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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

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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