ahennick logo
  
Home
The Team
Investment Philosophy
Services
Contact
 
 
 
pre-loaded image pre-loaded image

Resources

Page 1 of 1

A View From Here December 2017

December 14, 2017 • Print This Article

"Investing is an activity of forecasting the yield over the life of the asset; speculation is the activity of forecasting the psychology of the market" - John Maynard Keynes

Like it's 1999...

There have been only a few times in my career where we have witnessed the speculative vacuum on a level that we are presently seeing in crypto-currencies, lithium and all things marijuana. These exciting investing mediums have captured the imagination of investors who find it hard to resist the potential for fortune. While the shares of most traditional companies are wallowing indifferently, investors have become increasingly restless with what they own and ask why they are not invested in this whole new paradigm. This speculative circumstance conjures up the dream of riches that most of us have when we can make investment bets in things we don't really understand. Some have gone so far as abandoning their traditional mode of investing and sub-planting it with this new world of exciting, albeit speculative venture investing. The last time we saw this occurrence was in 1999 as the unabated run up in technology companies created the dream of big riches. The tech rally topped out in early March of 2000 and began a precipitous drop that took a lot of investor's money with it.

The success or failure of today's exciting companies will likely elude us because this is not where we have a history of building wealth. But it does build anxiety that we are not invested in the pockets of the market where exponential wealth is being created for some investors at this time.

I recall a client calling me in early March 2000 and angrily asserting that we were missing out on significant returns because we held no technology companies. He boasted that he had made over $100,000 at the time trading technology companies on his own and questioned what value I brought to the investment process. I defended my position, but what could I say? He was earning outsized investment returns while we were going nowhere. In fact he might have 'rung' the bell at the top of the market because within a few days of that tirade, technology companies began the rapid collapse that took his returns away and replaced them with significant losses. By year's end, the companies we held in his retirement account began to increase and over the next year, three of them were taken over (Cominco, Rio Algom and Viceroy Homes). He let them turn to cash, because the elephant in the room was that fateful conversation followed by large losses and eventually he moved his account. This experience is not an isolated one. Somewhere, someone has to know exactly what and why they own something.

Just two years ago, marijuana stocks were a bit of a 'pot-astrophy' as many were on the verge of bankruptcy. And then a new speculative boom arrived that today, sit at fantastic levels. For companies working in this industry, it is like selling shovels in front of a gold mine. It's amazing to watch how these investments climb to valuations that one can only dream about, with minimal, (albeit growing) revenues and barely any free cash flow. Add this to the ascension of the US markets that are being led mostly by a few well-known companies known as the FAANGs (Facebook, Amazon, Apple, Netflix, Google), and the muted growth in the Canadian markets, we now have a climate that promotes speculation in areas that few have much knowledge.

In my opinion, the speculative fervor we are seeing at present is a good thing. Sure, the speculative bubble could burst and the valuations of these businesses would then retreat to levels that can make some feel foolish, but it is also part of innovation. I remember back in the early days of the internet, names like America Online, Global Crossing and Netscape were dominant investment vehicles despite little or no cash-flow generation. But they were laying the infrastructure of things that changed the landscape for the future of technology, especially how we use it today. Speculation in companies with little revenue and cash flow might be potentially reckless, but they often add a piece of the puzzle that helps products get better. Even if their prices go to zero and investors lose their money.

Our investments are becoming more Valuable

2017 remains a challenge for investors, particularly in Canada where there are only a few areas of the market outside of these names that have been strong and I'm thankful that we hold some of them in our portfolio. They are doing the heavy lifting for us at a time where we continue to augment the other names that remain overlooked and inexpensive. We have been active in adding to these positions in recent months as I see potential for gains in the future. Our holdings have reported strong results recently, making their valuations more attractive...even if the market doesn't see it as such. We have owned most of these businesses for a long time, and many pay dividends and/or interest and distributions providing a source of income while we wait for value to be realized. I have learned that when things are cheap and performing well on a corporate level, we will be rewarded - we just don't know when. And while speculative times in the markets create anxiety about what we are not participating in, I am also aware that this too will pass and the money looks back to the things that are a little more stable.

Let's hope we're right...let the good times roll in the speculative names. It's good for markets and innovation over the long term.

