Worldwide stock markets posted steep declines in November. Equity prices were negatively impacted by a number of factors including traditional year-end tax loss selling, ongoing investor worries with regard to subprime mortgages, asset-backed commercial paper and the uncertainty about financial institution write-offs. Previously adventuresome investors have now become risk-averse and are currently demanding investment liquidity. They are shunning anything from small/medium capitalization equities to financial institution shares.

With poor investor psychology, lack of patience and fearful, motivated sellers within thin, nervous markets, the various bellwether indices exhibited extremely disappointing November investment returns. For instance: the S&P/TSX Index fell 6.2%, the CIBC World Markets Small Cap Index declined 9.8% (now down 4.1% year to date), the TSX Venture Index decreased 12.7% whereas the Dow Jones 30 Index slipped 4.0% and the Russell 2000 U.S. Small Cap index dropped 7.3%. In the context of these difficult market conditions our ABC Funds also declined having been largely affected by Canadian and U.S. small capitalization stock underperformance counterbalanced by a weaker Canadian dollar which improved, somewhat, our non-Canadian dollar asset valuations.

In all candour, chaotic and irrational market conditions have made this a most difficult investment environment for deep-value investment. In this fearful, pessimistic environment, as opposed to the early year exuberance, many large and small investors in their rush to liquefy are disregarding fundamental analysis. This point relates to the analysis of balance sheets, price earnings ratios, book and net asset values, etc.

In summary this is an extraordinary volatile market environment. Investment sentiment is poor spawning a further erosion of investor patience, commitment and investment discipline. A prime point to be remembered is: while equity prices might be extremely erratic, equity valuations do not fluctuate materially. As a result we expect a growing number of opportunistic mergers, takeovers, acquisitions and privatizations over the next 6-12 months. Given this outlook we continue to adhere to our disciplined value style regardless of the current unsettled market conditions.

Irwin A. Michael, CFA