Listen to the old pros

The bear market continues, and the longer it persists
the more nervous investors are becoming about
their long-term savings. We have been meeting with
clients, reviewing their situations, and making
adjustments when necessary. One query that comes
up on a regular basis is, “What are the money
managers saying in this bad market?” To find out, we
took a sampling of opinions from veteran money
managers that we would like to share with you.

David Dreman of Dreman Value
Management, L.L.C. is known as the father of
contrarian investing; he has more than 30 years of
industry experience. As a contrarian strategist, his
specialty is to invest in companies that are out of
favour and trading below their fair value. Here is
what he had to say:

“Despite the ongoing gloomy headline news, we think
it will be a very good environment for our contrarian
investment style going forward. Once the extreme
volatility subsides, the market landscape will likely be
in a range for the next couple of years as the global
recession works its way through the system. We are
enthusiastic about the upcoming opportunities. The
degree of extreme dislocation present in markets is
almost always fertile ground for future returns.”

Gerald Cooper-Key of Mawer Investment
Management Ltd. has more than 30 years of
investment experience. As a growth at a reasonable
price (GARP) style investor, he likes to pick wealthcreating
companies at discounts to their intrinsic
values. In making selections, Mawer looks for
companies that deliver a return on capital which is
greater than their cost of capital over time. He told us:

“We can’t say exactly when stocks will rebound.
However, we, alongside opportunistic investors like
Warren Buffett, remain attracted to the valuation
levels and bit by bit are utilizing our cash to buy
these bargain companies. Again, we reiterate that
we don’t plan to suddenly plunge all cash into the
market, but to continue to stage in the investment over
time, collecting relatively attractive dividends for however
long it may take before the market bounces back.”

George Frazer and Bill Tynkaluk, part of the
Leon Frazer & Associates Inc. investment
team, have both been managing Canadian equities
with a focus on dividends since the 1950s. They invest
in quality companies that have a proven history of
strong earnings and cash flow and that reveal good
prospects for continuing to do so in the future. They
had this to say about the Canadian large cap area of
investing:

“We have been extremely selective in adding to the
portfolio and have taken opportunities to improve
the quality of the portfolio by focusing on holdings which we believe are likely to maintain or increase
dividends. Holdings which we believe will not
be able to do so have been removed from
the portfolio.”

Bob Tattersall of Howson Tattersall has
been investing for more than 25 years. His firm
aims to uncover companies that trade below their
fair market value by using a proprietary valuation
model. He had this to say specifically about small
cap Canadian equities:

“We continue to find attractive new opportunities
and add to existing names in the portfolio. Small
cap valuations are probably the most attractive
they’ve ever been relative to a diversified portfolio
of large cap names. We anticipate that if we see
signs of economic strength appear, small caps are
well positioned to outperform large caps.”

Conclusion

This is just a sampling of interviews we had with
money managers over the last few months. As
these investing pros have seen both good and bad
markets, we feel they are in a good position to comment on what they are doing with capital
during this difficult time. Each has a different
perspective; however, the overriding theme for
almost every manager is cautious optimism. They
believe that excellent companies are trading at
good valuations, and they continue to add to their
portfolios (albeit slowly). They don’t know where
the bottom of the market is or when it will
recover, but they do know good bargains when
they see them.

We have been giving our clients the same advice:
Let’s not do anything rash, but take this opportunity
to add selectively to our portfolios and reallocate
our invested capital where appropriate.

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If you would like to review your current holdings
based on this review, please
contact
your closest CARP Certified Advisor.

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