Value Library

The following is an excerpt from the ABC Perspective - April 2010 - Pg. 16

Engineering the Comeback: Hard Work, Guts and Stamina

It would be dishonest of me to say that it has been easy making a comeback for our five ABC Funds. In all candour, the past 18 months have been professionally challenging and extraordinarily stressful for all. Tried and true investment activities just weren’t working particularly during that six month period including October 2008 to March 2009. Moreover, the media magnified the burgeoning international economic, financial and investment problems such that escalating fear and raw emotion gripped many investors.

The ensuing panic precipitated the unfortunate liquidation of numerous good quality securities. In many cases investors were their own worst enemies as enveloping fear forced many to liquidate their investment holdings at the market lows. The Canadian banks, certain industrials, numerous oil and gas and mining companies immediately come to mind. In actuality, an infectious Chicken Little mentality gripped the marketplace. Like a dog chasing its tail, the growing investment panic created more indiscriminate selling which produced lower prices and this, in turn, precipitated even more selling.

Fortunately, a significant number of investors had the courage to hang in (let alone purchase at market lows) and let the international monetary and fiscal authorities resuscitate the global financial system. Today, the investment landscape is infinitely better than a year ago.  However, there are still many problems that have yet to be resolved. Nonetheless, those who capitulated and sold off their investments at or near the market lows may claim it was bad luck or poor timing. I take issue with that reasoning. It is my view that engineering the investment comeback of the last 12 months combined hard work (serious analysis and research), guts (strong intestinal fortitude) and stamina (the financial staying power to patiently outlast a perfect storm).

Interestingly, many succeeded and survived the worst financial tsunami since the 1929 stock market collapse. This was accomplished through their street smarts or, quite frankly, by tuning out all the financial fear-mongering to do nothing. They patiently waited out the storm. Admittedly, the market has made a remarkable recovery since the lows of last year. However, investors will still have to combine the attributes of hard work, guts and stamina to further succeed over the next 12-18 months. This is due to the fact that the securities markets have ratcheted to a new plateau with considerable optimism and complacency.

It is our opinion that investors will continue to be tested via price volatility, pricey IPOs, greed and periodic market selloffs. Success will not be a question of luck. Instead, we anticipate significant trading and investment opportunities to appear. Overall, we must remain alert and opportunistic as we expect the equities markets will follow a sawtooth-like trajectory to higher-levels over the next 12-18 months.

Irwin A. Michael, CFA