Many unseasoned
investors, I believe, have a misconception about
profitable investing. These individuals who entered the
marketplace over the past five years witnessed both the
best and the worst of times of our industry.
For instance with the
onset of the late 1990's high technology craze rookie
investors erroneously assumed that it was a no lose
proposition to earn money in the stock market. Just pick
any high technology stock or initial public offering, buy
it and watch it double or triple in price. Illogical as it
may now be, for a while, this naïve course of investing
worked. There was no need to look at balance sheets,
income statements, debt/equity ratios, cash flow or
earnings per share statistics.
From late 1998 to the
high tech peak in March 2000, significant amounts of money
were made playing the high techs. Little investigative or
maintenance research was necessary. It was a game of high
risk with many technology stocks trading at infinitely
high multiples. However, it was only a matter of time
before this mania came to an end. And it did, quite
abruptly, from the spring of 2000 to the present period.
Nonetheless, in spite of their severe price decline, we
still have very little comfort for the high technology
sector. We believe that their valuations are still
stretched and their economic prospects remain quite
uncertain.
As per our investment
management style, we strongly believe in serious
fundamental analysis. While undervalued common stocks are
relatively more difficult to uncover today, we feel the
outlook for value stocks is still favourable. Although we
find we are digging deeper and deeper and analyzing more
securities to select the precious few, we are
"sticking it out". Understandably, this process
is time-consuming and at times rather frustrating.
However, it is well worth the effort. Moreover, we believe
it is even more important, presently, to apply all the
rudimentary analytical skills which in the past have
served us so well. The fact is there are no shortcuts to
tiptop investment returns.
Regardless of periodic
investment fads with accompanying short-lived bloated
returns, we will continue to abide by our investment
disciplines, focus and our ABC Ten Commandments of Value
Investing. In the long run, by sticking it out, we believe
we can continue to attain superior investment performance
and self-satisfying professional success.
Irwin A. Michael,
CFA
