Jean-Marie Eveillard: Japan is Truly a Cheap Market

By on October 10, 2011

Jean-Marie Eveillard, First Eagle FundsJean-Marie Eveillard has vast experience in the financial markets from managing the First Eagle Global Fund for nearly 30 years.  The performance of the fund was noteworthy and he earned a Morningstar lifetime achievement award.  Eveillard’s focus has been on deep value investing, seeking a margin of safety, and displaying an aversion for high-risk bets.

Eveillard often touted Rayonier (RYN) for its strong cash flows which was the inspiration for its addition to the Stock Market Advantage (SMA) portolio nearly a decade ago.  Rayonier has been a stellar performer in the SMA portfolio.  Consuelo Mack recently interviewed Eveillard to get his highly valued opinion on the current economic challenges.

Eveillard said he is not surprised by the current economic weakness since the last crisis was financially related which can take years to really recover from.  He added that one possible outcome is the Japanese experience or, “that another major crisis may erupt, because at some point, if the monetary stimulus becomes too much, then long-term interest rates will go up.”

When asked how he is positioning his own portfolio, Eveillard said he is basically invested in large-cap U. S., European and Japanese equities, and Asian stocks that are active in the domestic consumer market.  He commented that equities look more attractive than bonds  “almost anywhere.”  Eveillard added he had a position in gold, “as protection against, as Peter Bernstein used to say, protection against extreme outcomes.”

Eveillard stated that having 10 to 11% of a portfolio’s assets in gold was perfectly reasonable even though it has no intrinsic value, while noting that a dollar bill has no intrinsic value either.  Eveillard mentioned that paper money was being printed every day and there was, “too much paper, too little stuff.”  He would buy bullion and all the ETF and gold-mining stocks, but avoid junior mining stocks.

Eveillard was humble when asked what he saw ahead, “I don’t know, but because, as Ben Graham used to say, ‘The future is uncertain, only God knows and he ain’t telling.’”

Eveillard mentioned the market was not particularly cheap citing Robert Shiller’s work with the CAPE ratio (a 10 year average of earnings).  He considered Japan the only major market that was truly cheap and mentioned Fanuc (robot maker) which “truly dominates worldwide the field.”  However, Eveillard would remain more defensive than normal with above average holdings of cash and gold.

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