Robert Rodriguez: We began to commit capital beginning on October 8

In response to collapsing share prices, we began
to commit capital beginning on October 8 and since then
we have spent approximately 22.5% of the Fund’s
September 30 liquidity or 8.6% of assets. This is the
largest amount of capital we have deployed at any point in
the last five years. Why did we begin buying on
October 8? On October 7, Treasury Secretary Paulson for
the first time commented that the U.S. Treasury would
possibly have to deploy CAPITAL in the banking system.
In our minds, this showed that the Federal Reserve and the
U.S. Treasury were finally beginning to understand that
the core issue of this crisis is CAPITAL deficiency and
not LIQUIDITY—more on this later in the credit crisis
commentary section. We began buying because the stocks
we selected appeared to be discounting a very severe
economic and stock market outlook with their depressed
valuations. Initially, our purchases will likely show losses
since we are buying into stock price weakness.
Furthermore, our value screen of the nearly 10,000
companies in the Compustat database showed an
explosion in the number of qualifying companies that
rose to 447, the highest in over twenty years. In June of
2007, this number was 33—a record low number of
qualifiers. Our conviction was enhanced by this positive
outcome that this was an appropriate time to begin
spending some of the Fund’s long-held liquidity, plus the
moths were getting pretty grumpy and tired from being
cooped up in our coin purse for these past five years.
They were yearning to fly free.

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