During the past four weeks we have witnessed extreme share price volatility with significantly lower stock values. As of this time of writing, the TSE has declined for the month of July almost 3% whereas the Dow Jones 30 Industrials has fallen 3.4% and the NASDAQ has plummeted 8.7%.

With this present extraordinary stock market weakness, continuing economic, investment and political uncertainty, the summer holiday season and general complacency, many investors have decided to do "nothing". With reduced investor participation, the markets, in consequence, have started to drift downward. But we regard the current financial environment as a fortuitous opportunity. As disciplined stock pickers we are starting to identify a number of attractive portfolio additions and, in fact, have initiated several stock purchases. As a result, we are reducing our cash position to under 5%.

Overall, it is our belief that investors should not lose their patience, composure and discipline. The prevalent unsettling period represents, in our opinion, an excellent time to reshape portfolios, to buy securities at a discount and to prepare for the next upward leg in stock prices.

To expand further, I believe the key to long-term investment success encompasses serious financial analysis and a healthy dose of cynicism. But deep analytical research is only a part of successful stock picking. In fact, one must be highly inquisitive.

Presently, in our frenetic financial world, we are being constantly bombarded by facts and figures. There is a never-ending flow of information. Some of this flow is useful but the bulk of this knowledge is irrelevant to many investment decisions. The challenge to us as investors is to deflect the unimportant facts and to concentrate on what will be germane to profitable investment analysis. Moreover, another key to investment success, I believe, is to use the relevant information sagaciously. As investors, we must dissect this data through shrewd questioning and serious analysis to ultimately produce a well-thought-out conclusion. Once we have formulated an opinion we can then create and execute a credible investment plan of action.

The importance of being inquisitive cannot be overemphasized. It is only through diligent questioning that we can acquire more valuable input to produce greater confidence and conviction to carry out our investment responsibilities. From my experience, the greater the investment knowledge that a portfolio manager has to make a financial decision, the greater the likelihood of monetary success.

But being inquisitive is easier said than done. As analysts, we must dig deeper and deeper into potential investments. Our questioning must probe for a certain spark or a different investment spin. Unfortunately, this is often a tedious process. However, with a fresh analytical interpretation this effort frequently produces significant incremental profitable returns. The fact is: when all is said and done, it is a labour well spent.

Accordingly we are using the present, slow-paced summer period to undertake serious financial analysis. While we remain optimistic on the economic and investment outlook we have been taking profits on various fully-valued holdings. We have been utilizing cash and sale proceeds to purchase fresh stock holdings in addition to adding to existing undervalued positions. For instance, over the past month, we have sold Prudential Financial Inc., purchased General Motors Corp. and have added, on price weakness, to Bon-Ton Stores Inc., Building Materials Holding Corp. and Prime Hospitality Corp.

Irwin A. Michael, CFA