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We try to buy a toonie for a
loonie. We hunt for stocks that tend to be dirt cheap, underfollowed
and held in a fair amount of disdain by analysts. …. And
ultimately, those stocks purchased with the least amount of
analytical recognition usually produce the greatest amount of
investment returns.
- Irwin A. Michael, CFA
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The ABC Funds' investment
management philosophy is rather strikingly simple; we are
deep-value investors. We review corporate balance sheets,
income statements and news releases. We study company
documents as we search for hidden assets. We review
investment dealer reports for further understanding. In
addition we will frequently interview management with a
multitude of questions to acquire greater insight into their
corporate operations. We also speak with sell-side analysts
who may offer us a different perspective on a company's
state of affairs.
With all this analytical
input we formulate an investment opinion with disciplined
buy and sell price targets. Although we might miss on the
odd opportunity, generally our rigorous screening practices
lead us to a greater understanding and increased likelihood
of investment success. While our analytical procedures
usually involve serious and at times tedious investigation
it is our view that a stock thoroughly researched and
well-purchased will tend to yield superior long-run returns.
There is no secret
formula to our "buying toonies for loonies".
Specifically we focus on the strict disciplines of value
investing such as low price earnings and cash flow
multiples, discount to book and net asset values, etc. But
of even greater significance is the regimen of sticking to
our value style in spite of markets temporarily going
against us. During these occasions our patience is seriously
tested. A particular example was the late 1998-early 2000
period when the high technology mania was in full force.
Throughout this 20-month period we were pushed to the limits
of our investment convictions. Fortunately we adhered to our
approach based on our Ten Commandments of Value Investing
and withstood the intense short-term pressures to reconsider
our policies.
But there is another
important factor to buying toonies for loonies. Specifically
we need a patient, understanding ABC investor. I do not wish
to understate this fact that a knowledgeable investor with a
lengthy time horizon is an invaluable asset. Knowing that
our investors fully comprehend and are committed to our
investment style gives us the stamina to ferret out,
purchase and hold onto those dirt-cheap stocks that can
augment our portfolios' returns.
Looking forward, rest
assured, that we do not intend to deviate from our
investment style nor our working disciplines.
Irwin A. Michael, CFA
