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Rubin wows 'em, Brandes picks 'em

Jeffrey Rubin bounded on to the stage Wednesday night in front of a room full of money managers and did what he does best -- that is, be Jeff Rubin.

It's hard to know whether Bay Street loves him for his predictions or for the entertaining, cocksure way he delivers them. While other economists bore their audience sideways, CIBC World Markets' chief guru blasts his points home.

Here's Mr. Rubin on why he still believes oil will hit $100 (U.S.) soon: "When we're drilling 35,000 feet under the Gulf of Mexico, or we're schlepping a ton of sand to get a barrel of oil, you know the supply curve is a little bit different than [in 1970]."

On the idea that a U.S. slowdown will pull China's economy down with it: "That's B.S.! . . . What we have here is that we're guilty of a very Ameri-centric view of the world. You think that China's rapid growth of 10 to 12 per cent is all about supplying customers in Little Rock, Arkansas."

On investing in energy stocks: "Management is irrelevant. I look at the commodity price."

On long-term investing: "I think Lord Keynes had the best comment to make about the long run: 'In the long run, we're all dead.' "

On America's deficit problems: "What I want to know is, why isn't the IMF [International Monetary Fund] imposing an austerity package on Washington?"

The Wednesday evening crowd, about 1,350 people at the Toronto CFA Society's annual forecast dinner, loved the act. At a table right near the foot of the stage, Charles Brandes watched the Rubin Show with amusement.

Mr. Brandes is, for the moment, the talk of the Street. His company, Brandes Investment Partners, this week stole star Canadian fund manager Kim Shannon from CI Financial to help launch some new funds. But to the rest of the world, he's simply one of the foremost pickers of value stocks. And it's hard to imagine anyone less similar to Jeff Rubin.

As a public speaker, Mr. Brandes is stiff, unexciting and, most of all, utterly lacking in confidence. He professes zero ability to forecast the market's future. Is the U.S. stock market overpriced after its recent rally? "I have no idea," Mr. Brandes said. Really? "If I did give you an opinion, I can guarantee you one thing: It would be wrong."

Fine. How about oil, then? Mr. Brandes observed that some experts were predicting $100 a barrel back in 1973, and it hasn't happened yet, but he would still climb out on that limb. Sort of. "I'm going to make a forecast of $100 a barrel," he said. By when? There's the punchline: "You either forecast a number or you forecast a date," Mr. Brandes said, "but you never forecast them both at the same time."

If you really want to know what Mr. Brandes is thinking, watch what he does. And what he does would scare most investors. Take the Brandes Canadian Equity fund. Its largest domestic stock holding, as of June 30, was a company whose founder is under criminal investigation (Royal Group Technologies). Its top 25 holdings have at least one bankruptcy court candidate (Tembec), a floundering airplane manufacturer (Bombardier), and an insurer that has been accused of aggressive accounting (Fairfax Financial). It includes companies controlled by impossible bosses (Quebecor World) and overpaid ones (Magna International). The fund had 13 per cent of its assets in forestry -- the single worst-performing group on the TSX in the past two years -- but no oil.

This is not Buffett-style value investing, this is the Village of the Damned.

But it works, and Mr. Brandes' long-term numbers prove it. If you'd put $100,000 in his global stock fund two decades ago, you'd have $1.25-million today. And it also shows us why beating the index over a long period, as Mr. Brandes has done, is so difficult. Would you want to own Nortel and all that toxic stuff now? Nah, that kind of investing, for most of us, is way too hard. It's more fun to go to dinner parties and listen to Jeff Rubin's colourful wisdom.

But if your goal is profit, rather than entertainment, then Mr. Brandes is your man.

vox@globeandmail.com

*****

Brandes Can. Equity Fund

Top Canadian stock holdings (as of June 30)

Company (as of June 30)Fund %
Royal Group Tech. Ltd.5.2
Domtar Inc.4.4
Bombardier Inc.4.3
Molson Coors Brewing Co.4.3
Cash & Cash Equivalent4.3
Quebecor World Inc.4.1
Magna International Inc.3.9
Celestica Inc.3.4
Nortel Networks Corp.3.4
Fairfax Financial Holding3.1
Catalyst Paper Corp.3

SOURCE: BRANDES

© 2007 The Globe and Mail. All rights reserved.

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