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A View From Here May 2017

May 5, 2017 • Print This Article

A View From Here - May 2017

"Your meters may overload, you can rest at the side of the road. You can miss a stride but nobody gets a free ride. More than high performance, more than just a spark, more than just the bottom line, or a lucky shot in the dark" - Rush: Marathon

A Test for Echo

The past months have felt like an echo of the challenging conditions of mid-2015 through February 2016. During that period, a majority of our positions languished and we augmented our investments through additional purchases. We were rewarded for our conviction as the year drew to a close. While the strength of our accounts advanced into the New Year, it has been largely based on the heavy lifting of just a few of our holdings (thanks FirstService, Colliers and Constellation) while the majority seem to 'wink' facetiously at us as they grind lower in a test of resolve. With major stock market indices within a few percent of all-time highs, this challenge brings out that old anxiety that I've been learning to make friends with for a long time.

We operate in the investment back streets that rarely track the stock market, especially in the short-term. As such, we must constantly scrutinize each investment thesis for some unforeseen occurrence that might have not previously been considered. This work never ends until an investment is closed out. I have spent a particularly large amount of the previous months, speaking with and/or taking daylong excursions to the head offices to meet with the senior management to confirm our view. I take some comfort in knowing that many of these executives' personal net worth is tied to the success of the companies we hold. In some cases, management has been purchasing shares at current levels (Leon's & New Media).

The companies we own are 'not necessarily promotional' when it comes investor relations. This is often because management owns a significant personal stake in the business and maintains an adverse view of capital market professionals. It is interesting to note that as a group, we are among the largest shareholders of these businesses making our presence more of that as a partner than an adversary. At least half of my day is spent reaching out to other large holders and industry analysts in an effort to share thoughts. These dialogues are very important in uncovering aspects of the business or industry that we might not be seeing. In a lot of cases, I have remained close with many of these individuals long after the positions are sold as it stands to reason that if we successfully shared knowledge at one point, there is no reason why the dialogue ends when the position is sold.

Hold Your Fire

"Dreams don't need to have motion to keep their spark alive. Obsession has to have action, pride turns on the drive." - Neil Peart: Hold Your Fire

I believe investment success is achieved by having as much knowledge as possible and that this deeper understanding will ultimately yield profit and limit losses over the long-term. This effort cannot be lost to hope or ego and proceed with caution, humility and the patience for our variant perception of value is to be realized. It is especially true within a concentrated portfolio of holdings, which is the only way I have seen investment success over the long-term. Our record has always been built upon a focus (dare I say - obsession) to comprehend value, especially at times when an investment valuation increases during recognition or conversely, lower during apathy or adversity. It stands to reason that if we can have a deeper understanding of our investments, then we are more likely to make the most informed decision whether to buy or sell.

In each investment we hold, the share price tends to fluctuate due to changing investor perceptions. When starting a new investment position, we take a modest position at the outset because I just know that the share price will likely surprise us on the downside. It's a sort of a cruel joke that on one hand tests our resolve but makes sense when you realize that we are looking outside of the box for value. Because we purchase investments in companies that are usually out of the investing public's mind, we look to use the ups and downs to our advantage by adding to weakness as long as corporate developments maintain our investment thesis. It also serves to limit our losses if an issue that we failed to see at the onset manifests during its tenure. In the past five years we have had a limited number of investments that were closed out at a loss that thankfully were among our smallest holdings. While they might have brought down our returns in the short-term, our long-term track record speaks for itself.

Despite increased geopolitical implications from Syria, Russia and North Korea, or the at home with the fear of Canadian real estate over-valuation, free trade, challenged independent mortgage lenders and the weak Canadian dollar, stock markets remain somewhat healthy in my opinion. The anxiety that has persisted since the lows of March of 2009 continues to perpetuate markets higher despite concerns of that they might be too high. Ever since I have been in the business of investment advisory, I've been told that a bad ending is always near. It doesn't feel that way right now and because we cannot see the future, we'll forge forward in the present.

The business of managing investments has its manic-depressive side but we have a track record of success that few have been able to achieve and a process honed for a long time. As a large shareholder in the same companies you hold, I hope that it continues.

Lastly, I was honored to be interviewed by the Globe and Mail which appeared on April 17, 2017.

Click here to read.

Thanks for taking a look and as always,

All Good Things,

Adam Hennick
Mackie Research Capital
Tel: 416 860-6848 Toll Free: 1-877 860-6848

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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