Value Library
The following is an excerpt from the ABC Perspective - January 2008 - Pg. 16
Value Investing:
ABC Snippets From The Past
This is my 19th year editing The ABC Perspective and, quite frankly, despite numerous deadlines, occasional writer’s block and self-imposed writing standards, I have enjoyed this experience immensely. Interestingly, I have learned a lot from investment writing and would like to share several of my favourite ABC extracts. All three snippets were taken from the October 2000 ABC Perspective and are quite relevant, I believe, to today’s difficult value market.
“Underperforming value stocks often need a catalyst to stimulate price appreciation. Quite often a poorly followed value stock will drift downward in price and remain cheap for a considerable period of time until a catalyst unlocks its value. While waiting, investors often lose patience. They sell the stock and the share price declines further. The lower the stock falls, the more investors avoid the stock. Even once-curious potential investors assume something is seriously wrong with the company and may back off. But eventually a catalyst does emerge. It could be anything such as a new contract, the sale of a division, the purchase of another company, the invention of an advanced process or even a TSE 300 listing. The catalyst suddenly generates investor interest and with it a whole new investor following is created.”
It has always been my belief that consistency, discipline and patience are prime prerequisites to financial success. My thoughts of over seven years ago remain unchanged today.
“Regardless of one's investment management style - growth, momentum or value, one must stay true to one's particular comfort level. Switching styles to what may be temporarily in fashion can be quite risky and can lead to a loss of investment manager focus and objectives. Although it is not easy, today, to keep a "firm hand on the tiller", we believe that, in the long run, adhering to one's long-standing successful disciplines is of paramount importance to future performance.”
Finally, as a result of my numerous market experiences, I have come to the following two important value investing conclusions:
- “The market eventually discovers good value in overlooked companies.
and
- While underpriced value stocks often appear to have no sizzle, a timely catalyst can suddenly turn a dull, illiquid shareholding into an exciting, newsy momentum stock.”
Today, January 2008, we are in the midst of a very frustrating, treacherous and volatile securities market. Nonetheless, I contend that we must rigorously adhere to our valued investment disciplines and reflect upon our past experiences as a guide-post to the future. Difficult as it may be, I firmly believe that the end result is well-worth the short-term discomfort.
Irwin A. Michael, CFA
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