Timeless Wisdom from François Rochon’s Annual Letters

Lessons in Quality Investing from a Master of Long-Term Wealth Creation

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François Rochon, the founder of Giverny Capital, is a name that resonates with investors who value patience, humility, and a relentless focus on quality. Since 1993, Rochon has delivered a remarkable 14.5% annualized return, turning a $10,000 investment into over $500,000 by 2023, compared to $142,000 for the S&P 500. His annual letters, penned with clarity and candor, are a treasure trove of insights for anyone seeking to navigate the stock market with a long-term perspective. Having studied these letters, I’ve distilled five core lessons that encapsulate Rochon’s investment philosophy and offer practical guidance for investors.

Source: Website Giverny Capital

1. Patience Is the Cornerstone of Success
   Rochon often emphasizes that trying to predict short-term market movements is a fool’s errand. In his 2023 annual letter, he writes, “The worst mistake made by stock market investors is trying to predict the direction of the market over the short term.” This belief stems from his observation that stock prices, over time, reflect a company’s intrinsic value, but short-term fluctuations are driven by sentiment and noise. Rochon’s approach is to ignore economic forecasts and geopolitical headlines, focusing instead on owning businesses that grow their earnings steadily over decades.

   For example, during the 2008 financial crisis, Rochon saw opportunity where others saw despair, noting that market downturns create “the opportunity of a generation” for buying quality companies at discounted prices. His patience paid off, as Giverny’s portfolio was down only 5.5% in 2008, compared to much steeper losses for the broader market. The lesson? Stay invested in great companies through volatility, and let time work its magic.

2. Quality Trumps Price, But Value Matters
   Rochon describes himself as a value investor, but not in the traditional sense of chasing low price-to-earnings ratios. Instead, he seeks high-quality businesses—those with durable competitive advantages, high returns on equity, and strong balance sheets—and is willing to pay a reasonable price for them. In a 2017 talk he likened investing to art, stressing the need to judge qualitative factors like management integrity and market positioning alongside numbers.

   However, Rochon is disciplined about valuation. He estimates future earnings per share (EPS) and applies a conservative price-to-earnings multiple to determine a company’s worth, avoiding complex models like discounted cash flow analyses. This simplicity requires a deep understanding of the business to make accurate EPS forecasts. His takeaway: prioritize quality, but don’t overpay. A great company at an exorbitant price is no bargain.

3. Management with Skin in the Game Is Non-Negotiable
   One of Rochon’s defining criteria is investing in companies led by passionate, skilled managers who have significant personal stakes in the business. He often quotes, “We’re in the same vehicle as them!” to highlight the alignment of interests when insiders own substantial shares. This philosophy, inspired by Warren Buffett and Philip Fisher, underscores his belief that exceptional management drives long-term success.

   In his letters, Rochon frequently praises founder-led companies or those with high insider ownership, as these leaders are more likely to prioritize sustainable growth over short-term gains. For instance, he has highlighted companies like Visa and CarMax, where management’s focus on long-term value creation aligns with his investment horizon. The lesson here is clear: bet on leaders who act like owners, not hired hands.

4. Learn from Mistakes, and Share Them
   Rochon’s humility shines through in his annual “Podium of Errors,” where he ranks his three biggest mistakes of the year, often focusing on errors of omission—stocks he didn’t buy due to valuation concerns. In his 2012 letter, he reflected on missing a high-quality company because its P/E ratio seemed too high, only to watch it deliver a 500% return over a decade. This practice of documenting and analyzing mistakes is rooted in his engineering background, which emphasizes systematic learning and process improvement.

   By publicly sharing his missteps, Rochon not only holds himself accountable but also encourages investors to embrace humility. He believes that studying past decisions, especially with hindsight, sharpens judgment and reduces the likelihood of repeating errors. For investors, this translates to a powerful habit: keep an investment journal to track why you bought or sold a stock, and revisit it periodically to refine your process.

5. Focus on Owner’s Earnings for Long-Term Returns
   Rochon’s investment decisions are anchored in Warren Buffett’s concept of “Owner’s Earnings,” which measures a company’s ability to generate cash that can be reinvested or distributed to shareholders. He calculates this by adding the growth in EPS to the portfolio’s average dividend yield, providing a clear gauge of intrinsic value growth. In his 2024 letter, he noted that Giverny’s portfolio companies grew intrinsic value by 12.7% in 2023, closely aligning with their stock market performance over time.

   This focus on Owner’s Earnings keeps Rochon grounded in fundamentals, even during periods of market exuberance or panic. It also reinforces his long-term view: if a company consistently grows its earnings, its stock price will eventually follow. For investors, this means prioritizing businesses that reinvest profits at high rates of return, as these are the engines of compounding wealth.

Putting It All Together

Rochon’s annual letters are more than investment updates; they’re a masterclass in disciplined, thoughtful investing. His philosophy—buy quality companies, hold them patiently, and learn from your mistakes—sounds simple but requires immense discipline. As he often says, “Investing is simple, but not easy.” By focusing on businesses with strong fundamentals, aligned management, and sustainable growth, Rochon has built a track record that speaks for itself.

For those eager to dive deeper, Giverny Capital’s website offers access to Rochon’s annual letters, which are both educational and inspiring. Whether you’re a seasoned investor or just starting out, these letters remind us that success in the stock market comes from rationality, humility, and a commitment to the long game.

My main takeaway is that I will start adding the Owner’s Earnings to my portfolio to judge whether the stock price follows the growth in earnings. Hopefully you have enjoyed this article. Feel free to share it with friends and don’t forget to join our free global quality investing community on Discord!