Value Library

The following is an excerpt from the ABC Perspective - April 2011 - Pg. 1

Buying Toonies For Loonies®

I believe one must have a solid business plan to flourish in business. Moreover, successful enterprises are more than just a series of business activities that one intends to carry out. Instead, accomplishments are attained via a number of inter-related factors such as management flexibility, focus, discipline and determination. This point, in my opinion, is especially relevant to investment management and the ABC Funds in particular. Let me explain.

Our ABC Funds invest in value. We are constantly searching for unrecognized bargains. In this quest, we deliberately set out to be different from the pack. As a result, our portfolio holdings tend to be distinct from many of our mainstream competitors. In fact, the ABC portfolios have very little correlation with the TSX 300 Index and, consequently, our monthly performance statistics can vary significantly from both the TSX 300 benchmark and many of the large capitalization institutional portfolios.

At ABC Funds, our security selections are a function of free thinking/outside the box investment decision-making. Furthermore, in our pursuit of mispriced common stocks, particularly in the small to mid-capitalization sectors, we are proactive and motivated by a sense of urgency. In the course of carrying out this task we review numerous corporate entities. In instances where we are not familiar with an undervalued company or industry, we put a meaningful rush on research and analysis. Ultimately, we come to a conclusion whether to purchase the security or to walk away. Normally, this analytical process works quite well although at times we may miss the odd little gem.

Our ABC Funds primary focus is on “buying toonies for loonies”. Not surprisingly, we felt so strongly about this “buying toonies for loonies” statement that we applied for and subsequently received Canadian trademark registration approval.

Our ongoing investment objective is financial excellence. This goal, unfortunately, is neither easy nor forthcoming. In numerous instances of investment success we had to have the “patience of Job” since deep-value investing necessitates significant analysis, focus and steely determination. In fact, the recent $13 cash takeover offer of our Vector Aerospace shares by Eurocopter Holding is a prime example of the patience and discipline required by deep-value investing to obtain success. It should be noted that despite the $6.25 average cost of our Vector stock, our conviction had been severely tested in June 2010. This occurred only nine months prior to the $13 takeover offer when the shares had dipped to a new one year low of $5.35.

Looking toward the end of 2011, it is our belief that the North American equity markets will continue to sawtooth higher and that disciplined stock picking will provide for attractive double digit equity returns.

Irwin A. Michael, CFA