Jean-Marie Eveillard was Morningstar’s International Stock Fund Manager of the Year in 2001. He grew Assets Under Management (AUM) to $100 billion with his flagship First Eagle Global Fund.

His track record as a money manager has been incredible.

But it hasn’t always been easy for Eveillard.

In fact, after beating the market for 18 years through his first fund, SoGen International, Eveillard was cast aside by his bosses after lagging the market during the dot com bubble.

Despite taking SoGen International from $15 million AUM in 1979 to $6 billion in the mid-to-late 1990’s, Jean-Marie Eveillard experienced the dark side of the greediness in the stock market, through no fault of his own.

In a brutal twist of irony, Eveillard built a fortune for his fund by exploiting the fear of the markets, only to see the fund dwindle because of the greed of the markets.

This story of resilience was recorded by our friend, William Green, in his great book, Richer, Wiser, Happier.

In this post, we will examine the critical elements of Jean-Marie Eveillard’s investment strategy, with these points as the focus:

• Winning By Avoiding Losing
• Staying Power Through Taking a Fiduciary Role Seriously
• Being Punished for Avoiding Risk
• Lessons for the Average Investor—Our Competitive Advantage

I’d highly recommend picking up the book yourself and reading great lessons from many different investors including Howard Marks and Monish Pabrai. I’d also recommend checking out our podcast episode where we interviewed William too.

You might just find a secret to your long-term success as an investor by learning from the greats.

Let’s take some of the best lessons from a great in his own right, starting with a winning by not losing approach.

Winning by Avoiding Losing

Jean-Marie Eveillard found early success as an investor by minimizing risk as much as possible.

By avoiding stocks that blew up and crashed, he created great returns with staying power.

How did he do this?

• Portfolio of about 100 stocks
• Bought international stocks, which were much cheaper
• Bought stocks with a margin of safety of 30% – 40%

This strategy allowed Eveillard to find bargains in countries such as Japan. And then, when Japan’s stock market became an unsustainable bubble, Eveillard’s disciplined approach kept him from the -80%+ crash of the Japanese stock market in late 1989/early 1990’s.

It all came down to minimizing risks, and investing with a margin of safety.

What is a margin of safety?

Margin of safety was a term coined by the great investor Benjamin Graham in his classic bestselling book, The Intelligent Investor.

The idea behind a margin of safety is that the stock market is so uncertain.

This makes it easy to make mistakes when you are buying stocks.

To minimize these mistakes, investors buy stocks with a margin of safety, allowing them to make good returns even if their estimates were wrong.

It’s similar to engineering a bridge.

You might only expect 10,000 lbs to cross a bridge at any given time.

Engineers won’t design the bridge to only hold 10,000 lbs though. They might design the bridge to hold 15,000 lbs—in case the bridge has to hold more than 10,000 lbs.

If the 10,000 lbs estimate was wrong, the bridge does not collapse if you design it with a margin of safety. It allows for safety even with errors.

Picking stocks can be a similar endeavor. Investors must estimate what they think a stock is actually worth. But if they are overoptimistic about a company’s future, they may mis-estimate the company’s true value.

If you buy with a margin of safety, then you can still earn good returns even if you were overoptimistic about a stock by 10%, 20%, or 30% – 40% in Eveillard’s case.

Winning by avoiding losing can work so well, because it is a humble approach that allows you to be wrong (which you inevitably will be). Even an investor who can get 51% of his picks correctly will do great in the market.

You’ll find that even the best investors of all-time are wrong often. They’re just able to minimize their mistakes through a margin of safety, or diversification, or both.

Why does diversification matter? Why 100 stocks?

Stocks are interesting investments because of the wide range of possible outcomes.

• On the one hand, you can double, triple, or even 100x your investment with a single stock.
• On the other, you can lose 100% of your money in a single stock.

Bonds don’t let you 100x your money like stocks do. Neither has gold or silver, if you held them over the very long term.

But where bonds have an advantage over stocks is they don’t lose nearly as much as stocks.

Even in a bankruptcy, bonds usually recover 40% or less in value through the courts. A company’s assets are liquidated and those proceeds paid to bondholders first.

Equity holders (stockholders) don’t usually recover anything in a bankruptcy.

So there’s a greater risk in losing all of your money in a stock.

That’s where diversification comes into play.

It’s easy to think that everything will be fine with the stocks you buy. Being “bullish” can be a disease that clouds your rational brain, causing you to miss glaring red flags. Greed is a strong motivator, and a dangerous toxin.

In fact, you can argue that humans can’t avoid the feeling of greed.

So we have to find ways to manage it.

Eveillard did this by holding a portfolio of 100 stocks. Greed makes you feel invincible. It can lead you to arrogance when you win, cascading into riskier and riskier bets.

Eveillard’s tough upbringing led to humility and anxiety. He worried that his portfolio could blow up at any time. He worried about making mistakes in his analysis, and paying a steep price for that.

So, he held many positions, letting his results be led by his process rather than any single stock pick.

