Value Library

The following is an excerpt from the ABC Perspective - April 2009 - Pg. 1

Dedicated To Our Plan

I would be less than honest if I did not admit that the past 12 months have been the most difficult in my entire business career. During this period we have witnessed major corporate bankruptcies, a worldwide recession and an extraordinary stock market decline, massive international government monetary and fiscal stimulus and an immense investor flight to liquidity. For a time, common stocks went virtually ‘no bid’ and in some cases they even traded below cash value.

The September-December 2008 period was arduous for portfolio managers as fear and lack of confidence gripped international equity markets. While the jury may still be out, worldwide central banks, governments and, in particular, the U.S. Federal Reserve embarked on a massive reflation track and, in our opinion, have done a masterful job in attempting to right global banking, liquidity and investing. In our view the worldwide economies, largely due to this meaningful concerted global monetary and fiscal stimulation, are in the process of dodging a significant protracted economic and investment downturn. We are cautiously optimistic and believe that the North American economies will exhibit a turnaround by the second half of 2009. Accordingly, we have been dedicated to a two-pronged investment plan of action since late 2008.

Initially we set about to liquidate a number of holdings which, due to the sudden change of economic and investment circumstances, were no longer attractive. We then used cash and liquidation proceeds to purchase excessively undervalued large capitalization Canadian companies, including bank and insurance company shares which were offered via new financings in the December/January period. These purchases presented both trading liquidity and some dividend income amid tumultuous market conditions. Although the financials declined precipitously in late January to early March, they have subsequently recovered to post gains as worldwide stock markets improved. This appreciation is due to a growing confidence that international reflation efforts are finally showing some positive results. Nonetheless, we have recently liquidated some of these large capitalization positions and have reinvested the proceeds in new or existing dirt-cheap, mid and smaller capitalization equities. These additions include: Laurentian Bank, Cogeco Cable, Lundin Mining, Aecon Group, Taseko Mines, George Weston, Universal Energy, Equitable Group and Fortress Paper. It is our belief that these unusually undervalued lower capitalization equities offer excellent risk-rewards over the next 12 months. We believe that these holdings, along with a growing list of new, similar additions, are consistent with our long-standing deep-value stock picking style.

Irwin A. Michael, CFA