Investment FAQs

Who should buy the Chou Funds?

Before buying the Chou Funds, prospective investors should consider the following factors:

1) They have read the Prospectus and the annual letters of the manager and feel comfortable with the manager's investment philosophy and its execution (sufficiently comfortable that they will not call the Manager if they are worried about the performance of their investment at any particular time);

2) They are long term oriented; and

3) They have modest expectations (any positive single digit annual return will make them happy).

How much money should investors invest in the Chou Funds?

The minimum investment is $10,000 per fund. However, investors should also consider the following before investing:

1) While the Chou Funds historically have never suffered large annual losses, they are certainly possible. Markets are inherently volatile in the short term and can adversely affect the Chou Funds. Therefore, investors should be comfortable that their financial position can withstand a significant decline - say, 40% - in the value of their investment;

2) Although the Chou Funds have done better than the market long term, we typically underperform the market 40% of the time. Investors should be aware of this statistic so they will not feel the need to call the manager when the Funds are underperforming the market; and

3) In general, we recommend that investors do not borrow money to invest in the Chou Funds.

What is your expectation of future returns?

Based on most common valuation methods such as dividend yield, P/E ratio and premium to book value, the market is not cheap. Therefore, from current market levels, any positive single digit annual return is a good return. We believe that greater emphasis should be placed on "Return of Capital" (i.e., not losing capital) than "Return on Capital".

What is your cardinal principle in investment?

The cardinal principle underlying the investments in the Chou Funds is to pay far less than what the company is worth, measured by sustainable earning power and/or hard assets that are not depreciating in value. In other words, we want an adequate 'Margin of Safety' and this concept, while unappreciated and ignored by most, is what distinguishes investment from speculation.

How important is this 'Margin of Safety' concept to the Chou Funds? Can it absorb mistakes?

The Fund's annual returns over 15 years (and since inception) have demonstrated that this concept is so profound and powerful that in spite of making a number of investment decisions the manager wished later he had made differently, being blindsided by unpredictable events and getting snookered by unscrupulous management, the Funds still managed to achieve very satisfactory long term returns.

Will you overpay for stocks to keep up with the Joneses?

ABSOLUTELY NOT! We are diligently looking for undervalued stocks and will buy them only when they meet our price and quality criteria. However, we will not chase stocks to keep up with the market averages. If given a choice, we would prefer to lose half of our unitholders rather than half of our unitholders' money.

Has the strong Canadian dollar impacted the Chou Funds?

Yes, particularly Chou Associates Fund. If we had calculated the NAVPU in $US, the Chou Associates Fund would have been up 25.7% instead of 3.6% in 2003. This valuation method highlights the return in the most favourable manner and therefore should be taken with a grain of salt. The fairest method of valuation is to calculate all valuations in the same currency. We believe that fluctuation in foreign exchange rates should not have a material impact on long-term results.

Are you going to hedge the Canadian dollar?

We missed hedging the Canadian dollar when it was around 75 cents in 2004. If we believe we see another favourable opportunity in the future, we expect to hedge it.

Should we get bothered by the ugly names in the portfolio?

In general, you won't find bargains unless there is a stink or cloud (financial or otherwise) overhanging the stock. We carefully analyze the company and if our analysis indicates that the stock price has more than fully discounted the problem, we hold our nose and may purchase the stock.

	CHOU ASSOCIATES MANAGEMENT INC.

	Investment FAQs
	Who should buy the Chou Funds? Before buying the Chou Funds, prospective investors should consider the following factors: 1) They have read the Prospectus and the annual letters of the manager and feel comfortable with the manager's investment philosophy and its execution (sufficiently comfortable that they will not call the Manager if they are worried about the performance of their investment at any particular time); 2) They are long term oriented; and 3) They have modest expectations (any positive single digit annual return will make them happy). How much money should investors invest in the Chou Funds? The minimum investment is $10,000 per fund. However, investors should also consider the following before investing: 1) While the Chou Funds historically have never suffered large annual losses, they are certainly possible. Markets are inherently volatile in the short term and can adversely affect the Chou Funds. Therefore, investors should be comfortable that their financial position can withstand a significant decline - say, 40% - in the value of their investment; 2) Although the Chou Funds have done better than the market long term, we typically underperform the market 40% of the time. Investors should be aware of this statistic so they will not feel the need to call the manager when the Funds are underperforming the market; and 3) In general, we recommend that investors do not borrow money to invest in the Chou Funds. What is your expectation of future returns? Based on most common valuation methods such as dividend yield, P/E ratio and premium to book value, the market is not cheap. Therefore, from current market levels, any positive single digit annual return is a good return. We believe that greater emphasis should be placed on "Return of Capital" (i.e., not losing capital) than "Return on Capital". What is your cardinal principle in investment? The cardinal principle underlying the investments in the Chou Funds is to pay far less than what the company is worth, measured by sustainable earning power and/or hard assets that are not depreciating in value. In other words, we want an adequate 'Margin of Safety' and this concept, while unappreciated and ignored by most, is what distinguishes investment from speculation. Is 'Margin of Safety' dependent on the price paid? Yes, to a large extent. At some price, you get a steal and at another price you get fleeced. How important is this 'Margin of Safety' concept to the Chou Funds? Can it absorb mistakes? The Fund's annual returns over 15 years (and since inception) have demonstrated that this concept is so profound and powerful that in spite of making a number of investment decisions the manager wished later he had made differently, being blindsided by unpredictable events and getting snookered by unscrupulous management, the Funds still managed to achieve very satisfactory long term returns. Will you overpay for stocks to keep up with the Joneses? ABSOLUTELY NOT! We are diligently looking for undervalued stocks and will buy them only when they meet our price and quality criteria. However, we will not chase stocks to keep up with the market averages. If given a choice, we would prefer to lose half of our unitholders rather than half of our unitholders' money. *Has the strong Canadian dollar impacted the Chou Funds?* Yes, particularly Chou Associates Fund. If we had calculated the NAVPU in $US, the Chou Associates Fund would have been up 25.7% instead of 3.6% in 2003. This valuation method highlights the return in the most favourable manner and therefore should be taken with a grain of salt. The fairest method of valuation is to calculate all valuations in the same currency. We believe that fluctuation in foreign exchange rates should not have a material impact on long-term results. *Are you going to hedge the Canadian dollar?* We missed hedging the Canadian dollar when it was around 75 cents in 2004. If we believe we see another favourable opportunity in the future, we expect to hedge it. Should we switch out of the Chou Associates Fund to the other Chou Funds? We wouldn't. Historically, what has been the average cash holding in the Chou Funds? Over the last 20 years, roughly 20%. Should we get bothered by the ugly names in the portfolio? In general, you won't find bargains unless there is a stink or cloud (financial or otherwise) overhanging the stock. We carefully analyze the company and if our analysis indicates that the stock price has more than fully discounted the problem, we hold our nose and may purchase the stock.