Value Library

The following is an excerpt from the ABC Perspective - April 2003 - Pg. 1

- Firmness of purpose Oxford American Dictionary

I have always been of the opinion that investment success entails more than good stock analysis. I believe that investor conviction or determination to stick with an evolving story is a necessary ingredient to financial prosperity.

As we explain to prospective ABC clients we are value seekers. We hunt for undervalued, out-of-favour investment securities, which might be held in complete disdain by investment analysts, portfolio managers and the popular media. While we may march to the tune of our own drummer it is never an easy task. There are times when we might zig while the overall markets may be zagging to temporary, extraordinary success.

It is at this time that our value investment focus must be maintained through sheer determination and in spite of any short-term underperformance. This was exactly our experience during the September 1998 to March 2000 period when the high technology mania, led by Nortel et al, produced a massive speculative bubble. Throughout this year and a half long span we were second-guessed and criticized by impatient clients who had been watching many third-rate technology start-ups, with no profits and revenues, double and triple in price. Nonetheless, although painful, we remained determined and faithful to our deep value investment style.

In time, the securities market returned to sanity with the re-emergence of fundamental value analysis and the downfall of the over-extended high technology sector. In retrospect our determination was severely tested. In all candour, it is my view that this was neither our first time to be "put to the test" nor would it definitely be the last. This is the essence of the cyclicality of the securities market…which brings me to the current investment environment.

I believe the present period of tumultuous financial markets is testing us all over again. The global geopolitical uncertainty involving Iraq and North Korea, the worldwide precarious economic situation, murky corporate profit outlook, growing incidence of under-funded pension funds, etc. is creating incredible share price volatility. It is pushing investors' patience to their limits. In consequence we have witnessed significant mutual fund redemptions and stock market liquidation.

From our ABC Funds' point of view our 1998-2000 experience and our success of weathering that storm have strengthened our backbone. By extension it will only serve to increase our deep value investment conviction, which has served us so well over the years. In addition it will enhance our determination to abide by our value promise, which we offered investors in our original offering memorandum. But more importantly, it will force us as portfolio managers not to deviate from our investment style nor compromise our working principles and disciplines.

Irwin A. Michael, CFA