Value Library
The following is an excerpt from the ABC Perspective - April 2008 - Pg. 16
Over the past five years, we have often used the term, “Buying Toonies For Loonies” to describe our ABC Funds deep-value investment style. In fact, nothing has changed with regard to our investment approach since I penned this outline for the January 2003 ABC Perspective. Accordingly, I thought it important to re-run this timely piece as both a reminder and refresher during this chaotic investment period.
Buying Toonies For Loonies
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We try to buy a toonie for a loonie. We hunt for stocks that tend to be dirt cheap, underfollowed and held in a fair amount of disdain by analysts. …. And ultimately, those stocks purchased with the least amount of analytical recognition usually produce the greatest amount of investment returns.
Irwin A. Michael, CFA |
The ABC Funds’ investment management philosophy is rather strikingly simple; we are deep-value investors. We review corporate balance sheets, income statements and news releases. We study company documents as we search for hidden assets. We review investment dealer reports for further understanding. In addition we will frequently interview management with a multitude of questions to acquire greater insight into their corporate operations. We also speak with sell-side analysts who may offer us a different perspective on a company’s state of affairs.
With all this analytical input we formulate an investment opinion with disciplined buy and sell price targets. Although we might miss on the odd opportunity, generally our rigorous screening practices lead us to a greater understanding and increased likelihood of investment success. While our analytical procedures usually involve serious and at times tedious investigation it is our view that a stock thoroughly researched and well-purchased will tend to yield superior long-run returns.
There is no secret formula to our “Buying Toonies For Loonies”. Specifically we focus on the strict disciplines of value investing such as low price earnings and cash flow multiples, discount to book and net asset values, etc. But of even greater significance is the regimen of sticking to our value style in spite of markets temporarily going against us. During these occasions our patience is seriously tested. A particular example was the late 1998-early 2000 period when the high technology mania was in full force. Throughout this 20-month period we were pushed to the limits of our investment convictions. Fortunately we adhered to our approach based on our Ten Commandments of Value Investing and withstood the intense short-term pressures to reconsider our policies.
But there is another important factor to “Buying Toonies For Loonies”. Specifically, we need a patient, understanding ABC investor. I do not wish to understate this fact that a knowledgeable investor with a lengthy time horizon is an invaluable asset. Knowing that our investors fully comprehend and are committed to our investment style gives us the stamina to ferret out, purchase and hold onto those dirt-cheap stocks that can augment our portfolios’ long-term returns.
Looking forward, rest assured, that we do not intend to deviate from our investment style nor our working disciplines.
Irwin A. Michael, CFA
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