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Irwin Michael ABC Funds moving to new strategy


bbarberayr
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"The point is not to imply that an investor won’t be able to pick off an attractive deep value stock from time to time. It is our opinion, however, that generally the purchase quantities will likely be insufficient for most institutional investors, the stock might be an illiquid value trap and/or the stock may lie in the precarious resource sector vulnerable to volatile commodity prices. This situation is the reality of today’s value marketplace. The fact is that pickings are very slim and value investors such as ourselves have had to face a more complicated world of “new value” whereby past parameters of low price/earnings multiples, discount to book value, replacement cost and/or out-of-favour contrarian investments are no longer enough to achieve investment success.

 

A few examples of these new value ABC Funds’ holdings include Apple Inc., Boston Scientific Corporation, Microsoft, Johnson & Johnson, Visa, Amgen Inc., Kraft Heinz Co. and PepsiCo Inc. We believe that these common stocks offer not only good long term value and liquidity but also investment stability, dividends and growth in an extremely volatile financial environment."

 

> The above guy is a long term Canada Value Investor and used to have a great rack record, but now his 10 year record is negative and he is giving up.  You saw this in 1998 - 2000 where value guys closed shop, etc. and now with the gap between growth and value near its highest, I wonder if you see history repeating itself, just before value starts working again, like it did in 2000.

 

http://abcfunds.com/media-centre/from-the-desk-of-irwin-michael/april-15-2016/

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He got killed in commodities in the past few years. He probably lost a lot of clients so I'm not surprised that he has changed strategies. The stocks he is buying are expensive stocks. He is also long FB at PE of 100.

 

It's like Watsa says, people are buying at any price because it doesn't matter, prices will be higher in the future.

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He is fundamentally misunderstanding value if he thinks there is some period where cigar butts should somehow outshine. Cigar butts should never outshine really, there's a reason for that. Probably what he's trying to do - and what he might have come to realize a while ago is that GARP is where it's at. Growth is a fundamental component of value. What matters is how much you pay for that growth and your backup plan (that's the value part) if it doesn't materialize. Best to find something that would be ok under several scenarios. But I would say his new strategy at least has the hope of being better even if he pays up. What matters is his skill level in playing the game and how well he connects the dots. That's why great investors are rare birds.

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The above guy is a long term Canada Value Investor and used to have a great rack record, but now his 10 year record is negative and he is giving up.  You saw this in 1998 - 2000 where value guys closed shop, etc. and now with the gap between growth and value near its highest, I wonder if you see history repeating itself, just before value starts working again, like it did in 2000.

 

+1

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I also think it's commodities + small canadian venture stuff (look at the Canadian venture index..) that killed him (from what I remember of his portfolio a few years ago), not overall market valuation.

 

Maybe if we start seeing lots of American value investors give up, that could be a different kind of signal, but Irwin Michael seemed to be more Canada-specific.

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He is fundamentally misunderstanding value if he thinks there is some period where cigar butts should somehow outshine. Cigar butts should never outshine really, there's a reason for that. Probably what he's trying to do - and what he might have come to realize a while ago is that GARP is where it's at. Growth is a fundamental component of value. What matters is how much you pay for that growth and your backup plan (that's the value part) if it doesn't materialize. Best to find something that would be ok under several scenarios. But I would say his new strategy at least has the hope of being better even if he pays up. What matters is his skill level in playing the game and how well he connects the dots. That's why great investors are rare birds.

 

Correct me if I'm wrong, but don't net-nets and other "cigar butt" strategies still outperform? Everything I've seen indicates buying net-nets is still pretty easy way to beat the market. Granted, ABC Funds have been around for a while and probably have a billion or two in AUM, so it might not be a feasible strategy for their funds.

 

I sort of view the definition of value investing like that of retirement. I know full-time bloggers who say they're retired. I know 65-year old guys who still work part-time who say they're retired. I even know a stay at home parent who says they're retired. The point is there's no one true definition of the word retired just like there's no one definition of value investing.

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Latest quarterly news out - http://abcfunds.com/wp-content/uploads/2016/04/vol27iss2-web.pdf

 

We will see how the transition he has made turns out - transitions like he is making don't occur in the middle of bull makets, but more likely at the end of bear markets.  Makes me think hard-core value and resources could be restaging a renaissance.

 

"Over the past 15 months we have proactively repositioned

our five ABC Funds’ portfolios toward the new investment

world of ecommerce, mobile technology, healthcare and

globalization. It was our sense that profound economic,

financial and technological changes would continue to

impact the world economies and that investors would

have to take notice.

 

Although there has been a price bounce in resource

securities, particularly, in the oil & gas, mining, and gold

sectors, we have stuck to our “new world investment

thesis” whereby liquid technology, healthcare and American

financial common shares would be the mainstay of our

portfolios. "

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Skating to where the puck was. We'll see how this works out for him..

 

"we have stuck to our “new world investment

thesis” whereby liquid technology, healthcare and American

financial common shares would be the mainstay of our

portfolios. "

 

“Liquidity should be avoided. It comes at a heavy price in the

shape of lower

returns.”

 

David Swensen (Yale University Endowment)

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Agreed he's skating where the puck was rather than where it will be.

 

I think we have to remember that the managing money business is a fickle one. You'd think all investors care about is returns, but I think people look at their fund's annual report and care about the companies the fund owns. If it's all deep value cigar butt trash, there are probably investors who will withdraw money, especially when returns haven't been there over the last few years.

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Agreed he's skating where the puck was rather than where it will be.

 

I think we have to remember that the managing money business is a fickle one. You'd think all investors care about is returns, but I think people look at their fund's annual report and care about the companies the fund owns. If it's all deep value cigar butt trash, there are probably investors who will withdraw money, especially when returns haven't been there over the last few years.

 

You are right. Don't they say it is better to fail conventially than to succeed unconventionally?

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  • 2 months later...

It still blows my mind how many managers can underperform for extended periods of time and still manage huge amounts of money.

 

The main job of these dudes is not really managing money....Their main job is gathering up investors to give them $$$$ and then getting their cut of fees. 

 

I wonder if these guys manage pension money?

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