Value Library

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

We Are With You

I have a number of observations and remarks.  But before expressing my thoughts as both ABC portfolio manager and analyst I would like to speak as the largest ABC unitholder (with my wife, children, family and friends) as well as for all employees of ABC Funds (along with their families and friends) who happen to be deeply invested in ABC Funds as well.

While we are all patient deep value investors we are also feeling the pain of the present chaotic market.  Our RRSPs and investment funds are invested alongside our clients.  We read the same doom and gloom newspaper headlines and listen to the same panicky business news readers on radio and TV each day.  The fact is investors are stressed and due to the extreme market turbulence we are all worth less today.  In all candour this is one of the most difficult investment environments we have faced in well over 30 years.  Nonetheless, we remain vigilant, responsible and opportunistic.  We are in the office every morning minding our portfolios.  We understand our clients concerns because we are clients too.  The fact is we are still invested and are committed to our investment beliefs. We are with you.

The present market conditions are chaotic, emotional and extremely frustrating.  The market is rife with panicky investors subject to sudden margin calls and over-extended hedge funds and speculators forced to liquidate equity holdings.  The anxiety over the past several weeks has been so intense that in numerous cases share prices bear little relationship with a company’s fundamental value.  Clearly the impetus to liquidate common share holdings has obscured tried and true measures of what is value during this maelstrom of frenzied selling.

As difficult as market conditions may be we continue to abide by our investment disciplines of book and net asset value, cash flow and earnings per share multiples.  Although we can estimate significant 12-18 month investment returns from currently beaten down prices the market is oblivious and is only concerned with liquidity.  This fact is both frustrating and fatiguing for value managers and especially so since the past 2-3 years have not been kind to value portfolios.

But we believe there is a positive take on the present irrational environment.  Obviously common stock prices will fall to whatever level to accommodate frightened investors.  However, eventually this motivated selling will stop and a semblance of financial rationality will re-enter the marketplace.  At that point we believe common stocks will begin to reflect their true value and rise in price.  It is our opinion that any positive change in investor sentiment would be of paramount importance to a market recovery.  No matter how small a positive change in psychology, this could precipitate a significant buying stampede as common shares seek equilibrium or true valuation levels.  Although this might appear to be wishful thinking, today, we must be patient until the present seeking of liquidity by a wave of investors, hedge funds et al burns itself out.  In the meantime our ABC team will continue to do our analytical work and client service 24-7.  We will continue to man our office to accommodate all enquiries.  We are here.  We are with you.

Irwin A. Michael, CFA