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A View From Here December 2015

December 3, 2015 • Print This Article

"If there was nothing wrong in the world, there wouldn't be anything for us to do"- George Bernard Shaw

Manic repression

The noise in the markets seems to constantly revolve around interest rate expectations, geopolitical issues and what many believe is weaker than desired economic data. The autumn months highlighted Canadian investor fatigue as recent favorites in health care and technology were taken out and shot, adding to the plight of resource and mining shares that continue to stumble lower. For our accounts, the most important thing has been the earnings and corporate developments of our investments that continue to favor our commitment, with almost all of them reporting as good or better as we could expect. It seems ever so likely that 2015 will be a transition year and look to 2016 for further growth in our accounts.

There seems to be an unusual amount of anxiety and trepidation right now in the markets for a few fundamental reasons. Firstly, North American indexes have been strong since the lows were established in March 2009 and it is starting to get long in the tooth, exceeding some of the longest established upward moves on record. On that basis alone, there is a belief that we are due for consolidation. Then there is the never ending but in my opinion, confusing interest rate picture. For some reason, the investing public fears an interest rate hike that keeps being delayed. On one hand, many see this as a positive as it signals an improving economic picture requiring less stimulus to get the economy moving, but on the other, it creates a difficult environment to do business. Then there's 2007-2009 that is so prevalent in the collective investing mind, that it leaves little tolerance for the slightest amount of adversity.

Canada has been in a far more difficult position. Ever since I entered the securities business, I've been told of Canada's role as a resource and mining economy from a worldwide investing standpoint. This leads to booms and busts. For Canada, a long boom began in the 2000's; investors began to focus on China and India and the need for resource and mining products to support their growing economies. This carried over for over 10 years, and in my opinion busted in August of 2011 when mining and resource shares fell and have not since recovered. Oil remained strong while it's close cousin, natural gas weakened further. But that all changed in the fall of 2014 when it dropped more than half and has been the subject of many opinions since. We have maintained minimum exposure in these areas, despite having a small commitment to a unique oil services company that could reward us handsomely in good time. A lot of investors seeking alternatives to resource investments, looked to health care companies such as Valeant and a host of other 'hot' names to fulfill their investment returns. Predictably this area got over crowded and the shares fell precociously over the past few months.

Now anxiety runs supreme as returns turned down for most investment managers and they fear any new commitment as their tolerance for adversity is on shaky ground. So they stand still, sell or wait and hope... even though hope has never been a sound investment strategy. Thus we have manic repression.

But... it's the same as it ever was

There is always anxiety about money. We all have it. There isn't a day when I'm not worried about our investments, our future and all the things that can go wrong and our concentrated investment accounts are a tale of two cities at present. On one hand we have investments that continue to defy the volatile markets and are outstanding performers, while others are the opposite side of the equation. We are using this weakness and our conviction to further commit to these investments. That is why we build these positions slowly over time, as we are never sure what the future holds. I recall in 2007 as new accounts got transferred in, we put our equity component to work immediately and within months, the share prices had weakened and we had no ammunition to buy more. That was a powerful lesson. We believe in our investments as much as the ones that have kept our accounts in the green this year. I am excited about the prospects for some of our names and see excellent profit potential for our accounts over the longer term.

ISIS and world wide terror as it affects markets

November has seen an elevation of terror attacks throughout Europe, Middle East and Africa. I surveyed previous events (with help of our subscription to Ron Meisels' Phases and Cycles) looking at previous geopolitical unsettlement ranging from the Kennedy Assassination to the Gulf War, and believe it or not, the next twelve months is usually bullish for the markets. It is hard to know how this plays out from an investor perspective, but suffice it to say, history suggests, it does not necessarily have a negative effect.

Beyond these tragedies, extreme concern exists for investors as so many pockets have 'blown up' all over my screen of companies that I follow, making it harder to decide which area's to pursue as potential commitments. At least half of my day is spent reviewing our existing holdings as well as potential names. Maybe it is the environment that has me stymied, but I believe that our existing names mixed with large cash positions are still favored going forward.

December will finally see the release of my book, All Good Things that will be available on Amazon. This project has been six years in the making and for most of us who have lived through the success we have achieved will find it a reminder of all the investment positions, comments and anecdotes we have presented.


Click here to purchase on Amazon.com

Have a great holiday season,

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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