Value Investing

We believe in value investing.  While the process of fundamental analysis can be long and tedious, it certainly isn't boring.

Our task of corporate information gathering includes fundamental company analysis and accounting pertaining to liquidity ratios, book value, cash flow and earnings per share.  In addition, we look for valuable hidden assets such as tax loss carry forwards, overlooked real estate and non-essential assets which may be sold or value-added.

To achieve long term success, we believe strict investment disciplines should be followed. In practice, we remain focussed on value and continue to abide by our ABC Funds' Ten Commandments of Value Investing.

ABC Funds' Ten Commandments of Value Investing

Low Price to Earnings Multiples We search out stocks trading at low price to earnings multiples (typically under ten times). This reduces the risk of overpaying for a security.. Low Cash Flow Multiples We look for companies trading at under five times price to cash flow. This also reduces the risk of overpaying and uncovers many "dirt cheap" equities.

Discount to Book/Net Asset Value We like to buy stocks trading at a discount to book/net asset value. In many cases, this not only uncovers significantly undervalued stocks but also prime takeover candidates. Hidden Assets Some examples of hidden assets that can be uncovered after thorough research and analysis are tax-loss carry forwards, over-funded pension funds, undervalued inventory, real estate, potential spin-offs, Initial Public Offerings (IPOs), and favourable litigation. Management Two types of management could be key in the search for a turnaround candidate: a) Solid, proactive management and b) Poor management, which leaves the company ripe for a proactive acquisition or merger. Products/Services in tune with present times and beyond This includes expandable, growing markets with good margins. We tend to avoid companies with outdated, shrinking, or obsolete products/markets. Value Catalyst In order to push up the value of a stock, we look for a significant value creator, or catalyst. Some examples of possible value creators are fresh management with new direction, an important sale or purchase of a meaningful asset, an unsolicited takeover bid, or disgruntled and impatient proactive shareholders who may put pressure on management to make changes or sell. Discounted Valuations Compared to its Peers Comparative valuation measures such as price to earnings and cash flow could indicate a take-over by relatively expensive Canadian or foreign competitors looking to expand market presence. Contrary Opinion and Under-followed by Investment Analysts With little investor exposure, undervalued stocks are 'pregnant with possibilities', providing very little buying competition when attempting to accumulate the security. Generally an undervalued and under-followed security will offer terrific capital gains opportunities. Discipline Stay on track and adhere to strict value discipline of low P/Es, strong cash flows and price targets. Do not get sucked into buying the flavour of the day! Combine patience and persistence to attain superior performance. Patience! Patience! Patience!