Feb. 14, 2003: Jean-Marie Eveillard interview
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GIBBS: In our Investor Spotlight, Jean-Marie Eveillard, a bottoms-up value investor and possibly the best fund manager on the planet. His First Eagle Gold Fund returned 107 percent for investors last year, while his First Eagle Overseas Fund returned 12 1/2 percent. He searches the globe for original, obscure and unique situations which are more likely to be undervalued.
Jean-Marie, welcome back.
EVEILLARD: It's a pleasure to be here.
GIBBS: Well, the home run there was gold. Some say it's not undervalued, it could be overvalued. What happens if there is a successful and short offense against Iraq?
EVEILLARD: Gold may decline a little bit, but I think there is more to it in terms of the bull market of gold than just Iraq.
GIBBS: What are some of the other factors that could support a continued bullish move and an outperformance of gold for the S&P?
EVEILLARD: I think it was a big boom in the late '90s. Now what follows a boom theoretically is a bust. Now Mr. Greenspan has been able to prevent that from happening by printing money, reducing short-term interest rates to almost nothing, and thereby extending the credit boom, particularly in residential housing. Now whether that was wise, I don't know. But I think that the post-bubble world is a dangerous place, and particularly with respect to what has been happening to the American dollar.
There has been a lack of confidence in the dollar. As a result of the big current account deficit there is an enormous glut of dollars that are held outside the U.S., and to paraphrase Tennessee Williams, I think the dollar, you know, has been relying on the kindness of strangers.
GIBBS: It's been an orderly decline for the dollar, but we haven't seen the yen or the euro perform much better. Is that another supportive reason for investors to hold gold?
EVEILLARD: Definitely, Karen. Because yes, the dollar has been declining, but neither the yen nor the euro are particularly appealing. The yen because the Japanese badly need the weak currency, and the euro because Europe is not doing well from an economic point of view, particularly Germany.
GIBBS: Now I have to ask you, because you are French and there are tensions building now between the United States, France and Germany, do you think that that is going to hurt international investing, particularly a populist movement against, say, French champagne or German luxury cars?
EVEILLARD: I doubt it. I think the Americans are irritated, the Germans and the French are stubborn. It would have to get quite a bit worse before it has an economic impact or a stock market impact.
GIBBS: Do you see any value in any of the areas, any stocks in Europe or Japan?
EVEILLARD: Yes. Neither the U.S. nor Europe are very attractively priced speaking generally. Nevertheless, both markets have been coming down for three years, so here and there there are values. Japan has been going down not for three years, but for 12 years, so there are even better values from the bottom up in Japan.
GIBBS: And we did see a surprising jump in Japan's GDP. Does that mean it's turned a corner in its economy?
EVEILLARD: I don't know, and Japan indeed seems to have almost intractable problems. But our attitude is, hey, when the price is right, we're willing to step up and buy.
GIBBS: And what are you seeing there in Japan?
 EVEILLARD: We're seeing stocks like Ono Pharmaceutical, where the stock is selling at about half the valuations of American or European pharmaceutical stocks. Stocks like Toho where the value of the real estate and the movie library of Toho -- which, incidentally, includes all the movies of Kurosawa -- well, the value is about, the price is about half the value of the real estate and the movie library.
GIBBS: You also had some interesting selections in the champagne field. I'm talking Remy Cointreau as well as Laurent-Perrier. It's Valentine's Day. You've got to talk about that.
EVEILLARD: That's right. I mean I, and possibly you, like them both. Remy Cointreau, that's the famous cognac, and Laurent-Perrier, that's a champagne house. Both stocks we believe are selling way below, 30 to 40 percent below the intrinsic value of the business.
GIBBS: The First Eagle Value Fund also now finds obscure, possibly potential buying opportunities here in the United States. How do you convince investors that after this blistering three-year bear market they should be looking at U.S. stocks?
EVEILLARD: It's true, Karen, that from a psychological point of view it's much easier to buy in a rising market, say like in the late '90s, than it is in a declining market. Today after three years of decline, investors are discouraged.
But particularly from our own point of view, when we are more sensitive to price than we are to the outlook; because the outlook, nobody knows what's going to happen -- only God knows, and he ain't telling -- so I think individuals should be,
I believe, sensitive to price as well; that there is a price for everything; that a stock that they may have looked at at $35, if it's now down to $25, maybe it's attractive. As Warren Buffett said, one pays dearly for a cheerful consensus.
GIBBS: That's exactly what I wanted you to say, because a lot of people are saying stay away. But there are some bargains. What are the bargains you are seeing now here in the United States?
EVEILLARD: Well, I think one recent investment of ours has been Barnes & Noble, the book store chain, where I mean this is an over-stored country, so I think you're better off with the strong retailers, and Barnes & Noble certainly is one. Although admittedly the short-term outlook for earnings is not very good. Accordingly the stock has dropped below 20. It's (currently trading at) $16 or $17, and we think at $16 or $17, it's a true bargain.
GIBBS: How about McDonald's?
EVEILLARD: Well, McDonald's, I think I mentioned it six months ago, and that was not a very astute pick. I think they have a problem basically with their American restaurants. I think the new management that came in only a few months ago will be able to fix those problems, which have to do with slow service, so-so food, and they should be able to fix the problem within 12 months. And at $13 -- if they do (fix their problems), then the stock is worth $25, and it's (now) selling at $13.
GIBBS: Another one that you mentioned to me that you liked is Liberty Media. Why?
EVEILLARD: Well, Liberty Media, it's a holding company. It's one of the few holding companies in the U.S. There are quite a few holding companies in Europe, and indeed we own quite a few of them. It's a portfolio of media assets. It's run by John Malone, who has done marvelous things in the past, except that he's stumbled a little bit over the past few years. Those mistakes have been paid for. And the stock is selling at a 30 to 40 percent discount to the sum of the parts.
GIBBS: Very quickly, Rayonier. Why do you pick that one?
EVEILLARD: Well, Rayonier, I think I also mentioned it last July. I think the stock has held up fairly well since, contrary to McDonald's. And it basically, timber is a good asset, and Rayonier has a way to own timber at 70 percent of the value of the timber.
GIBBS: Jean-Marie, thank you so much for joining us.
EVEILLARD: My pleasure.
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