YCG Investments
“If you buy above average businesses at below average prices, on average, we believe you should come out ahead.” — Brian Yacktman

Are we out of this mess?

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Today’s cover of the WSJ has an article titled “Companies Spy an End to Declines in Earnings.” This title caused us to reflect upon our last quarterly letter where we stated:

Unfortunately, we believe this hope for recovery is premature. This is not to say we will not see a further advance in stock market prices. Prices are simply a function of supply and demand, and in the short run, all sorts of factors can come into play affecting emotions. We may see little blips of economic indicators showing improvements now and again, but then other data may surface that would reverse the sentiment. In other words, we do not believe this will be a sharp “V” recession where the markets bounce right back – and if they do, we certainly do not believe it is sustainable. It will likely be several years before the macro scene truly stabilizes and improves substantially. That does not mean that quality businesses will share the same fate. On the contrary, we are witnessing the growth of these companies’ intrinsic value of which many are acquiring other companies, raising their dividend, and or repurchasing their own stock.

The reason we believe this rebound is a false start is because…there is still a lot of deleveraging needing to take place. Much of the economic growth we have experienced for decades has been fueled by debt… Ray Dalio, Chief Investment Officer of Bridgewater Associates explained it nicely when he said, “In the simplest sense, the country reaches the point when it needs a debt restructuring. General Motors is a metaphor for the United States.

Disclaimer: The specific securities identified and discussed should not be considered a recommendation to purchase or sell any particular security. Rather, this commentary is presented solely for the purpose of illustrating YCG’s investment approach. These commentaries contain our views and opinions at the time such commentaries were written and are subject to change thereafter. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. These commentaries may include “forward looking statements” which may or may not be accurate in the long-term. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable. Past performance is no guarantee of future results.

Posted by: Brian Yacktman | April 22, 2009 | Permalink

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