Sionna Insight

 

The Challenges of a Volatile Market
January 2010

The Canadian equity market has demonstrated an exceptional degree of volatility over the past year and a half. At Sionna, we have tried to navigate the market turbulence by staying focused on our fundamental research process. Some of our decisions have proven to be successful, others have been less so.

Value Thoughts to Ponder in the Midst of The Great Experiment
October 2009

The ongoing actions of global governments to sustain their financial markets are aptly being called "The Great Experiment". The current situation is unprecedented in financial history, thus we do not have the past as a guide for the future. So when a living legend like Warren Buffett dares to put forward a perspective on the world's predicament, we would have thought it would garner much attention and discussion.

Why is Sionna Market Weight Gold?
October 2009

It is commonly accepted wisdom that value managers tend to avoid gold stocks. Why? In general, gold stocks trade at multiples that are much higher than the market and conventional value stocks, and therefore are unattractive to investors that seek "value". The chart below illustrates the expensive nature of gold stocks, as the gold sector normally trades at P/E multiples of 30-50x, while the S&P/TSX trades at a long-term average P/E of 14x. As a result, value-oriented managers typically cannot justify paying such high multiples for gold stocks when cheaper opportunities exist elsewhere in the market.

The Case for Natural Gas
September 2009

At first glance, the current situation in natural gas markets appears grim. Gas prices are down more than 70% from their peaks and are trading at seven year lows. Demand for natural gas is declining with the global slowdown, and new supply is increasing from both unconventional players and from LNG (liquefied natural gas). So why is Sionna bullish on natural gas?

Japan All Over Again?
May 2009

“As we continue with our efforts to grasp the current state of the markets by looking back in time to periods of economic turmoil, the Japanese situation is a good one to understand. We will walk through a very quick, high level look at the Japanese situation, from the glory days of the 50s, 60s, 70s, and 80s and through the tough times of the 90s. We will then try to draw some similarities between the U.S. experience and Japan’s.”

Debtors’ Prison
April 2009

“Up until the mid-19th century, debtors’ prisons served as a malicious means for creditors to punish delinquent borrowers. Marshalsea, one of London’s more notorious prisons, subjected occupants to a grim plight that guaranteed a debtors’ financial position would surely worsen. Today’s credit environment parallels the confines of Marshalsea.”

Investing in Range-Bound Markets – Dividends Matter!
December 2008

“The bursting of the tech bubble in the year 2000 signified the end of the biggest bull market in U.S. and Canadian equity market history. This triggered the beginning of the range-bound market in which we currently find ourselves, where the market typically bounces up and down, but the long-term trend is sideways for the foreseeable future.”

The Value in Small Caps
October 2008

“When equity investors are fearful, investors perceive that small-cap stocks are less liquid, more economically sensitive, and thus less ‘safe.’ Yet, history shows that, over the long term, small-cap stocks provide diversification benefits – as well as incremental returns – over large-cap stocks.”

Suspension of Disbelief
June 2008

“Of late, net margins and return on equity (ROE) have soared, flying like Superman to record levels. Basing stock valuations on these inflated metrics requires a suspension of disbelief about cyclical and secular forces in corporate profitability.”

Inflation
May 2008

“While this topic may at first seem inconsistent with our bottom-up style, we believe it’s important to be able to identify and understand a secular trend that the market may not be recognizing, one that could contribute to strong investment performance and benefit our clients: inflation.”

The Value in Resources
March 2008

“Many claim that the resource sector is in the midst of another bubble. While Sionna recognizes that speculative pockets have emerged in the resource sector, we continue to find good value in specific stocks in the Energy and Materials sectors.”

Institutional Memory:
How Did We Forget About Credit Losses?
December 2007

“Many years from now, blessed with the benefit of hindsight, market commentators will accurately pinpoint the cause of the difficulties that the global financial system is experiencing today. In the meantime, it appears that one of the major contributing factors was a failure to heed the warnings of institutional memory.”

Value Thoughts to Ponder
in an Emerging Global Credit Crunch
November 2007

“Until recently, Sionna was confident that the Canadian banks would sail through any U.S.-related sub-prime real estate problems and would maintain their strong valuations, while providing a great high-yielding way of hunkering down in the Canadian market. Our concern is that declining return on equity for Canadian banks will weaken investor confidence enough to make the banks’ valuations more vulnerable to any widening global credit crunch.”

Value Thoughts to Ponder in the Midst of a Bear Market
June 2002

“In my opinion, this bear market is more about a valuation correction from mania excesses than about the economy or company earnings. The mania and now the bear market have been two-tiered and I expect that it will continue. The excess was centered in Technology, Media and Telecom; most of the pain so far has been suffered in these sectors.”

Practical Tools for Analyzing Value Stocks
April 2002

“Relative value managers are best served by a four-step process: quantitative analysis to narrow the number of potential stocks for investment, qualitative analysis to supplement the quantitative analysis, portfolio construction, and portfolio monitoring and performance attribution.”

Value Thoughts to Ponder
in an Era of Explosive Multiples
June 2000

“One hundred and three years ago today, a ship pulled into San Francisco's harbour and off stumbled a few bedraggled prospectors from the Yukon, dragging luggage heavy with gold. With the help of the telegraph and newspapers, the gold rush developed rapidly. By the time the gold rush was over 18 months later, 100,000 ‘stampeders’ had actually set off for the Yukon. In the end, there was tremendous hardship, little gold and the main beneficiaries were those who sold pickaxes and shovels.”

Investing in a Low Interest Rate Environment
October 1999

“Global inflation has been in secular decline since its peak in the early 1980s. In my opinion, it wasn’t until we entered the 1990s that we let down our guard and began to believe that global central governments were not only dedicated to keeping inflation down to an acceptable level, but were knowledgeable, capable and dedicated to doing so. Thus, during the 1990s, as these beliefs took hold, we saw long interest rates decline dramatically and a commensurate increase in stock market Price to Earnings (P/E) multiples.”