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A View From Here Summer 2015

August 13, 2015 • Print This Article

"You never know what worse luck your bad luck has saved you from" - Cormac McCarthy


I have been thinking a lot about luck lately and wonder if we realize how lucky we are rather than its alternative where so many focus. It seems that many take their any of their good fortune for granted and prefer to focus on the things that went wrong. How often do we spend time thinking about what went right? Is that because we don't want to bring on bad spirits or keep a sense of humility?

We have had a spectacular run over the past 15 years as accounts have gone to multiples of their previous values. More recently, 2012 to date has delivered exceptional returns. Coming off of that kind of strength brings new challenges as some investment positions mature, are sold and replaced with new possibilities. When we look back over the past couple of years, there has been a lack of portfolio turnover that has occurred...but when we add a new position, it creates angst within me that maybe we have just been previously lucky.

Even in our fixed income view, we have been busy closing out all under-performing positions and have vowed (at least for now) to remain focused only on the safest return. This restricts our yield to the 1% level, but keeps our equity safe. What I find interesting is how many investors take their fixed income investments to far riskier places just to receive an elevated return from the sub 1% currently offered. One has to think that if they are going to receive a 'conservative' 5% in this environment, that they are at least taking 5x the risk than what is available from the safest possible return. I believe that investors are better served to protect their funds with the safest instruments and receive the return from the equity components. I am satisfied that reasonable returns have come from keeping a large portion of an account in the safest of fixed income, while using our equity investments to do the heavy lifting. The losses incurred from selling challenged fixed income holdings will be well served to offset gains we have crystallized in our equity investments.

Meandering Performance

2015 has been a meandering year, but not an unsuccessful one to date. Account values are relatively flat for the first 7 months, aided by the strength of a few of our positions (most notably FirstService and Colliers) and the weakness in the Canadian Dollar. The reason why the dollar factors into the equation is because we have been moving into more US listed companies over the past two years and that at least 6 of our 10 investment positions are inter-listed between Canadian and US exchanges but are valued in US dollars. This has helped place the role of luck into our corner. It has also softened the weakness in some our holdings because they have seen an almost 15% bump just in currency.

Part of what I would call a rolling construction into an investment is borne out of the knowledge that it takes time to not only build a position, but for it to perform. Often our names sit quiet or go nowhere at all, trading in a 20% bandwidth as corporate developments and investor disregard tests our resolve. Buying into this apathy has traditionally been the best practice... as long as things are doing well corporately. As we continue to hold and augment some of our newer positions, I am gaining confidence in their potential and by extension the potential future performance of these commitments.

Earnings Releases for our Investments

July saw earnings releases for a large number of our positions and for the most part, the numbers have been slightly disappointing. Each investment we hold contains a thesis of potential long-term value and earnings and corporate developments (such as acquisitions that augment growth) are signposts on the road. However, it is rare that the road is straight and smooth. As such, earnings releases are scrutinized in keeping with our thesis. In the case of our holdings, I'm happy to report that the earnings releases did not change our view of these investments, but the weakness in some of the share prices always do a good job of testing our resolve. I have to believe that a large part of my role is to look under rocks and try to find out what we might be missing. So far, we are not seeing any cracks in the corporate activity that might have shown up in the share prices underperformance, but it never feels good when we hold investments that are valued daily below prices previously achieved. For me, it conjures up that unreasonable thought that, if only we sold then, we could have repurchased now. I've been doing this for far too long to know that it isn't reasonable. Good companies with inexpensive valuations will usually win out and at least we have a track record that suggests that our way of thinking works.

It's Been Challenging But Maybe Were Lucky

The summer of 2015 has presented a number of challenges for investors that we have skirted for the most past. This is because a number of investors in Canada have focused on dividend paying large-capitalized companies in the Metals, Gold and Resources that have sold off enormously. I have advocated for that our investments should not be in popular themes and in particular the one focused on the growing infrastructure in China and India, which requires commodities and resources to do so. I have felt that for some time, that these investment are 'last decades theme' that has been unwinding in stages since 2011. It is amazing to see some of the values at mere percentages of the numbers achieved at a few short years ago. Perhaps it's the role of luck that we side-stepped a major collapse which has even affected the most treasured investments (Canadian Banks) or maybe it is because we look to invest away from what is popular reasoning that valuations are already low due to lack of interest. I hope its not just luck, but if it is - I sure do appreciate how it has worked for us.

Have a great rest of the summer...

Thanks for Taking a Look

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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