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A View From 35,000 Feet - Summer 2014

July 30, 2014 • Print This Article

"From the sky the highway's straight as it could be.  A string pulled tight from home to Tennessee" - Jason Isbell: Flying Over Water (from my favorite music release of the year)

On July 7th I flew to Vancouver to visit the head office of one of our investments located in Burnaby. As the plane flew over the Rocky Mountains towards Vancouver I was struck at just how beautiful the west coast is.  It also served as a reminder that viewed from above, the mountains don't look as daunting and you can see for hundreds of kilometres on either side.  From the ground however, we can't see past them.  To date, 2014 has been a tale of two opposite worlds for our investment accounts.  Coming off of one of our best performance years in 2013 the gains extended well into March 2014 before stepping backwards.  While markets ebb and flow, our investments don't always follow suit and the last year saw a shift out of profitable holdings into new commitments... all the while maintaining a large cash position as we manoeuvre slowly into new investments.  In some cases, the stated value has been challenged by lower than expected earnings (Domtar) or dismissed for clarity of immediate growth (Glentel), while in others, I marvel at how they are embraced by investors. (Easyhome, FirstService).  None of this has changed my view of their potential, but rather challenged our thesis of unrecognized value for the time being.  That is why it is prudent to use this period to build our investment positions.

I believe in our process as it has a long-term track record of success.  The challenge is that the share price is pegged on a daily basis so from the ground you can only see so far.  However, if viewed from 35,000 feet, which is what I believe is required these are hopefully shortsighted views.   That does not make this any less trying when a complete other set of companies are performing well and we are holding investments that continue to consolidate. 

So many of our investments have been through this process before where positions we have committed to challenge our resolve for some undisclosed period, before waking up and achieving results well beyond what can be viewed from standing on the ground.  Take Easyhome as an example;  We began recommending this position in 2011 in the $7.50 range and continued to build our commitment as the share price dropped as low as $5.50 the following year.  Last week, it exceeded $25 in what would be difficult to see just two years earlier.  FirstService has experienced the same performance doubling over the past 18 months while Methanex spent at least three years ebb and flowing between $20 - $35 before reaching $80 earlier in the year. The key to investing and why I believe we have had success is that we know our investments and why we own them.  Having that kind of leg-up allows us to make better assessments to earnings and other corporate sign posts along the way, so that we don't abandon them during what we believe is a challenging but ultimately manageable period.  It doesn't make it easier when this occurs and I continue to assess and keep an open mind to what I may or may not be missing, but we've seen this movie enough times to know that only when the thesis is broken should an investment be closed out.  We made a commitment last year to a company called Redline Communications but when we saw that seismic shift in corporate activity that challenged our belief, we closed it out.  I remain prepared to take that view if determined that it makes the most sense.

Ultimately, the message is... stay with us folks…we have a long-term track record of success and as you know, I hold the same investments myself and for my family.  This period will too pass reminding me that when you're going through a challenging time... Keep Going!

Thanks for taking a look,

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 épargnants.

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