamin Graham’s book, The Intelligent Investor, in German, in Luxembourg. This is the man who trained Warren Buffet. I had started investing in certain companies, like Cisco. I saw people talking to me about charts and rules... I said to myself that I didn’t understand and that I didn’t want to be a slave to my computer and have to be on the lookout for the slightest rumour, even in the middle of the night. I was convinced that there was another way. It made me want to read Berkshire Hathaway’s annual reports. I listened to the four-hour lecture on the 30-year annual report. I took notes on what Warren Buffet and Charlie Munger were saying.
Today, I’ll start with the balance sheet. This tells you everything a company has accumulated in terms of assets since day 1, followed by its cash flow and finally its profits, its cost structure, in terms of marketing, R&D, etc. I’m not a shareholder in 50 companies. but in eight to twelve, because it takes time to go and read everything every quarter, to take part in the analyst call to hear what the CEO has to say about the company. I’m talking about reading the statutory report, not the reports with the pretty pictures we present to journalists...
What is your bias in terms of value investing?
My circle of expertise has been Europe and the United States for many, many years. I’ve never invested in Japan or China. There’s also the industries attribute: I like to invest in everything that’s fundamental for people, food, comfort, luxury, to put it simply, the world’s top 100 brands. Not in pharmaceuticals, I don’t understand that ecosystem. Not in banking or insurance, because despite the regulations, I don’t know what assets are on their balance sheets.
To those who tell me that they have a virtual portfolio, I simply reply that they don’t have the courage to put their money on the stock market.
And do you invest on a recurring basis?
When I was working, I used to think about the snowball effect: if the share price was good, I would reinvest the dividend in the company. When the market is too high, I accumulate cash and wait. When a lot of people panic, I buy. You have to be patient. To those who tell me that they have a virtual portfolio, I simply reply that they don’t have the courage to put their money on the stock market. The first time you press the button and your account is debited, you’ll start to break out in a cold sweat. Third point: zero debt. I don’t borrow to invest in the stock market. The fourth is to be disciplined: I have a series of rules that I don’t break.
Why do you still need to have your rules posted in front of you, 25 years after you started?
To avoid becoming arrogant. You have to remain humble. When the stock market rises by 30%, you think you’re 30% smarter. When it loses 30%, you never want to tell yourself that you’re 30% stupider... The last rule, the ‘+1’ as I call it, is to keep educating yourself, reading, informing yourself, practising reading financial reports, taking an interest in business.
Originally published in French by and translated for Delano