While many investors have been running for cover amid the current market volatility, David Barr and his colleagues are stepping into the storm looking for buying opportunities. "We are a lot more excited today than we were three months ago," says Mr. Barr, chief executive and a portfolio manager at Vancouver-based PenderFund Capital Management. "We are seeing more opportunities to get aggressive and deploy cash." The firm's value fund returned 8 per cent in 2017, compared with a 6-per-cent return for the S&P/TSX. Mr. Barr says they were conservative in 2017, holding about 30 per cent cash. In the current market, his firm is about 23 per cent cash. The Globe and Mail recently spoke with Mr. Barr about how his firm has been reacting to the market gyrations.
What concerns are you hearing from investors today?
The answer to this question would've been remarkably different a week-and-a-half ago. It's interesting how fast people have switched from greed – where they were willy-nilly allocating capital to [riskier areas such as] cannabis and cryptocurrency stocks ... . Today, everyone is looking for a Warren Buffett quote to remain calm. The time for [heeding] a Warren Buffett quote was way before the volatility picked up.
How are you reacting to the market swings?
We're taking advantage of the dips in the market to add to positions in our portfolio and to increase our weightings – and using our cash balances to do so. If we see a continuation of this trend, I think we will be doing a lot of buying over the next couple of months ... . We do a lot of buying when people get scared in the market and start selling indiscriminately. It's way better to buy stocks from someone who is selling emotionally, as opposed to someone who is selling based on the due diligence they've done and their interpretation of it. Buying from the emotional seller, if we can, is what we always try to do.
Any predictions for what's going to happen next?
My crystal ball is firmly broken. We're not trying to repair it. Because we've had such low volatility over the past year, everyone has become very complacent. Returning to normalized volatility or even increased volatility, for us, we think that is actually wonderful. If a stock is down 20 or 30 per cent on any given day, that provides us with a wonderful buying opportunity.
What have you been buying recently?
I can't discuss our active orders … but two companies we bought in the last few months are Freshii and Aritizia. They've had wonderful track records of growth over time. With Freshii, we didn't buy the IPO because we thought it would be really hard to hit those [earlier] growth targets, but when they announced they weren't and the stock came way off it was a wonderful opportunity for us to get in. We bought Freshii a couple of months ago at an average price of $6.43. Aritzia we bought at $13.50 at the end of January. [Aritzia started trading in October, 2016, at $16; Freshii began trading in January, 2017, at $11.50.]
What have you been selling lately?
We've had two companies taken out this year: Avigilon and Key Technology. Avigilon we started buying below $10 and it's being taken over by Motorola for $27 per share. Key we bought for an average price of around US$8 and the takeout [by Duravant LLC] is for US$26.75. We recently sold Ebix, a software company for the insurance industry based out of Atlanta. We owned this for several years, getting in around US$7 or US$8 per share and it recently hit US$80. We felt it was fully valued so we moved on. Our average price was US$18.50 and we sold at around US$83.
What's one stock you wish you owned?
Starbucks. I've never owned it. My business partner, Felix Narhi, and I were having lunch in the middle of the financial crisis. I told him my stock pick idea, which was Radiant Communications, and he told me his, which was Starbucks. I said, I can't buy Starbucks – I don't like their coffee. The lesson is: One's opinion doesn't make or break a business. You have to look past your personal biases.
This interview has been edited and condensed.