Reflections on the week ending May 7, 2010

Concern about the debt of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) dominated the news this past week and sent markets reeling. As always, it is instructive to remember that “it is a market of stocks and not a stock market”. Consider IGM Financial Inc. Since the earnings of wealth managers are heavily correlated with the value of markets, the share prices of wealth managers like IGM were hit hard as the broader markets declined. However, during the week, IGM reported its results for its 1st quarter ended March 31, 2010. March 31, 2010 year over year increase in Assets Under Management of 25% combined with operating leverage to produce 33.3% year over year growth in Earnings per Share. With minimal on-balance sheet risk, we expect temporary market declines to only create temporary pressure on the earnings of wealth managers. In our opinion, the share price declines of wealth managers like IGM incorrectly assume permanent declines in markets.

The week also saw a battle between two opposing forces on the price of oil. On the one hand, as market sentiment turned bearish, the price of oil declined (over 10% in the week). It is assumed that this decline in oil price is driven by view of soft demand resulting from the troubled economy. On the other hand, the exploded oil well in the Gulf of Mexico was turning into a potential environmental disaster which we believe poses a significant risk to increases in the supply of oil from new offshore wells. We believe that the implications on the future supply of oil, resulting from cancellations and/or deferrals of offshore drilling, will have lasting positive implications for holders, like Suncor, of large proven reserves of on-shore oil. However, the market did not take this view, driving the price of oil and companies like Suncor down in the 10% range. Once again, the market is demonstrating that it is more short-term in its outlook – which we believe creates opportunities for long-term , value investors.