|
If past history was all there was
to the game,
the richest people would be librarians. |
|
Warren
Buffett |
From many years of stock market research,
analysis, and portfolio management, I acknowledge that the
securities markets are in a constant state of flux.
Fluctuating stock prices, I believe, are akin to a tug of
war between the forces of optimism and pessimism. Yet, many
market observers consider vacillating stock prices to
represent extreme risk. I don’t agree. I call it a mere
difference of opinion between the buyer and the seller in
setting the transaction price of a particular security. Each
day is different from the next. Moreover, past history, as
Warren Buffett implies, is by no means a recipe for future
investment success.
In all candor, investment professionals
are tested each day. Our investment commitment, due to the
wide daily swings in the market, places us under intense
scrutiny. For the portfolio manager there is no second
guessing. Once a major decision is made to liquidate a
holding or to purchase a new group of stocks, it is very
difficult to reverse course. We must stick to our
disciplines, as difficult as that may be. In effect, this is
“testing our mettle” or putting our convictions to the test.
Strangely enough, no matter how
financially astute or superb a portfolio manager’s track
record there are times when the market may be zigging while
the manager may be zagging. As a result, a manager’s
relative performance to the benchmark may slip and he comes
under criticism. This fact does not imply that the manager
has suddenly become stupid. Rather, it often takes time to
liquidate fully-valued holdings and to replace them with
new, deeply-discounted securities. Furthermore, it may take
time before these new selections gain traction to produce
exemplary returns.
This restocking process can be
frustrating to both the portfolio manager and his investors.
Both are tested with regard to their patience and
conviction. Nevertheless, we deeply believe that the
potential rewards are well worth the wait. Recent past
examples with regard to our ABC experiences include our
earlier opportune purchases of Hudbay Minerals, Pacific
Stratus Energy, Polaris Minerals, Seaspan Corporation, and
Village Super Market. After a negative start, all of these
holdings subsequently produced extraordinary returns for our
ABC Funds.
Recently, we have added a number of new
portfolio selections which we believe possess excellent
long-term capital gains potential. Many are relatively
unknown small/mid capitalization securities whose present
relative obscurity masks their long-term fundamental appeal.
They include: Fortress Paper Ltd., Western Goldfields Inc.,
Whitemud Resources, Babcock & Brown Air Limited, Phoenix
Coal Corporation, and Orbus Pharma Inc.
In our opinion the “testing of one’s
mettle”, as uncomfortable as it may be, represents both a
positive change and a portfolio metamorphosis. In this
regard, fresh undervalued selections are introduced to a
securities portfolio to ultimately provide a new, exciting
vitality and investment direction.
