Value Library

The following is an excerpt from the ABC Perspective - April 2010 - Pg. 1

Persistence

It would be a very major understatement to declare that the last two years have been very difficult for investors. We were all blindsided by the extent of the financial devastation that occurred during that period: bankruptcies, Ponzi schemes, massive government intervention and capital infusions, swelling government spending deficits, record interest rate declines, a complete lack of consumer, business and investor confidence and enveloping fear. To many investors, their prime objective was simply survival.

Survival, however, necessitated extreme persistence, discipline and sticking to one’s longstanding successful investment model. This course, unfortunately, was easier said than done. Specifically, after the demise of Lehman Brothers, the October 2008 to March 2009 period was inordinately trying for investors in that no investment tack appeared to be working. It should be noted that during a brief interval in mid-January 2009, U.S. treasury bills traded at a negative yield as investors fled to the highest quality government paper. In effect, as illogical as it appears today, investors were willing to pay Uncle Sam to borrow their money. In retrospect, extremely fearful investors lost their composure and risk tolerance and sold down to their sleeping point.

Interestingly, much has changed since the market lows of mid-March 2009. Equity markets have made a remarkable recovery with a growing appetite for risk and a reversion to investment sanity. Looking ahead to the balance of 2010 we remain relatively optimistic with regard to both the economy and equities. Although we do not expect a massive or sudden turnaround, we believe slow but sure strides are being made. Again, our optimism endures despite continuing share price volatility and the prospects for rising interest rates. Generally, we foresee improving corporate earnings, increased mergers and acquisitions and a growing investor commitment to equity investment via asset reallocation. Ultimately, we anticipate climbing equity prices. Nonetheless, investment persistence will be the key to success.

With regard to our ABC Funds’ investment process for the rest of 2010, we intend to continue to consolidate our portfolio holdings, to add to favoured common share positions, to eliminate weaker securities, to increase dividend-yielding stocks, as well as selecting new undervalued equities trading below book value/net asset value. In short, our intention is to persist with our deep value equity selections with a focus on small/mid capitalization shares. In particular, we continue to favour our longstanding holdings such as Equitable Group, Genworth MIC, Canam Group, Onex Corp., Fortress Paper, Daylight Resources, ATS Automation Tooling Systems Inc. and Westjet Airlines.

Irwin A. Michael, CFA