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Last month we investigated whether the ‘cult of equity investing’ had died and if it would ever return. While many of the traditional valuation measures for stocks don’t appear to have much impact at the moment, we continue to see the potential for substantial long-term gains in stock prices being set up by the worries about the global economy and the excessive fears about a collapse of the global financial system. Unless the global economy is about to head into a major downturn (which we sincerely doubt) then stocks are trading at levels that will generated substantial gains over the next 3-5 year period. Moreover, with interest rates at all-time lows, we don’t think that investors fully appreciate the risk in holding bonds or other income-related investments. We have increased our stock market exposure in our managed funds during the recent downturn in prices and we outline our rationale for this move. We have added cyclical stock exposure as valuations are extremely attractive in industries such as Energy (particularly oil service stocks) and Basic Materials (gold, base metals and agricultural stocks are all trading at long-term lows in terms of valuation). Aggressive liquidation of portfolios by foreign investors, hedge funds and some domestic players are reminiscent of the ‘Lehman-like’ panic selling that we saw in the fall of 2008 and have created similar buying opportunities in many well-funded junior resource stocks. Recall that many of those stocks then experienced doubles and triples over the ensuing recovery period. A sampling of such names we see now includes Legacy Oil and Gas, Crew Energy, Athabaska Oil Sands, Trinidad Drilling, Capstone Mining, Kinross Gold, Osisko Mining and Uranium One.
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