When markets hit perilous lows last fall and winter, Lawrence Chin continuously reviewed the names in his portfolios and considered potential additions.
"We wanted to make sure the net asset value (NAV) and the discounts were there, especially when the market went down this hard," says Chin, 33, lead manager of the $1.3-billionMackenzie Cundill Canadian Security Series C 
, and vice-president at Vancouver-based Mackenzie Cundill Investment Management Ltd. "We are always comparing our stocks versus new ones."
Chin, who works with associate manager David Slater, sold several stocks, either because he lost confidence in the NAV or because the balance sheets had deteriorated. He also acquired new names, which were in better shape fundamentally and priced very attractively. Companies like Microsoft Corp. ( MSFT/NASDAQ).
"If you had asked me two years ago, would I buy these names, I'd say, 'You're crazy,'" says Chin. "But Microsoft, which had traded at 25 times earnings, went as low as nine, if you backed out the cash. The discount to NAV was 50%, at least."
Most investors, Chin argues, are short-term focused and knock down a stock because earnings have slipped. But since the deep-value Cundill team takes a longer view, it will normalize earnings for three to five years out. "Eventually, the economy will recover, and earnings will get back to normal. If you base this on a normalized NAV, then the discount for Microsoft was even bigger."
Although the stock has slipped below Chin's average cost of US$25, he is staying the course, largely because it is cheap and he believes the cash-rich company will prevail despite challengers to its 90% market share in the office software market.
Given an inevitable re-rating of its multiple, Chin believes the stock is worth around US$35. "After working here for 10 years, [I noticed that] a big catalyst is often the price itself. Would you rather get a 2.5% dividend, which will probably grow over time, or put your money in cash, which earns basically zero? Cheapness is its own catalyst."
A native of Malaysia, who grew up in Vancouver, Chin has been interested in finance since his second year at Simon Fraser University. In 1999, he graduated with a bachelor of business administration in finance and accounting.
Value investing appealed to him from the start. "The philosophy is very simple: you don't have to be a rocket scientist to understand it," says Chin, who spent a summer working at Phillips, Hager & North Investment Management Ltd. and joined Cundill Investment Research Ltd. after earning his degree. "You just need patience and the mentality to go against the grain. It makes sense to me."
Chin began as an analyst. As the firm began to invest in more U.S. stocks, he focused on that market. When the firm launchedMackenzie Cundill American Class in 2003, he was appointed manager.
In June 2008, Chin was named co-manager of Mackenzie Cundill Canadian Security, where he shared U.S. ideas with lead manager Wade Burton. When Burton left the firm in April, Chin was appointed lead manager and relinquished the U.S. equity fund to George Morgan. Along with David Slater, Chin also manages the three-star rated $1.1-billionMackenzie Cundill Canadian Balanced Series C .
Chin runs a concentrated portfolio, in which the top 15 names account for 75% of the Canadian equity fund. Single holdings are limited to about 6%. Turnover has been moderate, at 33% for the year ended Dec. 31.
The 3-star rated Canadian equity fund was in the top quartile for the 12 months ended May 31, although it still lost 19%, compared with the median fund in the Canadian Focused Equity category that posted a 25.6% loss. However, the fund's three- and five-year returns both rank in the fourth quartile.
Chin attributes this largely to the fund's lack of energy, gold and bank stocks. This helped the fund in calendar 2008, but has worked against it so far this year as energy and bank stocks have surged.
Since Chin focuses on stocks with a wide discount to NAV, he continues to favour names such as Celestica Inc. ( CLS/TSX). The manufacturer of consumer electronics goods has had operational issues at its plants and endured below-industry margins. Yet, since the firm brought in a new CEO, Craig Muhlhauser, "it has really focused on its problems and margins have dramatically improved."
The company is also benefitting from industry consolidation. "Capacity has been rationalized, which brings in rational pricing. That's another big tailwind for Celestica going forward."
Acquired about 18 months ago, at about $3.50, the stock was originally trading at a rock-bottom price-earning ratio. It has since rebounded to $7.70. But Chin believes it is worth $10 to $11 and could go possibly much higher. "If I am correct about this tailwind, Celestica could be worth $20 over the next four to five years."
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