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A View From Here November 2015

November 4, 2015 • Print This Article

Timing can never be timed - Gerald P. Estrin

Bouncing Around

Just as August and September delivered our most challenging period of performance in a few years, along comes October which saw much stronger valuations in our holdings. A large part of this gain was the liquidation of our small investment most accounts held in Journal Media Group. Further strength had emerged in our other media holding which had previously sold off to shocking lows. When building investment positions, I can never get used to this uncomfortable feeling but it serves to make us think even harder about what we are doing. Our portfolio has performed very well since the lows established in September and our further commitment to many of our investment names has manifested into additional purchases of what we determine to be excellent value.

Recognition of Value

We have been building investment positions in local news media companies for over a year, reasoning that their large profit margins and asset holdings remain unrecognized due to the change in the way we receive our news. October rang in our first investment success in this area from a takeover offer in our most recent investment; Journal Media Group by its largest peer, Gannett. We had reason to suspect that Journal could be acquired, as many of the news media companies (including Journal and Gannett) had been spun out from larger media conglomerates because they were seen as a drag on profits. This resulted in a new set of public companies that we believed would be looking to build scale through mergers and/or consolidation to form larger news media companies. Many feel that these businesses are doomed, however what investors seem to have overlooked is that the industry still fulfills a demand of its customers and continues to generate steady cash flow and high profit margins. While there remains a challenge by a change in the way customers receive news and more importantly, how advertisers reach their markets.

The More Things Change...

The investment outlook for these companies could be at an all-time low as news providers are viewed as a thing of the past, perhaps going the way of camera film. I don't believe that is the case, but it sure has been a challenge for us as investors. When compared to its peers, we found that Journal had tremendous value, which came in the trio of a growing net cash position, no debt and real estate holdings that by our estimation had a value that exceeded that of the whole company. This is not to mention the attractive dividend, and steady cash flow that it produced despite consolidating revenues. We spent time scratching our heads and visiting any place where we could find what we were missing. Turns out we weren't missing much as Gannett (the largest provider of local news in the US) made an offer to acquire the company at 30% over of our original cost.

The success in this investment further strengthens our conviction in the existing holdings which we are using reduced valuations to make further commitments. Hopefully, in time - we will be rewarded as we have in the past.

Coming Soon - All Good Things

I am excited that my forthcoming book called All Good Things should be published before year-end. The publication is a culmination of my background in the financial services industry, philosophy of investing and the trials and tribulations that led to finding that value investing would deliver the best results for our accounts. The basis of this book comes from a financial journal that I have been keeping for almost a decade as well as these monthly notes that tell a tale of our investment success. I have often found it difficult to describe what we do for our clients and hope that this disclosure sheds some light on it. I'm satisfied that after almost a year of writing, re-writing and posing for pictures, that it will finally see the light of day. Most of the recipients of this monthly note have been on this journey as it focuses on the period between September 2009 and November 2015 when we joined Mackie Research.

Thanks for taking a look,

And as always,
All Good Things,

Adam Hennick

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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