Investorial

Irwin Michael is my favourite fund manager because of his no compromise, no spin, non-apologetic approach to openly discuss investing. He talks and writes candidly about his investment decisions; allowing me to soak up his perspective and learn from it. You won’t catch him doing any sweet-talking to appease investors and audiences. As of the end of August 2006, Irwin’s ABC Fundamental Value has averaged an annual 17.82% return for the last 15 years while it’s benchmark indes S&P/TSX Total Return has only managed a 10.79% in the same timeframe.

If you haven’t yet, you should start by reading Deep Value Face-Off - Part 1, and Deep Value Face-Off - Part 2 first!

On Gas And Potential Gas Picks
Michael: I’m not gonna name any because I’m presently buying them. I don’t want anyone to get in my way. Aside from that, you talk to anyone and they’re very negative on natural gas. They prefer oil. In fact, I noticed today that a big hedge fund (Editor’s Note: Amaranth) ran into problems because they went long natural gas. Obviously the margin call. The bottom line is you can get a hurricane, we haven’t had hurricanes. Natural gas is very levered towards that. It’s not as politically sensitive as oil, based upon something happening in Iraq, Nigeria etc. So on balance, I like this sector.

Healy: We have been lightening up in natural gas sector. Although, the value in those stocks are coming along. I think there’s gonna be a staggering good buying opportunity in a market that I would characterize as having a lot of fear. I just think it’s a little bit too early. I think if you hang on there, as Irwin clearly is. I think you’re gonna come through ok.

On Big American Auto Companies, Value or Catastrophe?
Healy: I think it’s a chapter 11 in the making. For probably both GM and Ford. They’ve got to get rid of their pension and medical liabilities. I think they have to follow the lead of the air lines industry, and steel industry. The only way they can do it is to declare chapter 11 and just dump them.

Michael: I own General Motors. I’m white-knuckled. The thing went down to $18 [Irwin bought most of his position around $20], it’s now at $33, $34. I’m going to roll with the smartest 89 year old man I know, and that’s Kirk Kerkorian. I think he and his people have brought a lot of good catalysts to the company. More importantly, I think they’re making a lot of tough decisions. We all know that the health care expenses post retirement that they’re forced to pay. The bottom line is, I think they’re getting their act together, selling part of GMAC. There’s a rumour today of GM merging with Ford. I’ll believe anything today, particularly if I hold the stock. {jokes}

On Averaging Down
Healy: I have a general rule. Never average down a losing position. Don’t throw good money out the bed. If you’re going to do that, wait for a real wash-out. But don’t keep doing that, that’s a terrible way to invest.

Michael: I will, if we know really well. For instance, if we bought a stock at $10, and it goes to $8. We go back to the drawing board. And if the market is a little off-kilter, and we still think we’re right. I’ll buy more. Heaven help me if I’m wrong

On Multi-Nationals and the decline of the U.S. Dollar
Michael: We like the U.S. market alot, but I’ve been staying away from the really large companies. I’ve been buying small-caps and micro-caps. Multi-nationals will benefit if the U.S. dollar weakens substantially, but on balance, I’m not seeing any of them cheap enough for me to buy.

On Their Top 3 Picks
Healy: Cash, Pfizer (NYSE:PFE), Loblaws (TSX:L)

Michael: Norbord (TSX:NBD), Terravest Trust (TSX:TI.UN), SeaSpan (NYSE:SSW)

On How Bulletproof Are The Top 3 Picks?
Michael: You can’t stick anything in the drawers these days. However, I’ll say this. I’m comfortable because on balance, the 3 stocks that I’ve given you are all trading below book value, below net asset value. They have a potential catalyst and they’re all giving you good yields, anywhere from a low of 7% to as high as 16%.

On The Potential Downside Of The Canadian Market
Healy: I think the Canadian market can drop 25%, 30% easily. But I think the Canadian market will hold up better than the U.S. market however, because I think the recession is oging to affect the U.S. more because of Canada’s resource exposure.

Michael: The market can come off 5%, 10%. But on balance, you got to stick to stock picking as opposed to trying to buy those stocks which have been big winners that are suddenly imploding.

We’ve arrived at the end of the transcript. I hope you enjoyed it as much as I did. Did you pick up any tidbits on how to view the market, approach investors’ psychology, and investing in stocks? If more people request it, I’ll put up the link to the actual video itself.

Related Posts:

• Deep Value Face-Off: Irwin Michael vs. Ross Healy (Part 2 of 3)
• Deep Value Face-Off: Irwin Michael vs. Ross Healy (Part 1 of 3)
• Irwin Michael’s Monthly Commentary - May 2006
• Irwin Michael’s April Commentary