Value Library

The following is an excerpt from the ABC Perspective - April 2008 - Pg. 1

Discipline, Patience And Stamina

Worldwide stock markets have been challenged with a barrage of bad news over the past nine months. Consequently, the extreme share price volatility, constant flow of gut-wrenching economic, investment and corporate data have spawned a growing investor crisis of confidence.

Fear and negative investment sentiments are permeating the securities marketplace with such unresolved issues as the U.S. subprime mortgage situation and asset-backed commercial paper. Moreover, the downfall of investment dealer, Bear Stearns, was both shocking and unexpected and its subsequent bailout has become the main focal point of the financial markets over the past month. Understandably, many investors have become circumspect and are rhetorically asking: who is next?

The growing crescendo of negativity is leading many investors toward an absolute avoidance or boycott of common shares. Many are reacting emotionally with little consideration given to investment discipline, patience or fundamental analysis. Furthermore, in light of sensational media headlines who can blame the less-experienced investor from panic-selling everything and entirely walking away from the stock market? On the other hand, successful stock market investing encompasses numerous factors including discipline, patience, but more importantly, investor stamina or staying power. Clearly, investors must possess not only the courage of their analytical convictions, but also, they must be able to withstand the widespread negativity currently permeating the market.

As deep value stock pickers we have always devoted ourselves to fundamental corporate analysis. This task has been the cornerstone of our past successes. Nonetheless, successful investing is also a function of investor psychology, consensus opinion and contrary investing. It is our view that investor psychology is presently pretty bleak and probably close to its nadir. With massive fear, uncertainty and lack of investor interest many excellent investment opportunities will emerge between now and year-end 2008. While this is not to minimize the serious financial issues confronting global investing today we believe that the North American equity markets are in the midst of producing a 2008 bottom.

In summary, we expect a market recovery before year-end 2008. Although we anticipate continued price volatility as well as periodic corporate and economic shocks, we believe that 2008 should provide the disciplined, patient and courageous investor with surprising and extraordinary investment returns.

Irwin A. Michael, CFA