Glued To Our Game Plan
|
"Where there is no vision
the people will perish"
- Proverbs 29:18 |
We are in the midst of one of the
most challenging investment markets in many years. While interest rates
are at 45-year lows and should provide a significant bullish boost to
common stock performance, this has not happened. Corporate profit
warnings, bankruptcies, company reorganizations, etc. abound. Confusion
is rampant with many fearful investors sitting on the sidelines on
low-yielding treasury bills. It is guesstimated that about $2-3 trillion
of short-term investments are earmarked for common stock purchases. The
question is: when will these funds be committed to common stocks.
In spite of this investment confusion
and apparent market uncertainty, we are clinging to our "deep
value" analytical style. We have adhered to our investment vision,
focus and disciplines - the very principles that contributed to our past
successes. To be perfectly truthful, it has not been easy. Moreover,
fundamentally undervalued stocks are tougher and tougher to uncover
today. So we must dig deeper.
Nonetheless, we are dealing with
these circumstances and, quite frankly, we remain positive. In fact, we
have become more optimistic over the past few months. We have attempted
to cobble an upgraded deep-value portfolio by liquidating certain
overvalued securities to purchase fresh positions. In a number of
instances, we were able to acquire high dividend-paying/undervalued
shares, which not only yielded more than treasury bills but also offered
good capital gains potential. While we feel comfortable with our ABC
Funds equity selections, we are never quite sure when they will work
out. When success does occur, it often happens very unexpectedly.
For instance, as I sat down to write
this piece, I received a congratulatory phone call from an American
stockbroker. Apparently, Garden Fresh, a San Diego-based restaurant
chain which we had purchased in February at about $9.98, is being bought
out at $16.35. To make a long story short we had purchased 85,000 shares
for our ABC American-Value Fund because Garden Fresh was simply too
cheap relative to our target price of $15. But this seven-month ride to
success was not smooth since we suffered through a couple of quarters of
disappointing earnings and a declining share price. Nonetheless, we
stuck to our original analysis and our profound conviction. It was worth
the wait.
Aside from transforming a mediocre
September performance into a pleasant surprise, Garden Fresh has given
us added inspiration and renewed patience to persevere with our
investment focus. But, more importantly, to our loyal clients, I am
pleased to declare that Garden Fresh has re-energized our ABC team.
Accordingly, we intend to remain "glued to our game plan."
Irwin A. Michael, CFA
