Meditation on Value Investing

In the bathsteam summer of the depression year 1934, Philippe Edoard Boudreaux, Jr. was eleven and his Daddy was laid off from his
job clerking at the New Orleans Cotton Exchange. Seeing an ad for a pet store helper in the Sunday Times-Picayune, “Little Phil” took the streetcar uptown from Gentilly early Monday morning. He got off
at Canal Street and walked to the pet store on Canal near Rampart. The heat was already rising from the pavement and he could smell the shop from a block away. When he reached it, the stench of animals locked up all day Sunday in the airless shop made him weak. He stood at the door holding his breath. Then he turned and, without looking back, went away from that opportunity forever.

The walk back to the streetcar stop revived him and he kept walking. Entering the French Quarter, he made for Café du Monde where he sat in the cool salon and drank ice water and ordered beignets and coffee. Beignets are deeply addictive fried dough puffs covered in powdered sugar, best accompanied by chicory coffee with steamed milk. He ate his breakfast and paid for it with his return carfare and started home on foot. At Elysian Fields Avenue, he came upon a mountain of trash in front of a shotgun double house. He stood, studying the rubbish. He pulled a stock pot with a broken handle out of the pile and took it home. Next day, he and his younger brother took their red wagon to the streets collecting pots and other artifacts of metal, which they sold as scrap for half penny a pound. Boudreaux Bros. Scrap Metal and Salvage, Inc. was officially in business.

Forty years later, I called on Boudreaux Bros., a global salvage company headquartered in Houma, Louisiana. I was broker of the day when Phil called in for some information on municipal bonds and I decided to take the information to him personally. If you live in Louisiana, you make every excuse you can to visit different neighborhoods, towns and parishes because the locals will want to take you to eat. After showing me around the business, we went to a small restaurant gotten to by going into a filling station and out the rear through a small passageway that gave on to a busy lunchroom with tables occupied by workingmen. We sat and were offered gumbo, dark and savory, the magical concoction of some ancient Creole sorceress. I had two bowls, to be polite. Over coffee and bread pudding with bourbon sauce, Phil recounted how the brothers had gone from salvaging household trash to contracting for the removal of steel from demolished buildings to post war purchases of Liberty ships destined to be made into razor blades. Today, the company scours the world for salvage steel to sell to smelters on three continents.

“Did you ever imagine you would be this big,” I asked? “No,”
he said. “We don’t look too far ahead. We never know what we will make. We just try to buy right.”


 Investors would do well to serve apprenticeships in junkyards. The most important element in the junkman’s profitability is the price he pays for stuff. Benjamin Graham, the father of value investing, only
bought cheap. When the public was so disenchanted with the market that good stocks were being given away, he could buy with his “cigar butt theory.” A cigar butt doesn’t cost you anything and you can always get at least one good puff out of it. This is not the right time to put the theory in practice, but we want to keep it in mind.



























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