The markets are in for a couple years of continued volatility, which will provide plenty of buying and selling opportunities for value investors, according to Mackenzie Financial Corp. portfolio manager Tim McElvaine.

McElvaine was appointed lead manager of the Mackenzie Universal Canadian Value Class fund in February. After a rough year for many value investors in 2008, he is optimistic that the year ahead will offer more favourable investing conditions.

“Times of volatility tend to be relatively okay for value investors, because they give us an opportunity to buy and an opportunity to sell,” McElvaine says. “I think we probably have a couple of years of volatility ahead of us.”

In the current environment in particular, corporate news has the potential to significantly impact the price of a stock. These price swings can provide chances to buy stocks at excellent value, according to McElvaine.

“If a company comes out now and disappoints as far as its operating results, people aren’t particularly kind to them. That’s all I’m looking for, are 30 stocks where people are kind of upset with them.”

McElvaine has been a value investor for 20 years. He is the founder and president of Vancouver-based McElvaine Investment Management Ltd., where he manages an investment trust that is sold by offering memorandum. When the widespread market volatility began to set in last year, McElvaine recognized new prospects for value investing and began to explore opportunities to become involved in a more widely available value fund.

“2005, 2006, 2007 weren’t really particularly interesting years for a value guy,” he says. “But starting with last year, I though it might be a more interesting period to be a value investor.”

Value investing is a challenging task, McElvaine admits, since it requires the identification of resilient firms that are facing significant challenges.

He uses the analogy of finding a house that has a strong foundation, but also some imperfections. “I’m looking for a good foundation,” he says. “The house might have a roof that leaks, or needs a paint job, or has shutters falling off. But it shows potential and it has good bones.”

McElvaine considers himself an accident chaser in his stock-picking style. “The portfolio construction is very much reactive,” he says, explaining that he takes an interest in the stocks of companies that are going through a rough patch.

“With a value portfolio,” he explains, “every company in it — if I’m doing my job correctly — should have a problem. That’s why we get them cheap.”

But it’s crucial to assess the severity of the issues facing a company to ensure a margin of safety in the investment, McElvaine warns. In choosing stocks, he takes the time to understand how key decisions are made by the companies’ management and board of directors.

“You need to understand when you go in where their primary focus is,” he says.

IE