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A View From Here October 2013

October 2, 2013 • Print This Article

Seeds not planted or tended by choice tend to be weeds, so at least for me, it's very helpful to consciously and periodically choose which seeds I want to water, and to think through what I expect to happen from that watering. Investors can spend a lot of time and energy reacting to the latest bits of news and trying to predict the next surprise, rather than choosing a consistent set of daily actions that they can carry out as things develop, regardless of how they develop. - John Hussman

Replanting Investment Seeds

2013 has been an incredible year for our investment accounts. Commitments to undervalued technology companies made over the past years were liquidated after what I believe was a shift of investment capital that flowed into them, driving their share prices higher. Positions such as Enghouse, Absolute Software, Microsoft and Softchoice collectively yielded successful returns for us and their liquidation has raised a considerable amount of cash that sits in short-term deposits. Our investment accounts hold only one special situation technology company which we continue to build but we have slowly evolved a bias to retail all the while maintaining an investment stance in Real Estate services, Pulp and materials.

Planting Slowly

It has been our view that investment positions are constructed over time as conviction deepens based on valuation and corporate developments. But, this has been a funny time in the markets, especially for Canadian investors. Resources and Metals have disappointed and many have made investment decisions based on dividend yields, which has had a nasty correction over the past 3 months. All the while, the US stock market has marched to new highs despite geopolitical events, a tender recovery and high Government debt. It has been hard for many Canadian investors to watch the US market hit these levels with little or no participation by our Canadian counterparts.

It's All About Valuation

We don't fret over the day-to-day or monthly gyrations in the stock market but think of it is as a backdrop for which we make our investment decisions. We believe that the best investments are not tied to a theme, but rather in absence of one. We continue to favor companies with strong balance sheets and cash flow generation at a time when their product is neither popular or premium priced. This way we reduce the likelihood of nasty surprises. A case and point can be made in regard to recent developments surrounding our investment in Domtar. The company's share price increased when three events occurred within a week; a takeover of a peer (exposing a potential 20 plus percent valuation gap), the shutdown of another peer's business from which they should benefit, and an announced price increase for its products. We remain passionate about the prospects for this investment and will continue to build our position as more developments suggest we do.

Value Investing Congress - New York City Sept 17-18th

In September I flew to New York to participate with approximately 2000 other investors in the Value Investing Congress. For two days, geeks like us meet and attend workshops and presentations by some well-known investors about their process, investment ideas and outlook for the markets. There was a surprising amount of Canadian investment idea's presented and I couldn't help but feel more confidence in our positions at present. There was a particular emphasis on significant management ownership with one presenter asking if anyone 'washes a rental car'. As I listened to many presenters and exchanged ideas at breaks and a reception after the first day, I felt we were on the right track with our present investment commitments. I was surprised to find out that out of anyone I had spoken to, we held the largest cash position in our accounts.

We will look to slowly deploy the cash over time, but feel we are on the right track as we plant the seeds for (hopefully) future success. As I hope you know, we own the same investments.

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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