Value Library

The following is an excerpt from the ABC Perspective - January 2001 - Pg. 12

Opportunity Knocks

Opportunities often present themselves unexpectedly and without great fanfare. The window of opportunity is often quite limited and is not considered an obvious opportunity by investors at that time. Opportunity, in reality, is not viewed as advantageous or profitable until well after the fact; investors will frequently lament not taking an opportunity after it has become very obvious to all. By then the price of the security has bounced up to its true value and it is far too late to do anything.

In consequence, when opportunity knocks, an investor must anticipate and be assertive. One must react without hesitation. But to act quickly, an investor must have the utmost of conviction. This confidence becomes a question of significant research and security analysis. The more fact finding and investigative scrutiny one performs, the greater one's conviction. Obviously with greater conviction, the more inclined an investor will be to propitiously take advantage when opportunity does knock.

With the relatively poor stock market performance in 2000, many investors were severely disappointed and have tossed out of their portfolios perfectly sound companies which have simply not performed in a flashy momentum/growth market. Many of these stocks are out-of-favour, value shares which are fundamentally attractive but possessing little market appeal. Resource stocks including oil and gas, forest products, retailers and many small capitalization companies immediately come to our mind.

While we have been negative on the stock market since September 2000, we believe that with a slowing American economy, weaker U.S. dollar and potentially lower interest and tax rates, change is afoot. We believe that while the stock market will remain incredibly volatile, we do see a shift toward value stocks and selectively higher share prices.

It is our view that value stocks remain cheap and are primed to move higher in price. Moreover, it is our intention to do considerable investigative research over the next several months to ferret out grossly underpriced value securities. The selected stocks would be those which should benefit from the present changing economic conditions as well as mergers, acquisitions and takeovers. Although our current research and purchase strategy may be vulnerable to continued share price volatility, we believe that investor patience will be amply rewarded over the next 12 months. We profoundly believe that opportunity knocks and we intend to be proactive.

Irwin A. Michael, CFA