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A View From Here September 2016

September 14, 2016 • Print This Article

"I don't believe all this nonsense about market timing. Just buy very good value and when the market is ready, that value will be recognized" - Henry Singleton

So Much for the Brexit Vote: Surprise, Not Consensus

Prior to the 'historic?' vote in the UK to leave the European Union, markets around the world were getting stronger after a year-long malaise, and just like that our focus turned to a vote across the Atlantic Ocean that nobody seemed to understand...at least I didn't get a sense that anyone did. In typical stock market fashion, investors' shot first and then asked questions when the result was contrary to expectations. I have not been able to ascertain what, if any impact this will have on our investments. As the apparently disappointing news was being digested, world stock markets resumed an increase that began in March. This strength has been perpetuated by optimism for better corporate earnings and the belief of a continued accommodative interest rate picture. The result has been all-time highs in US indexes (namely, the S&P 500, Down Jones Industrial and Nasdaq) while the TSX (Toronto Stock Exchange) is up double digits. Our portfolios have increased to all-time high valuations for most accounts.

The markets have had a lot to digest this year from the US Presidential race and the price of oil to the outlook for interest rates. It has been well said that 'markets will climb a wall of worry' and this year just might be the poster child of this experience. It seems that we are always trying to digest some kind of fear... its just part of what makes investing such a manic depressive activity... that is - if you're only focused on the short term. I get the sense that many investors are one trade away from completely liquidating portfolios for fear of a relapse of 2008-2009.

I believe that markets have a way of sorting out predominate fears and that it is surprise, not consensus that has the power to change valuations. A good example is that most investors expected the Brexit vote to go a certain way, but got the opposite - which created uncertainty and temporary downward volatility in share prices around the globe. Then things recovered because no one truly knows what if any impact this was going to have. This might be a great study in the nonsense that drives markets in the short-term.

Seasonal Patterns & Foregone Conclusions vs. The Long Game

One of the stock market precepts that have worked over the past few years has been to "Sell in May and go away". The idea is that markets will weaken with investor disinterest over the summer months, and investors can reengage in the fall months at lower prices. Last year was a great pinnacle of that view as markets weakened tremendously from June through to February and those who followed, smiled smugly on the rest of us, who spent that time building investment positions and pay little attention to forgone conclusions. I wonder how they feel this year when the markets burped during the Brexit vote and then resumed their move higher.

We are now entering what has traditionally been the most volatile time of the year as September has been the weakest month of the year for stock markets, even though October is seen as such because of well-documented crashes and meltdowns. It should be noted that 2016 has challenged most historical patterns and I wonder if the autumn months build upon the optimism that has been working its way into the markets for the past six months.

Our Portfolios are at all-time High Valuations

We have spent the better part of the last two years building and augmenting newer investment positions as they traded lower (often to my amazement), but are now beginning to bear fruit as valuations have in some cases, doubled from bottoms made earlier in the year. I've learned that we must maintain a sense of humor when building investment positions. I just know when we buy a new investment that it has a better chance of disappointing before it ever works out. It is for that reason that we take a partial position at the onset and use corporate developments or valuation gaps to make further commitments.

Welcome to the Bond World

Earlier this year, we started to build an investment position in a corporate bond, which is a first for me in a very long time. It is rare to find such an excellent return available from a company with an excellent track record of success and financial strength, yet remains out of the public view... especially in this day and age where so many are looking for alternatives to low interest rates. That was until I started showing it to people who struggled with the concept of buying into it. It reminds me again that the best investments are often the hardest to accept. It almost seems certain to me that as long as there is resistance to an idea, I know I might be onto something good. Reitman's anyone?

In The Media

August saw more media appearances based on a survey we commissioned with regard to how individuals trust their financial advisors. The findings of the study showed that of those interviewed who use a financial advisor, over 90% were satisfied. I was really surprised because of how many people reach out to us due to dissatisfaction. I felt that these results were based on apathy and lack of understanding and transparency. The findings made national exposure from BNN, CTV, an article in the Globe and Mail, as well as a few spots on 680 News Radio in Toronto. I'm grateful for the exposure, but still not sure what to do with it.

It seems that most of us have had a terrific summer and hopefully our August statements will go a long way to adding to your fond memories when they arrive shortly. We are once again in an enviable position and I feel a deep sense of excitement for how our portfolios are positioned for the future. It's taken some work to get where we are now, but thankfully we are seeing the fruit of our persistence and patience.

Thank you for keeping the faith.

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.

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