Fashion goes out of fashion…
but style never does.
Coco Chanel |
The year 2006 was a
difficult investment period. For instance: it combined
extremely volatile security and commodity prices; a
progressively tighter U.S. Federal Reserve monetary policy;
a surprisingly strong Chinese economy and natural resource
demand; a mid-July $78 a barrel peak oil price and
culminated in a late 2006 concern that a U.S. economic
slowdown might ultimately lead to a North American economic
recession. Not to be forgotten were the unexpected October
31 Canadian federal government tax proposals negatively
impacting the megabillion dollar Canadian royalty and income
trust market.
The North American
stock market similarly tracked an uncertain course. It
started 2006 with a firm trend peaking in the spring and
then followed a precipitous decline to a mid July bottom
before quietly advancing to new cycle highs toward the end
of the year.
At the start of the
year, our investment view, as highlighted in our January
2006 ABC Perspective concluded:
“As we look ahead
at the markets over the next 12 months we are quite
optimistic. We believe it will be a stock picker’s market
with plenty of mergers, acquisitions, takeovers and
privatizations. We have targeted our ABC Funds’ portfolios
to a fully invested position. We intend to remain true to
our investment style and disciplines; this will not
change. We are confident that over the long term, our time
proven deep-value style will continue to provide superior
investment performance.”
Our outlook, today, 12
months later, is essentially unchanged. We believe that the
presently low 4-5% cost of money in both the U.S. and Canada
is a significant driver toward positive economic and
corporate profit growth. We believe that it is cheaper and
more timesaving for corporations to acquire other companies
in the stock market rather than starting a business from
scratch. In fact, clearly this has taken place with the many
corporate takeovers and privatizations over the past year.
They include: Hudson Bay Company, Dofasco, Falconbridge and
Inco as well as smaller companies such as Atlas Cold
Storage, Boykin Lodging and Foodarama Supermarkets. We
expect this trend to persist into 2007.
The bottom line is
that we remain fundamentally optimistic. However, we expect
securities markets in 2007 to continue to be extremely
volatile, challenging and testing investor resolve.
Nonetheless, we intend to stick to our disciplined
fundamental analytical style and valued patience. In the
end, we believe that on a risk/reward and total return
basis, this strategy should lead to exceptional long term
investment performance.
