Barron's Online: What do you project for the coming year in the U.S. equity market?
de Vaulx: We have no clue. As value investors, we have a view as to how cheap or expensive either an entire market or some subsets are. But valuation alone has very little predictive power short term as to what a market or a sector will do. Which is why when sometimes people say, "Charles you have 35% of your U.S. Value Fund in cash. It's a form of market timing. You expect the market to go down." I say, "No, it's just a reflection that I find most stocks out there to be somewhat pricey." It says nothing about what the market may or may not do in the next six months.
Q: What do you think about gold prices now?
A: We want to have some exposure to gold, but we are aware that over the past two years, there has been a very close correlation between gold and crude oil and I'm not comfortable with these crude oil prices. My sense is that the marginal cost of finding and extracting oil around the world today is around $50.
Later, he mentions a couple of stocks I hold:
Q: What are you interested in currently?
A: In sectors, it's hard. Last year it was easy; media was a big theme. In 2005, we bought Comcast (CMCSA) and News Corp. (NWS). We added this year to the [former] Liberty Media, which split in two. So we added to Liberty Media Interactive (LINTA), which is a piece mostly comprised of QVC, a retailer.
Q: So does the stock price reflect its parts?
A: A few months after the company split in two, the stock was trading between $16 and $18. We think QVC is by far the best in its business. They are much bigger, much more profitable than number-two competitor Home Shopping Network. Roughly a quarter of QVC sales are jewelry and jewelry carries very high margins. Jewelry is very cyclical, so we are mindful of where we are in the economic cycle. But if you add the other smaller pieces within Liberty Interactive, including Expedia, we come up with an intrinsic value north of $26 a share.