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A View From Here October 2010

October 12, 2010 • Print This Article

"The major ingredients needed in developing patience are time, effort, and most importantly, humility" - Joseph Eliezer - Simply Spirit

Solid 9-Month Performance

In January 2010, we provided a 10-year review of our investment positions and made some interesting observations about our Canadian-based style of value investing. One of these conclusions was that our greatest successes came from a deep understanding of each investment rather focusing on 'du-jour' themes. No year has punctuated this success like the one we are witnessing right now. Most accounts are experiencing double digit returns, comparing favorably to almost any metric, yet we are not in any sectors that are currently in admiration by the markets. Further, (and this might be putting ourselves out there a bit), we still feel tremendous conviction in the portfolios we hold...perhaps more so then any time in the last 22. And for good reason: Increasing earnings and positive corporate developments have been augmented by unprecedented insider buying; yet their current valuations appear to be based on the fear of what can still be seen in the rear view mirror. Having said this, we have witnessed decisively better share price performance of our holdings over the past 2 months, but still well below what we believe to be their historical medium. In other words, I believe there is still a long way to go with the investments in our portfolios.

Unfortunately, the pundits will have you believe that any performance metric does not count as we are within moments of another stock market collapse. I must ask one simple question when it comes to this concern; "How do you know?" I have never met or even really read of any successful investor who has timed the sale of investment positions because of general market anticipation. Billy Joel had a great lyric (from one of my all-time favorite songs I might add) that says, "They say that these are not the best of times, but they're the only times I've ever known."

Let the headlines fill our heads with fear while our investments climb that wall of worry. It is just noise and concern for what might or might not happen . We cannot dismiss the strength that has been seen in the earnings and corporate developments of our holdings. It has, however kept their valuations at bay, which might turn out to be advantageous for us going forward.

Our Patient Approach in Recent Months

Throughout the past month, we have begun the process of providing year to date returns which we are very proud of. These accomplishments have been built upon a very strong conviction in each of our investment holdings which we have been committed to for a long period of time. In recent months that we didn't feel there was a specific reason to make adjustments to the portfolios. This was because as we had spent the better part of the last 18 months augmenting our current holdings, mostly at lower prices. The period between April and August 2010, proved to be just a quiet period in the market and was perhaps one of the quietest in recent memory. Sometimes, having the proper amount of patience is what's most important. The performance of our investment accounts between August and the end of September has been a testament to this.

Our Investment Positions Have been Very Strong

As the summer months began to wind down, interest in the stock market has picked back up and has affected almost all of our holdings in a positive way. I believe that we will enjoy opening up our September statements.

There have been a number of notable corporate developments that we highlight below:

Brick Brewing released better than expected earnings and profit margins in their late August six month release. Except for an increase in revenue, management has been diligent at cutting costs and improving profit margins. While this has probably seen the better part of its impact, focus on growth has been emphasized both in additional co-packaging agreements and expanding brands to new markets. We look forward to the fruit that these moves will bear in future quarters. We now have more than a modest profit in this company and look for an opportunity to add to the position as it delivers increased revenue and earnings.

Evertz Technologies reported its another quarter of earnings improvement quarter and increased the dividend by 25%. We view this most recent quarter as an inflection point to increasing earnings, and as such, further improvement in stock price performance going forward. The shares have reached 52-week highs in September and the company remains debt free and has over 10% of its share price in cash.

FirstService reported significant insider purchases and caught the attention of investors as it closed the September month at new 52-week highs which has continued into October. The key driver to this business is real estate services; namely Colliers that should now start to contribute substantial cash flow after two years of much lower activity. We remain very optimistic in the future of this holding and happy to note that we used low share valuation to augment our position. We are well represented in this name for all accounts and hold a notable stake in this growing company.

There appears to have been a dramatic turn-about in the worldwide demand for Methanol which has turned our focus over the past month to increasing our stake in Methanex. We have held this position for over 6 years and take heart in what we see as a major turnaround in demand that seems to be increasing well ahead of any supply to the market. This could prove to be a dramatic new up-leg in share price performance as Methanol price increases turn into higher profits. Demand is so strong, that the company is putting their Canadian plant back into production, which had been mothballed since 2001. We will continue to monitor, but feel instinctively that we are onto something here.

Lastly, we have begun to identify new positions which we will begin to recommend for our portfolios as we complete our due diligence.

Have a great Long Weekend ... and as always,

All Good Things,


Filed under: Uncategorized

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

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