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A View From Here October 2014

October 30, 2014 • Print This Article

"Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics, oils shocks; a flu epidemic; the resignation of a disgraced president. Yet the Dow (Dow Jones Industrial Index) rose from 66 to 11,497" - Warren Buffett, New York Times, October 16, 2008

Opportunity in Consolidation

The impression made from the 2007-2009 economic and stock market crisis continues to reverberate throughout the investor psyche. Whether it is simply a concern or fear of the apocalypse, markets around the world have climbed higher over the proceeding period with a heavy dose of anxiety. Every dip has been examined as the first nail in the pit of our collective stomach that says "I just know this is the beginning of the end" and nobody wants any part of the 50% decline that they suffered during that period.

  Recent Worldwide events haven't made this picture any rosier. 2014 has witnessed a number of geo-political concerns from The Russia-Ukraine crisis, Israel-Gaza, ISIS and all of the uprisings in the Middle East point to the possibility of another major war. Or will it be eclipsed by the threat of the Ebola crisis? It never ends.

  Meanwhile, the world economy continues to grow, albeit at an anemic pace, but not fast enough for many who see government's 'throwing everything to stimulate' in hope that economic expansion follows. Something's surely got to give. So volatility that had been lacking in the past two years rears its head again, bringing out the pundits and inducing fear.

But, in an effort to not sound cavalier, look to any other 5 or 10 year period over our lives and you'll see the similar concerns, just a different set of players. This noise serves to detract from what is most important - the quality of our lives and for what I'm bringing to the table - the investments that we hold.

Complacency is the Enemy to the Investor

Last year saw a uniquely strong stock market performance in North America and the returns didn't just occur for any reason. The stock market is viewed as a leading indicator of the economy and I think what it is saying is that things are getting or are going to be getting better from where they are now. I also believe that the level of high anxiety that continues to exist among the investing public keeps things a little more honest.

The big fear should really be complacency. By this I refer to a general belief that certain things will continue for the foreseeable future. I see this action in certain asset classes, which include the Canadian banks and popular investment themes. A number of people tell me some version of 'you can't go wrong with them' and history has shown more often than I can count, the opposite side of that trade. That is not to say that they won't continue to perform well for some period. I just don't believe investments that are 'top of mind' or 'foregone conclusions' are going to perform well for our accounts.

There doesn't seem to be a lot of complacency in the markets that usually occurs at late stages of an advance. The past 5-years appears to be a mix of fear, acceptance that we are not entering 1930's food lines, increased earnings, and accommodative governments that has produced earnings growth. I'd say that its participants are valuing it more or less - correctly. I also don't see a lot of pontification of strong growth… especially given the geo-political and economic fear out there. It has been my experience that only when things are almost too well and the coast appears clear, that trouble is lurking below the surface. This doesn't feel like one of those times.

On the Periphery

I believe strongly that we will produce extraordinary returns over the long-term investing on the periphery of where the unpopular, unloved and un-themed investments exist. There is not much excitement for an office copy paper company, retailers or small town newspapers in the markets. They are not top of mind as something like Tesla, Apple or The Canadian Banks, but they offer excellent potential based on low valuation of current and potential earnings going forward.

September continued a trend of consolidation in our accounts, and while we don't like to see those things, it is currently on par for the course when viewed from 35,000 feet. As such, I continue to urge our clients to make further commitments to existing positions. That is why we scale into the investments in the first place.

Lastly, I would like to make a special shout out to our men's Softball team for a spectacular year that saw us win the championship. When I think about how rare it is to win the 'big prize' I am thankful to have savoured that experience.

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.

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRCC website please understand that it is independent from MRCC and that MRCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRCC.

 

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