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A View From Here February 2016

February 3, 2016 • Print This Article

"A conclusion is the place where you get tired of thinking." - Arthur Bloch

Dow 100,000?

January marked the beginning of my 29th year in financial advisory. When I started in early 1988 the Dow Jones Industrial Average closed the previous year at 1938.83. Now, 28 years later, (December 31, 2015), that same index stood at 17,425.03. That's a return of almost 900%. With the recent market turmoil and the struggle between optimism and fear, it stands to reason that if we were to extrapolate the same performance over the next 28 years would see this same index trade well through 100,000.

Some might argue that it seems an impossibility given the state of the world today, but looking back on the past 28 years, these concerns are indicative of the fears that have persisted from the crash of 1987, September 11th, a technology crash, a major financial crisis and the myriad of macro events that seemed at the time to have enough power to collapse the world economic order. It's probably more normal than not. What surprises me most is the despondence of many of my fellow associates on Bay Street who are at their wits' end... especially given how many times we've seen this movie replayed. Over the past 18 months the markets have suffered so many blows from the weakness in resources to the collapse of fixed income investments.

From 30,000 feet, our accounts have been mostly immune to these forces despite consolidation in recent months. Longer term clients can look to their previous year-end results as testament of our success, while newer ones look to the fact that they remain very cash rich and ready to continue to build our investment positions, despite market setbacks. While we don't know what the future brings, we do know our names well, and have a track record of investment success that we are very proud of.

2007-2009 Is Still So Fresh in the Investment Mindset

Every time we have seen market setbacks in recent years, there is tremendous fear that we will see a replay of the 50% sell-off between the highs in October 2007 and the lows of March 2009. I think that this is a good thing because it keeps exuberance in check. I have found that major breakdowns occur when there appears to be a forgone conclusion that certain market forces will remain. Then a break in the foundation occurs and things go from good to bad. The breakdown in Oil that began in October 2014 is indicative of that pattern. Oil wasn't at it's peak, but there seemed to be a foregone conclusion that it would remain in and around the $100 mark for the foreseeable future. There is so much anxiety at present that I can't help but think that the market is on more solid ground than not.

Headline Contrarianism

After two years working in financial services, I was given a desk in the 'bullpen' and began to build a practice. At that time, the markets were suffering a global sell-off. Everything we bought would go lower until late in the year when the threat of a war with Iraq peaked the fear of rising oil and economic collapse. The stock markets did the exact opposite thing and began a strong upward trajectory that despite a few setbacks along the way remained in force until the technology breakdown in March of 2000. And Oil? It sold off. This reminded me of one of the great investment axioms, "When everyone thinks alike, everyone is likely to be wrong."

At the apex of this bear market, an advisor with over 30-years' experience emerged from his office holding up a newspaper and said aloud; "Look at this headline. It never fails that when you see this kind of fear, it's the bottom." I often think about this when looking at today's headlines, which sell newspapers, books and newsletters.

In The End - It's all About Valuation

It has been my view for some time that simply buying structured products such as an ETF (Exchange Traded Fund), that mirrors the market or a mutual fund, or the new new thing - Robo-Advisors, will underperform good investment managers. Most promise lower fees, but it remains to be seen whether they can deliver the returns. My experience say's that they won't. In fact - most investors who employ these methods have not seen anywhere near the returns that a good manager can accomplish. If it were so easy, we'd all be doing it successfully. Having said that, I do believe that at some point in my career, we will see the Dow Jones Industrial Average top 100,000. While that seems like a good enough reason to just buy the index, it is also my belief that making an investment simply on that possibility, will likely produce lackluster returns... like it has for the past 28 years, when the index went from 1939 at the end of 1987 to 17,425 in 2015.

One of Canada's best-known investment managers during my early time on Bay Street, Peter Cundill put it best in this quote:

"To my knowledge there are no good records that have been built by institutions run by committee. In almost all cases the great records are the product of individuals, perhaps working together, but always within a clearly defined framework. Their names are on the door and they are quite visible to the investing public. In reality outstanding records are made by dictators, hopefully benevolent, but nonetheless dictators."

From where I sit, things look pretty cheap and we will continue to take advantage.

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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