View presentation used by Francisco García Paramés (only for members)


ESADE Alumni Finances Club got the year off to a resounding start with the appearance of Francisco García Paramés. The Bestinver Investments Manager - considered one of Spain’s star financiers - shared his knowledge and equity investment strategies with a large audience. He also stayed to take part in the intense and animated discussion that followed.

Javier Judel, Deputy Chairman of the ESADE Alumni Finances Club, was responsible for welcoming the audience and presenting García Paramés’ career in investment management. He graduated in Economics from the Universidad Complutense and got a Master’s from IESE. As for his professional life, the numbers speak for themselves. After 20 years in portfolio and fund management with Bestinver, the profitability of his Spanish equity funds reached 21% per annum for the period 1993-2007, equivalent to an accumulated increase of 1,786%, compared to the 646% obtained by the reference index (IGBM - the Madrid Stock Exchange General Index). He also became Manager at Bestinver Internacional from 1997, where his accumulated yield from 1998 to 2007 was 212%, compared to 29% obtained by the reference index (the MSCI World index).

This outstanding self-taught Manager, with a management style based on strict application of value management, structured his talk around three areas: equities compared to other investments, market efficiency and fundamental investment. This meant that those present were able to compare the cornerstones and the reasoning of his management method.

Equities compared to other investments

"The Stock Market is not only obviously more stable, but also means less risk than fixed income investment in the long term". The conviction of this remarkable Manager was unquestionable, and he supported his statements with comparative figures on the real returns of various investments in the US Market over the decades between 1800 and 2001. In the long term, returns on shares were greater than those on bonds. The Bestinver manager went on to dismiss the idea that this higher return was because of the higher risk assumed. "If we are talking about risk assumed in short terms (1, 2, 5 or 10 years) the volatility of the share is far higher, but if we’re talking about 20 years, the risk in shares is lower compared to bonds", he said. The cause can be found in Government bankruptcy, which causes inflation and systematically and repeatedly damages fixed income investments, he explained, adding; "All Governments have gone bankrupt in one way or another over the past 20 years". As examples, he mentioned Germany after World War One and, more recently, Argentina.

"All my savings are in Bestinver stock funds, and the critical moment for me is when my savings get into the financial system. Once we’re investing in companies that I know, and trust, I can relax much more than if I was investing in fixed income securities, which basically means going into partnership with a Government whose only interest is in being voted in at the next election; they have no 10-15 year vision". García Paramés defended not only equities but also the long-term investment vision. "Nobody in their right mind starts an investment project in order to get rich in three years; it has to be a 10-15 year project; enough time for the circumstances that you envisioned for the project, or when you bought the share, to actually come about", he said.

Market Efficiency

The Bestinver Manager’s point here was that one cannot demonstrate absolutely the efficiency or inefficiency of the market. The market tends towards efficiency, in a continuing process which never reaches a balancing point. This is why García Paramés sees no sense in focusing on causes that may lead towards balance. "Sometimes it is further away from it, and sometimes it is closer; the sensible thing is to learn to recognise those moments, so as to know how to differentiate between the various investment opportunities".

What can be said is that "there is a certain type of investor who systematically obtains returns above the market rate, and what I have tried to do is apply similar techniques to those used by these investors who beat the market". What is the most profitable investment wave? Value Investing, claims the famed financier. "For value investors, in the long term, price and value tend to converge, the market always tends towards efficiency; but sometimes we are lucky (or unlucky, for some people) and the price and value do not coincide, and our job is to see when this happens", he explained.

Fundamental Investment

"Generally it’s fairly obvious when a business is a good investment, the difficult bit is the second part of the equation: patience", he said. It is a question of riding out the short-term distortions so that over the long term the market reaches an efficient price. Very often financiers differ in terms of patience, he said, in terms of "being able to wait. Not everybody can afford to wait, and not everybody is willing or able to be patient".

"The key here is to determine how much an asset is worth", García Paramés continued. Its worth or value being the sum total of all the income that the asset will generate over the period that we hold on to it. We can ascertain this value through discounted free cash flow. "Although I personally have not done it for 18 years", he said, "what we do is apply a reasonable multiple to an estimated average profit standardised by the economic cycle". The example he gave was: with the average PER of the New York Stock Exchange at PER 15, if it is a slightly better than average company, we give it PER 17, if it’s slightly worse, a PER 13.

Understandable family businesses

He went on to explain Bestinver’s general framework for action, following the principals of the Austrian School of Economics. This teaches that the market works, but as a process it never balances. What is more, "it supports the Gold Standard, and without it there comes financial instability and frequent over-expansive and recessive cycles, resulting from Governments manipulating the interest rate level", he explained. "The current problems have come about because of manipulation of the interest rates by the USA and Europe", he said. García Paramés believes that if these distortions did not exist, the Austrian School would not be very useful.

“We try to find undervalued values... the next stage is to find companies; we buy good companies with good teams behind them, good shareholders and a good price". An understandable business with competitive advantage, which continuously gets market share and has a good management team … these are a few of the characteristics that the Bestinver executive considered when he made his choice. "At the end of the day, 90% of the companies we invest in are family businesses, which are often undervalued; the market penalises them and we reward them", as he put it. As an example, he focused on one of the companies that Bestinver is currently investing in: Schindler. García Paramés explained: "This is the kind of company we like. It’s our third biggest investment". A stable family company, number two in the lift sector, in a market where there are only seven companies.

After this example came the intense discussion with Francisco García Paramés answering a variety of questions about the market, specific companies, international and Spanish banking and even his own future as financier. 

For further information:
ignacio.ramon@esade.edu