Bad times bring opportunities

When we look back a few years from now on events of September 11th and the aftermath, they will appear as little more than a blip on the screen. That’s the belief of Charles Brandes, whose investing philosophy guides the highly successful AGF International Value Fund.

Traumatic though things may seem today, he stresses that investors have to take a long-term view. This is exactly how his organization picks stocks for the funds they manage.

In fact, sharp market declines caused by unexpected and nerve-wracking events are regarded as an opportunity by value managers. That theme has been stated repeatedly over the years by such highly regarded investors as Sir John Templeton.

Feed off negativity
“Negative sentiment is blood in the water for us,” says Chris Richey. He handles the day-to-day managerial chores for International Value and the companion AGF International Stock Fund.

“We’ll circle around to see if there is anything we want to bite.”

That imagery may seem cold and calculating. But it’s an accurate reflection of the high degree of discipline the Brandes organization brings to the stock selection process. They don’t ally care what’s happening in macro-economic terms and never try to predict the future.

All they focus on is finding stocks that are trading below their intrinsic value and snapping them up.

Buy what’s hated
“Benjamin Graham once told me: ‘You can’t outperform if you’re doing what everyone else is doing,'” Brandes says. (Graham is considered to be the father of modern value investing).

“The stock market is mostly crazy. The valuations it puts on companies are wrong most of the time.”

At the core, this makes Brandes and his associates contrarians. They buy what everyone else hates. In the aftermath of the terrorist attacks, they started to look closely at airline stocks, which were being pummelled by investors. (They are tight-lipped on whether they’re buying any.)

Short term concerns
They’ve also started to take positions in selected technology stocks, and in fact the Value Fund’s portfolio is overweighed in telecoms right now.

“Short-term concerns make markets fluctuate,” sums up Brandes. “And when they fluctuate to the downside, that’s when we get interested.”

From the November 2001 edition of Mutual Funds Update.