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.

If you would like to review your current holdings based on this review, please contact our office for an appointment.

^{_{Past performance is historical and is no guarantee of future results. This information has been provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice. The opinions and forecasts expressed in the above newsletter by the individual Fund Managers are as of 12/31/2008, and the newsletter's commentary, analysis, opinions, advice and recommendations represent the personal and subjective views of the individuals interviewed may change without notice in response to changing circumstances and market conditions. Furthermore, this material contains forward looking statements and there can be no guarantees that they will come to pass. Investing involves substantial risk. Neither the Editor, the publisher, nor any of their respective affiliates make any guarantee or other promise as to any results that may be obtained from using the Newsletter. It does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. It does not constitute an offer to buy or sell any financial instrument or participate in any trading strategy. The discussion of any specific securities in this material should not be construed as a solicitation to buy or sell such securities. The types of securities discussed may not be suitable for all investors.}}