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My full interview with Francis Chou of Chou Associates can be found here and originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

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Francis Chou’s 19 Investing Lessons:

1) Relating shopping in India to investing: “It was my job to make sure I was paying the lowest price for the best quality.”

2) “I contrast the current scenario to the scenario in 1981. Everyone is so bullish but I’m really negative.”

3) “I didn’t know the market was going to take off in six months [in 1981], but I knew you couldn’t get stocks any cheaper than their prices at the time.”

4) “When you read about great men and women of the past, it is like having a conversation about world affairs in your living room. It is not only educational but it builds perspective about life and business in general.”

5) “My first job is to check whether the company in question meets my investment criteria. It could be a good company, a bad company, or it could be a CRAP [cannot realize a profit].”

6) “I do screens, read a lot, and talk to other talented portfolio managers to see where they are seeing bargains. . . . [And] before you make a purchase, you should look for investors who are negative on the stock.”

7) “I just go wherever I can find bargains. For instance, in the years 2000 to 2002, I was basically in distressed bonds. I just go wherever I can find something undervalued.”

8) “Whenever the majority of investors are purchasing securities at prices that implicitly assume that everything is perfect with the world, an economic dislocation or other shock always seems to appear out of the blue. And when that happens, investors learn, once again, that they ignore risk at their peril.”

9) “We continue to diligently look for undervalued stocks and will buy them only when they meet our price criteria — in other words, when they are priced for imperfection.”

10) “Initially I analyze bottom-up and then I go top-down.”

11) “Most investors invest in terms of premium or discount to book value. That is a serious mistake. Let’s say the year was 2006. You examine the loan portfolio [of a bank] and see all the junk there. As a result, you wouldn’t touch a U.S. bank with a barge pole.”

12) “I’m trying to buy 80 cents for 40 cents. It does not matter whether they are good companies, bad companies, or distressed companies.”

13) “The first thing you have to do in this business is to make sure that your valuation is accurate. If your valuation is wrong . . . then you won’t make it in this business.”

14) “You’re a businessman . . . you ask, ‘If I were to buy this company, how much would I pay?’”

15) “I don’t know what will happen two years from now where there could and probably would be newer technology.”

16) “I don’t want to chase businesses where management is making decisions that don’t make economic sense.”

17) “Sustainable earning power, business moats, and competitive advantage relate more closely to intrinsic value and therefore are more important than just increases in book value.”

18) “Investments are most profitable when the selection process is most businesslike. Therefore, you must have the skill level to evaluate a business.”

19) “You have to go against the grain. You have to do your own independent work, your own analysis, and you stand on the merits of your own judgments.”

Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.