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"My father asserted that there
was no better place to bring up a family than in a rural
environment… there’s something about getting up at 5 A.M., feeding
the stock and chickens and milking a couple of cows before breakfast
that gives you a lifelong respect for the price of butter and eggs."
Bill Vaughan |
There is an old saying in the
investment business: “if you buy a security well, it is half
sold.” The point of this statement is: if a stock is
well-researched and analyzed combined with an astute
investor focus, discipline and sense of timing, it is highly
likely that the investment will be very rewarding.
It is no secret that we spend a great
deal of time researching our stocks. This process can be
tedious and time consuming. We are guided by our disciplined
investment principles which we have labeled our Ten
Commandments of Value Investing. Analytically, we are
free-thinking, contrarian, very picky, deep-value hunters.
We may review ten stocks and through a rigorous process of
investigation we may only select two or three.
Like Bill Vaughan’s quotation, we do
wake up before sunrise to complete our early morning
investment chores. Through our fundamental analyses, we hunt
for deeply-undervalued, oversold securities. Often, they
trade at low price earnings and cash flow multiples and are
out of favour. In many cases, these companies are priced
well below book and net asset value. Also, they may have a
number of valuable hidden assets such as surplus real
estate, tax-loss carryforwards or other understated balance
sheet assets. More often than not, these diamond in the
rough securities are not followed by any investment analysts
and therein lies the opportunity. Recent ABC Funds examples
of these stocks include Riverside Forest Products, Prime
Hospitality, Edelbrock Corp., Lufkin Industries and Russel
Metals. All were liquidated this past quarter with
significant realized profits.
In a nutshell, to successfully “milk
the market” one must have market respect, humility and
sensitivity. One should remain focused, diligent, patient
and persevere regardless of short-term, faddish diversionary
trends. In the end, I believe, that if one adheres to a
prudent and self-disciplined strategy, the long-term rewards
are remarkable.
Looking ahead, we are quite
enthusiastic about our new closed-end ABC North American
Deep-Value Fund. We intend to apply the same investment
principles which we have successfully employed with our
three existing ABC Funds. While this new closed-end fund
will present our investment team with an exciting challenge
we believe that we are sufficiently motivated and can
continue to provide for superior long-term investment
performance.
Irwin A. Michael, CFA