Thanks for taking a look and as always,

Adam Hennick
Mackie Research Capital
Tel: 416 860-6848 Toll Free: 1-877 860-6848
www.adamhennick.com

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 November 2017

December 13, 2017 • Print This Article

"It's not always easy to do what's not popular, but that's where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized" - John Neff

And Just Like That...

As already noted, 2017 has been a very challenging year for Canadian investors but then came October when just like that - it all woke up.

Throughout the year, markets around the world have been reaching all-time highs and despite a strong economy, the Canadian indexes remained lower than they were three years ago. In fact, the benchmark Canadian TSX index is pretty much at the same level as it was nine years ago. Further, with such high profile names such as Facebook, Apple, Amazon, Netflix & Google (commonly referred to as FAANG's), as well large Canadian financial institutions being part of an elite and narrow groups of companies that have moved higher, it seemed so simple that all we had to do was be in these names and we would have been way ahead. But all of that would have, until recently, been held back by the strength in the Canadian dollar, especially if you invested outside of Canada. So a lot of investors were wondering where their returns have been when the headlines brought what should be joyous news of all-time highs that were occurring everywhere else, but our country.

With hot investing trends comes significant risk in terms of valuation and that has never been, nor is it something that we are attracted to in the first place. We have built a successful track record owning businesses that are off the beaten track and which are valued at mere fractions of what is currently popular. So the crypto-currencies and block-chain investors with surging portfolios of marijuana, and lithium battery upstarts who produce little revenue and negative cash flow will reap rewards and potential pitfalls without us. I can see how easy it is to be attracted to these types of investments as they soar in value giving the impression that there the fundamental business case for is the future profitability that hasn't even occurred yet. You have to ask yourself -- would you pay $500 million for a company that does $5 million in sales and loses $30 million just because it's in a hot industry that is moving in the markets? As experienced value investors who has seen this movie a few times before, we'll let others make that determination.

And while, we are not invested in these popular themes, we have fared well despite weakness in most other places. We avoided major pitfalls in the resource sector and areas in the markets where there had been serious problems for investors. As such, our accounts did not see dramatic downward pressure in terms of percentage value, even though it might have felt as if we were missing out on the exciting things that have been moving in the markets. Some of our long-term investments such as FirstService, Colliers and Constellation did the heavy lifting for our accounts and have remained strong and often extended to new highs and I'm thankful that we hold those positions.

I believe strongly in the value proposition of our investments and continue to work hard at confirming what I believe is their individual merits. According to famed investor John Templeton, "Success is a process of continually seeking answers to new questions" and that is why we reexamine each and every holding daily. While cold comfort to some, our style of deep value investing does not follow trends and at times would be tested, and as I've come to learn, returns never come in a smooth and straight line.

October is usually a good month in the markets

October is incorrectly known as being the worst month of the year (it's actually September) and this year marked the 30th anniversary of what is was dubbed 'Black Monday' on October 19, 1987. This has created a fear that has lingered on for three decades, augmented by sell-offs, geo-political concerns, recessions, and of course, 2008. Perhaps there's some irony to the fact that this is the very month that the TSX index hit new all-time highs (over 16,000) and more importantly, the wider market has begun to ascend, which has a sign of a stronger and broader move. I believe that this is just the beginning - especially for the deep value investments we hold. Renewed investment faith by other investors gained enough strength to take our accounts to significantly higher percentage valuations by month's end and in most cases, ahead of last year's numbers. The Canadian dollar, which had been another headwind for us because so many companies are valued in or report in US dollars, also refrained giving us a further boost. I think we'll like the view of our month-end statements when they arrive shortly as this has been one of the best performance months our accounts have ever seen.

But there's more work to do and we have been active recently in augmenting some of our existing positions. Perhaps the most important thing is that we keep the faith in our investments. This practice has a track record of success that few have been able to achieve in the field of investment returns which doesn't require glamour stocks, lithium batteries, block chain currencies, banks or bull markets to achieve its goals.

Let's hope we are right.

Thanks for taking a look and as always,

Adam Hennick
Mackie Research Capital
Tel: 416 860-6848 Toll Free: 1-877 860-6848
www.adamhennick.com

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.

 

Page 1 of 1

Recent Posts

Categories

Archives

Links

 
Copyright © 2000-2018, Adam Hennick
All rights reserved.
Member – Canadian Investor Protection Fund
membre – fonds canadien de protection des épargnants
Mackie Research Capital Corporation
Legal & Regulatory