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A View From Here October 2017

October 5, 2017 • Print This Article

A View From Here - October 2017

"A Ship in a harbor is safe, but that's not what ships are made for". - John A. Shedd

2017 has been a challenging year for Canadian investors in light of the strength in the U.S. markets that are at all-time highs. The benchmark TSX index remains lower than last year and essentially at the same place as it was in 2008, despite economic growth that exceeds expectations and more recently, a strong dollar. This has created a tremendous amount of anxiety for Canadian investors as we watch U.S. markets reach all-time highs on a weekly basis despite geo-political tensions, a controversial White House, and what appears to be a divided nation south of the border. There is an old saying that 'markets climb a wall of worry' and there might not be a better proxy than what we are seeing in the U.S. But economic growth usually leads to higher valuations, and I am optimistic that we will see this in due course.

Our accounts have not been immune to the weakness this year and the recent strength of the Canadian dollar has added to another layer for our investment accounts to overcome. After hitting all-time highs in April, our investment accounts have consolidated since weakness of the values, particularly in some of our retail & media investments and the strong Canadian dollar vis-à-vis the U.S., as it is the currency that many of our investments are valued in. Throughout the winter we have been building up cash levels and in the case of newer accounts maintaining larger cash positions for future investment. During the spring and summer periods, we kept unusually quiet, due to the fact that a malaise existed not only in our investment holdings, but also to other companies we follow as potential candidates. As such, I felt that we might only putting gasoline on the fire. I believe in our deep understanding of the value proposition that each holding represents and what they can achieve for our accounts at some point in the future and this period resembles the back half of 2015 into early 2016 where no matter where you were, things were challenging. But in an 'all of a sudden' moment, things began to wake up in early March of 2016 and presented our accounts with a great performance by year's end.

We don't believe in being idle for long because we are looking to build wealth over the long-term and while a ship in the harbor is safe, it is not what ships are made for.

Market Weakness is Ultimately an Opportunity

"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in corrections themselves." - Peter Lynch.

One of the constant traits of investors is fear of a total loss of capital and nothing speaks louder than the 2008-2009 where markets fell over 50%. I often get correspondence suggesting that perhaps we should sell all or a large portion of our holdings to wait out a potential market collapse and then come back in at the bottom, but this action rarely yields investment success. There is always going to be corrections and no one knows when they are going to occur or why corrections happen. Investors are continually searching for reasons for stocks to fall. It almost becomes a game for some to say that they can predict the exact event that does it and there's always something to fear that will possibly derail the markets - profit margins, valuations, earnings shortfalls, economic growth, rising/falling interest rates, inflation/deflation, geopolitical risks and the list could go on forever. Occasionally these issues 'matter' but other times the market simply shrugs them off. Look at what is happening south of the border and around the world. Does this feel like the trappings of all-time high market valuations?

The opportunity in a weak market is to participate in the phoenix that rises from those ashes. Looking back on previous malaises, for example, will show how our accounts saw all-time highs in October of 2007 and exceeded those numbers in early 2010, and enjoyed much higher valuations in the subsequent years. It is coming out of those periods that produce significant returns and for those concerned, I would refer to our long-standing track record of success, which is something few have been able to achieve. It's just that it's never an easy ride.

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 épargnants.

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