That worked wonderfully for him, and allowed him to buy stocks that other people thought were risky (trading at very cheap discounts).

Taking His Fiduciary Role Seriously

Too many times on Wall Street, there are people who take advantage of the system for their own personal gain.

Oftentimes the risk/reward balance is unfairly skewed.

Money managers might earn huge profits by taking stupid risks, and then be shielded from all of the negative consequences because it’s not their own money.

Jean-Marie Eveillard did not see his career as a means to his own personal gain.

Instead he saw the ramifications of his decisions, with the financial future of many people on the line.

As Eveillard shared with William Green in the book:

“If I screwed up, I was very aware of the fact that I was making daily life more difficult for the investors in my funds… That pushed me to try to be cautious.”

“It’s money they cannot afford to lose”.

Saving for retirement is serious business, and falling prey to emotions of greed can ruin the standard of living for somebody for the rest of their life.

By leveraging his experience and knowledge about the risks of the stock market, and taking his role as trusted decision maker seriously, Eveillard navigated his fund through many down periods and kept his investors safe—and made them lots of money over the long term.

Being Punished for Avoiding Risk

It wasn’t always cupcakes and rainbows for Eveillard as he lived out a responsible, risk-averse investing strategy.

In fact, too many money managers are faced with losing their jobs by not taking the same (greedy) risks that everybody else is taking in the stock market.

This was really evident during the dot com bubble of the late 1990’s.

By this time, Eveillard had beat the market for 18 years.

It did not matter.

As technology stocks and anything with a “dot com” at the end of its name roared to blistering returns, the NASDAQ soared in value.

Investors stuck in an “old head” margin of safety approach did not buy these high flying tech stocks.

Their returns relative to the NASDAQ suffered, including Jean-Marie Eveillard’s.

He completely avoided technology stocks during the late 1990’s, when so many stocks were doubling, tripling, quadrupling, 10’x-ing and more.

His returns versus the NASDAQ looked awful for a short time, as shared by William Green:

• 1998: SoGen International -0.3%; NASDAQ +39.6%
• 1999: SoGen International +19.6%; NASDAQ +85.6%

Did the investors in SoGen International bank on Eveillard’s long track record, and trust that his decisions to avoid the technology craze were the right ones?

Hardly.

During the time period, SoGen International’s Assets Under Management (AUM) went from $6 billion to $2 billion.

Investors succumbed to the Fear of Missing Out and left for greener pastures.

Even a senior executive at the company that owned SoGen International called the 59-year old Eveillard half-senile.

This company, Societe Generale, eventually lost patience and sold SoGen International to an investment bank called Arnhold & S. Bleichroder in January 2000.

The fund was renamed to First Eagle Global Fund, and as the NASDAQ bubble popped, it came roaring back with a vengeance.

The Redemption Story

Jean-Marie Eveillard kept to his conservative, value investing-based approach.

He continued buying stocks with a margin of safety, and it paid off.

Over the next 3 years, Eveillard’s First Eagle outperformed the NASDAQ by:

• 2000: +49%
• 2001: +31%
• 2002: +42%

Of course, just as fast as investors left him, they came flocking back.

Eveillard won an award for the International Stock Fund Manger of the Year in 2001 from Morningstar. The fund’s AUM soared to $100 billion.

A truly incredible feat compared to the depths of the frenzy, when all but $2 billion of investors’ assets had left him.

The Average Investor’s Competitive Advantage

Unlike Eveillard during his time with SoGen and First Eagle, the average investor doesn’t have crowds of people to please with his/her stock picks.

The average investor has only him-or-herself to account to.

This means that keeping the discipline to stay grounded in a margin of safety mindset does not mean losing -70% to -80% or more of your income as investors flee to the next shiny object.

The average investor just has to remember the lessons of market past, and learn from them.

It doesn’t take much digging to discover that the patterns from the dot com bubble are not an isolated incident. They happen with pretty much every bull market that we’ve ever seen.

I lived through it during 2020 and 2021, when onlookers couldn’t understand why my co-host Dave and I didn’t recommend the hot cryptocurrencies and pandemic darling growth stocks.

We didn’t “get it.”

You will have to face a similar dilemma during the next market craze.

It’s impossible to avoid the pull from friends or family about the next big thing. They might wonder why you’re buying stocks that aren’t keeping up the market.

During those times you must remember the lessons of the past—though it won’t be easy. At those times you must go back to the basics, and remember what you are investing in and why.

Take inspiration from Jean-Marie Eveillard, and be comforted that your fight will probably be less intense than his was.

Remember that by investing with a margin of safety, emphasis on the safety, you can avoid the blow-up crashes from excess greed in the markets.

And over the long term, that’s how you’ll build sustainable wealth.

Remember this quote by Warren Buffett in the preface to The Intelligent Investor, which William Green referenced in his book and is very applicable to keeping your competitive advantage (emphasis mine):

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

That sound framework is a margin of safety.

Live by it.