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A View From Here February 2017

February 2, 2017 • Print This Article

"It's not how right or how wrong you are that matters but how much money you make when right and how much you do not lose when wrong" - George Soros

True North

The market's upward ascension has extended into 2017 as the inauguration of perhaps the most controversial U.S. president took office. I remain impartial to the new administration as policies are unlikely to have any effect on our investments. While so many are fearful and others downright hateful of Donald Trump's presidency, markets have been extremely bullish, suggesting that the great unknown had a positive effect on investors. For the better part of January, the Dow seemed to be setting up for and finally broke through the coveted 20,000 point ceiling. When I entered the financial services industry in January 1988, the Dow Jones had closed the previous year at 1,950. We've come a long way.

One of the more interesting aspects to the new presidency has been renewed optimism of a better business climate. Many companies I have spoken to, through conference calls or management meetings, speak of this administration as potentially benefitting their businesses. Many point to an accommodative corporate tax structure, pipeline or infrastructure spending. Could it be that this administration is prepared to take action (be it contentious or not) whereas the outgoing one appeared to have its hands tied? We'll see.

The Unforeseen

I believe that the day to day valuation of corporations is distilled from all known information and that it is what we don't know that affects its share price. It is the unforeseen that changes valuations. Charles Dow, the journalist who founded the Dow Jones Industrial Index has said, "To know values is to know the meaning of the market."

In 2007, few if any had anticipated that mortgage-backed investments had the power to sink world markets, and even those who did, probably didn't anticipate the full extent of the damage which occurred. I suspect that few expected a Donald Trump victory or the Brexit vote for that matter and even fewer would had anticipated that world-wide markets would respond so positively following these events - especially when election night pointed to almost a 1000 point drop in the U.S. market futures as it was becoming clear that Trump was the likely winner. Perhaps this unforeseen circumstance mixed with better economic numbers and corporate earnings, has propelled markets upward.

There is a lot of concern that markets are in a euphoric stage that will fizzle once sanity kicks in. If there has been one constant in my career it is that view, as it touches that special place in the gut that lives in fear. But for what it's worth, I've never met a wealthy pessimist. In fact, according Benjamin Graham - the father of value investing (the method we use to invest on your behalf), "To be an investor you must be a believer in a better tomorrow." I maintain that as markets continue to rise and concern remains predominate in the collective investment psyche, it is less likely to occur. I think markets peak when everything is maybe just a little too well.

The Idiot Behind A Desk

While my 'idiot behind a desk' view is that it is not the case right now, I would not be surprised by how markets consolidate before something better happens. But this transition period, (if it does occur) may or may not have much effect on our investments. They will rest on their own merits. Respected fund manager, Peter Lynch put it best when he said: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves". So there is little, in my opinion, that we should change in the way we are managing our investments. I believe that our holdings are well integrated into our accounts and would continue to use conviction or lower valuation to augment existing positions rather than close them out in anticipation of what we don't know will happen.

"Bull Markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria" - Sir John Templeton

This might be one of the most singularly powerful quotes on all things markets to have ever been spoken. Thinking about where we might be at this time, I do not see euphoria.

January turned out to be a successful month for our investments based on some early reports of sales, an increase in the interest rate on our favorite corporate bond, and what could be a seismic shift in an Oil & Gas services company that has me believing in very exciting possibilities for wealth creation over the next several years.

By now you should have received the newly mandated fee and performance review. Please take a moment to review these numbers, as we are most proud of our returns, especially in terms of the fees you pay, and the uphill commission versus the 'flat fee' alternative that has embraced the financial industry. I believe in what we do as demonstrated by the long-term performance for our accounts, which few have been able to achieve.

Thanks for taking a look and as always,
All Good Things,
Adam

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

P.S. - RRSP Contribution Deadline - March 1st 2017

The RRSP deadline for the 2016 tax year is March 1st. I have been a steadfast believer in the value of registered accounts as excellent investment vehicles. I see them as our real life insurance, as in money we will use in our lives, not in our demise. That's best left to our descendants. Also, Canadians over 18 are allowed to contribute up to $5,500 into their TFSA (which has a cumulative value of $51,500 since being introduced in 2009). I believe that this investment vehicle is one of the most powerful options we have and would recommend to anyone who has not participated, to consider doing so. It's painful to pay taxes on capital gains and income, and this is the one investment account that you are exempt from doing so. You can take out the funds without any taxation and replace it in the next year. It's just that good.

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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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