MONTREAL — You can learn a lot by going to see the movies. This week, I went to see Maleficent, the latest release by Walt Disney Company. It’s an impressive remake of Sleeping Beauty with “real” actors. Can you believe that Disney released the animated version in 1959? Fifty-five years later, Disney has another blockbuster with basically the same story (although Maleficent is more complex on a psychological level). It’s like having an oilfield that you have emptied of oil but half a century later you go back and it’s filled with oil again. And it’s not over: next spring, Disney will release a live-action version of Cinderella. Studying Disney’s business is not just limited to going through its financial statements.

I believe that being a stock market investor is a lifestyle. A capitalist’s antennas must always be tuned and receptive. Being interested and passionate about the business world provides a continuous source of new ideas while staying in front of your computer or a Bloomberg Terminal is not enough. You learn much more in movie houses, in restaurants, in shopping centres and even by going to a library.

I visited my first Starbucks coffee shop 20 years ago. I believed that the company would revolutionize the coffee drinking habits of the American people. Sadly, I decided not to invest because Starbucks Corp. stock was trading at 40 times earnings and looked overvalued to me. The stock is up 4,000 per cent since then.

My business associate, Jean-Philippe, told me about another chain he discovered some six years ago: Buffalo Wild Wings. We tried their delicious wings and we were impressed right away. And I love their TV ads (you can see some on YouTube if you’re curious). So we decided to buy shares even if the stock was a little expensive for our taste. The stock is up 400 per cent since then. So while travelling, don’t hesitate to dine at a restaurant chain that is a public company. You never know how well this meal will turn out …

Last summer, I was in Washington visiting museums and went shopping in an art bookstore. I wanted to purchase a book and decided to look up its price on Amazon. It was 20 per cent cheaper. And in “one click,” it was purchased and already en route to my office. Not only was the book cheaper on Amazon, I did not have to carry it back to Canada. Now that’s a disruptive business model. In front of your computer, you don’t realize that. In the store, you can grasp the full power of the company. And many other retail sectors can be altered by Amazon.

Amazon is not cheap: it trades at 100 times next year’s earnings per share (EPS) estimates. On the other hand, the company has very low margins (1.4 per cent after-tax margins are estimated for 2015). A decade ago, the company had US$7 billion in revenues and net margins of five per cent. They should cross the US$100 billion threshold next year. The company has clearly sacrificed margins for market share. Let’s say that in five years, Amazon has US$200 billion in sales and can increase its margins to five per cent after-tax, this would translate into EPS of US$22. With that in mind, the stock — about US$325 — does not look as expensive as it seems. I would prefer, though, a higher margin of safety.

Finally, there is the library. Why go to the library in the summer? Firstly, you have a little more free time (and you can always choose a rainy day). In a library, like the one at the HEC, you can read old Forbes, Fortune or Time magazines. My favourite parts are the ads. The main insight is how much the World has changed in forty years: many of the companies you see don’t exist anymore. You may notice that the companies that did survive sell simple and enduring products: Coca-Cola, Heinz, Frito-Lay, etc.

You can also read articles about the stock market. Now that’s an educational experience. You’ll read articles about why Japan will take over the United States as the economic superpower. You’ll also read about the importance of the M2 money supply data (do you even know what this is now?). I make photocopies of many articles and store them in my archive room. I love to look at them twenty years later and see how short-term worries were futile. I remember an article published in 1993, when I started to invest, that explained in length why the stock market was overvalued. The Dow Jones was 3,300 then. It’s close to 17,000 now. With dividends, over the last two decades, you would have made 10 per cent a year or seven times your money. As the old saying goes: history doesn’t exactly repeat itself but it rhymes.

François Rochon is the head of wealth-management firm Giverny Capital, which he founded in 1998. He can be reached at frochon@givernycapital.com.

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