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A View From Here October 2015

September 28, 2015 • Print This Article

"Expecting the world to treat you fairly because you are good is like expecting the bull not to charge because you are a vegetarian." -Dennis Wholey

The Markets

Nobody knows which way the market will move over the next 1-3 months, but I think it's pretty a reasonable bet that the long-term will see numbers that can only be imagined today. When I started in financial advisory in 1988, the Dow Jones Industrial Index (DJIA), was trading under 2,000 points, and here we are at a crossroads, worried about the index breaking 16,000 on the downside. Having spent time interacting with the summer students we hire as well as my children and their friends, I think we'll be ok. In fact, it might be a lot better than that. So many speak of how the current generation is an entitled bunch, but I don't see it that way at all. They are smarter and more motivated than I remember our group being. But if we simply use the same percentage that the Dow Jones Index grew over my tenure, we could see it reach well over 120,000 during the next 30 years.

Anyone predicting the short term moves in the markets is only guessing. Some get it right for a short time and they are hailed as great minds until they get it wrong too many times, exposing them as human. Have you ever heard Warren Buffett give a short-term prediction? By the same token, who remembers Elaine Garzarelli, Robert Prechter or Roger Dent and the scores of others who have got it spectacularly right for a time?

But for now, let's focus on the recent past, present and future. Some say that the 6-year uptrend will continue (recent pullback notwithstanding), others say down (temporarily or otherwise), believing the Bull Run that started at the lows of March 2009 has run its course. And still others say sideways, as the market consolidates while waiting for new information (interest rate direction, Greece, China) to provide direction one way or another.

Each side makes compelling and lucid arguments. After reading one side, you can be totally swayed, until you read the other side of course. And so you have the current state of the market. As an investor, knowing which way the market will go is typically viewed as a critical piece of information in order to produce returns. But it's a critical piece that nobody knows.

Actually, it really doesn't matter.

Calm Confidence.

When so many individual stocks began rolling over in late July, I was just as concerned as anybody. We get used to a certain environment and then it changes and we have to ask what we were missing. The media becomes ablaze with stories of doom and gloom as a degree of panic sets in and investors helplessly watch markets go up and down for no apparent reason. I feel a calm confidence instead. What the market does is beyond our control. We have to buy good value and be prepared to take further commitment when this opportunity presents itself. I also know that when and if the investment thesis we have employed for any one of our holdings changes, we must take action. I still believe that they are still in tact, but as I wrote in last month's A View From Here, it does test our resolve. Maybe that's a good thing because it makes me dig even deeper. We have been particularly inactive during this period, but believe that as we continue to favor our investment names, we will look to take further action. I am thankful that our accounts have large cash balances to take advantage of what we hope will be unique pricing for many of our holdings.

Time Moves Quickly

For many of our investment accounts, 2015 had been a modestly successful year for us especially when you consider the returns that we have been able to achieve over the past couple of years. Then in late July, we started to see our asset values decline almost suddenly to our frustration. But take a minute and look at all the turmoil that seems to constantly exist in the markets (except for brief periods when we should probably be most concerned). Downside volatility occurs, fatigue sets in and those who feel the daily movements begin to think of larger macro issues and the mother of all recent fears - a recurring period such as the one we witnessed in 2008-2009. I still advocate that as long as this period remains fresh in the collective mind of investors (and I believe it does), then it is less likely to re-occur.

We have been regenerating the same concerns for a long time now - Interest Rates, China, Greece, Middle East, Oil etc. But as every market meltdown has taught us to date - it's the surprise that changes the course. Who knows - maybe we are going through a period of weak markets that continues to test our resolve for some time. I have learned to make friends with it and am thankful we have the resources to take advantage because the one thing I can say for certain is that time moves quickly.

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.

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.

 

A View From Here September 2015

September 14, 2015 • Print This Article

Testing Our Resolve

2015 has been a real challenge for investors, particularly in Canada where continued weakness in metals and resource companies are hitting lower levels than previously imagined. Add to this the instability of the Canadian dollar and brush in some incredible volatility affecting world markets and we have cause for anxiety. Weakness in China and North American interest rate concerns has created a lot of uncertainty. This has resulted in some extreme daily market swings in sentiment and a global sell off in most assets. Our investment accounts have not been immune to these events leading us to further investigate whether our investment positions contain the right thesis for growth going forward. I still believe it does.

Reacting To Noise

For the last two weeks of August my family took a vacation, during which we witnessed extreme volatility. From the beach or my hotel room, the stock market app spit out hundreds of points of volatility while headlines warned of pitfalls that await us. Markets don't like uncertainty and it appears that participants in the investment world have become squeamish. I believe that at the end of the day, it is just noise. Noise, as in meaningless nonsense that does not help us determine what to do next. Becoming neither enamored with gains nor despondent when things take a temporary turn for the worse is going to do anything but frustrate or elate us in the short-term.

I advocate that we look beyond the noise and at each investment position we hold, constantly considering whether the reasons we own them still exist. If they do, then we look to hold and build on our commitment, if they do not, we look to liquidate. Thankfully our investment accounts have a relatively large cash position that can capture these consolidated prices. We have kept fairly quiet on that front for three months as many of our positions weaken, not wanting to add to them for the sake of doing so, but rather maintain an investment stance based on the deep fundamental value we believe exists and will reward us in the future.

Point A to B is never Easy

When I look at some of our positions in this market reality, I'm drawn to back to what has worked for us in the past, and how they never moved in a straight line. Almost all have disappointed for some period and took a little more time to reach a valuation that ultimately led us to successfully close out the investment. In almost every case, I scratched my head wondering what I am missing as we search for the preverbal 'rock of epiphany' that might explain what we we're missing. This includes researching and speaking with management and analysts, reading opinions all the while, continuing to question our thesis. I can accept defeat in an investment position, but I want to arrive at that place with a fundamental viewpoint that is well understood.

Some of you might recall that in early 2011 we initiated an investment position in a company called Easyhome. When we purchased our initial stake, the share price was attractive in the $7 - $8 range. News and market turmoil brought the share price as low as $5 by year's end, frustrating and challenging our view. After continued research which included looking under rocks for that thing that might be missing, we chose to add to our investment position. For the next twelve months the shares grinded within 10 -15% of these new lows but our fundamental analysis still maintained that this was a worthy investment. In late 2012, the company's share price began a slow ascent that remained abated until we liquidated the position in two tranches in 2014. This occurred at prices ranging from $16 to $25/share. The decision to sell the position was based on the same research tools that we used to purchase, maintain, build on and ultimately sell.

There are two points I am trying to make in this example, one is that it is never easy to be successful and our track record of success has been based on maintaining our resolve during periods of consolidation and secondly, that the subsequent recovery and successful liquidation takes time... often more time that you might think. That is why we don't want to just keep buying for hope that an immediate recovery will take place.

We hope as we derive further clarity in our positions that we use our common sense, investment acumen and considerable cash positions in our accounts to make further commitments to new and existing positions.

...And the band played on
Thanks for taking a look,
And as always,
All Good Things,
Adam

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.

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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