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Irwin Michael takes the long view amid volatility

Veteran money manager Irwin Michael of I.A. Michael Investment Counsel Ltd. has 37 years of experience in the investment industry and witnessed many gyrations in the stock market. Mr. Michael, now 60, started his career as a fixed-income manager and bond trader and later evolved to become a deep-value stock picker ahead of the launch of ABC Funds in 1988. His largest fund, the $574-million ABC Fundamental Value, gained 63.8 per cent for the year ended April 30. Over 20 years, it has posted an average annual return of 14.2 per cent.

You are a value investor who pays attention to the North American economy. What do you see?

We see things improving, but they have been masked by what is going on in Greece, Spain and everywhere else. We don't believe that we are going into a double-dip recession. We believe that the economy is slowly but surely improving, but it won't be easy. … We think that North America - aside from Asian countries like China and India - will probably lead Europe.

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So what is your outlook for the stock markets?

We think that the market will saw-tooth its way up. We don't think it is going to go straight up until the economy's gears start to catch, and we get better news coming out of corporations - that they are starting to hire. And we need to get better news out of Europe - "plugging the dike" sort of speak - with Greece and Spain. But, we are relatively bullish … The markets tend to drift during the summer. We expect the Toronto market along with the Dow and S&P 500 to be there with at least a single-digit return [by year end]… Generally, earnings have been good compared with expectations.

Will we revisit the lows of March, 2009?

We don't think those lows will be tested again. We could be wrong. You never know - we don't know what lurks out there. But on balance, if we can buy a profitable company doing relatively well in a tough market, I think we will do well over time … I would not be surprised to see 200- and 300-point days in the market - up and down - until such time as the markets gain a little more traction, and economic improvement in the North American economy becomes more visible.

What are the risks of Europe's debt woes affecting North America markets?

Clearly, there are risks. There is a fragile balance between the markets here … While we think we are in an emotional period right now, it's not as bad as October, 2008, when Lehman Brothers went bankrupt, and March, 2009, when the market bottomed. No market goes straight up forever. You are going to get a lot of corrections. It's very emotional. There will be plenty of opportunities. And this has become more of a trading market. We never thought we would be trading at ABC Funds. In the context of a day between 9:30 a.m. to 4:00 p.m. we are finding certain stocks trading in a band of at least 10 per cent between the high and the low for the day. That is incredible.

What advice would you give investors in this market?

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People have to look out longer term, and be cognizant of the fact that there is going to be lots of ups and downs in the market. Unless you have the staying power, we recommend that people look at their securities, and sell down to their sleeping point. If you can't stand the heat, you shouldn't be in equities … We still believe that the stock market will end 2010 higher than where it started the year.

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