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A View From Here January 2017

January 17, 2017 • Print This Article

Happy New Year!

Welcome to 2017 - Last Year in Brief Review

With 2016 (and my 28th year in financial advisory), now in the rear view mirror, we look back fondly on a 'quietly', very successful year with excitement about moving forward. Markets entered 2016 on broken wings as continued weakness permeated from the six months prior. This downward pressure would remain until the end of February, where suddenly things started to wake up.

This had a particularly profound impact on our investment holdings because we had been busy adding to our investments throughout the malaise. As markets strengthened, we were well rewarded with all-time highs being achieved by September and set us up for another double-digit rate of return (for equity based accounts) to end the year. All in all, it was one of our most successful years that once again saw our accounts reach their highest valuations.

It's hard to believe that the first two weeks of 2016 were the worst start to the year that the Dow Jones average has seen - ever. There are a lot of axioms that got smashed in 2016, and one of them is the January affect, which states that as January goes, so does the rest of the year. This extends to the 'Sell in May and Go Away' theory that would have cost investors in spite of the prophetically titled, Brexit (while we all bet on 'Bremain'), only to see world-wide markets reach for newer highs as we got lost in the U.S. election rhetoric that on November 8th, gave us yet another surprise. Markets seemed to respond positively to anything that pointed to Hillary Clinton taking office in the White House, yet after Donald Trump's victory, markets marched again to new highs, and with far more reverence.

This strength (which has yet to stop), suggests to me that maybe it's a business friendly mindset mixed with the very real possibility that things will continue to improve in the economy around the world. Many believe that market participants are simply losing their minds. I don't believe that - from where I stand, things do not look expensive. I've seen the improvement in earnings mixed with the valuations... and to me - it's all about valuations. The market actually appears quite healthy, and not frothy.

The Lament of the Investment Manager

I couldn't be happier with our performance in 2016 but remain forever anxious about the future. A lot of our investments, particularly Aveda, Reitmans, Lee, Leon's and Colliers (not to mention others) rewarded us for our patience and persistence by increasing up to 300% from their lows. While we continue to concentrate on our investments, there is always the anxiety that we might have reached our peak. Welcome to the lament of the investment manager.

Despite the changes in day-to-day prices, I believe that at least four of our investment names (we don't own that many - so this is impactful) feel as though they might not look back to the prices we purchased additional shares at in 2016. This points to significant potential gains ahead for some of these investments. The problem with feelings is of course, we can be wrong. But with continued strength of the underlying businesses feeding into our thesis of deep value, I feel as though 2017 should reward us for our commitment.

2016 also provided us with our first real engagement to fixed income for all accounts with the purchase of the Constellation Software Debentures that provide an inflation-hedged interest rate well in excess of 6% annually. In a company that generates more cash flow than it has in total debt, I could tell from how difficult it was to present this opportunity that I was onto something good. Moreover, if we took 10% of our investment accounts and locked it away, 2016 was perhaps the acceptance into middle age for a number of our investment accounts. In an effort to protect our long-term returns by taking a portion of it away, I believe it to be a terrific long-term investment bond.

But at the end of the day, it is continued growth in the underlying value of our investments that have provided us with returns that few have been able to achieve. 2016 took my practice's total value to a place I could only dream of 10 years ago and I have never felt as much confidence in our investment positions as I do entering 2017. Given the fact that most of these companies have responded positively from lower prices seen last year, it does not diminish my belief that most of our investments have upsides significantly higher than what we are seeing today.

On A Personal Note

As I enter 2017, I remain thankful for the success that 2016 brought for our accounts and for me personally, despite some shocking celebrity deaths, allowed me a few television appearances, continued commentator coverage on 680News, the cover of The Globe and Mail business section, an amazing trip to Italy with Alison, my son's city hockey championship, the end of my daughter's wild-ride, synchro-skating career. Our baseball team lost in an exciting championship series, we saw David Gilmour perform at the coliseum at Pompeii (the first performance in front of a live audience since 1979), the return of the Grateful Dead with John Mayer substituting beautifully for the late Jerry Garcia, and the amazing Kate Bush 'Before The Dawn' release from the live shows that I should have flown to England for, in 2014.

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.

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