March 2019 Update

The task is not so much to see what no one has yet seen; but to think what nobody has yet thought, about that which everybody sees. - Erwin Schrödinger


There are three types of people in the world: those who see, those who see once they are shown, and those who will never see. – Leonardo da Vinci


To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don’t, see things differently or do a better job of analyzing them – ideally all three.  - Howard Marks

February was a good month for our portfolios, with stock and bond prices moving higher. We benefited from good operating results and increasing guidance from our companies. Since December 31, Growth is up 10%, American Growth is up 20%, Income is up 3.2%, and Small Cap Value is up 2.5% as of this note going to press.

In Canada, the latest quarterly reporting shows our largest holdings, precious metals mining companies, are expanding their cashflows and reserves at a solid pace. Our second largest holdings, natural gas companies, too, are increasing cashflows and reserves rapidly. In fact, nearly every single one of our companies has grown cashflows at a healthy pace on a year over year basis. There is a similar focus on growing cashflows in the American Growth Portfolio.

As business owners first, growing cashflow is most pleasing news, as that cashflow belongs proportionately to each of us. As stock holders, that increasing cashflow serves to increase a stock’s intrinsic value, and thus our expectation for future return. This stands in stark contrast to the TSX Composite Index, where I estimate about 80% of the constituents are cashflow shrinking or negative.

How curious it is then, with all this growing cashflow, that the stock prices of many of our companies are still closer to their lows than their highs. It goes to show that over the short term, investor perception often overshadows real operating results. This is where superior insight into valuation comes into play - we take advantage of this gap between negative investor perception and positive real growing cashflow. In time, cashflow reality always wins out over investor perception. I therefore expect that growing cashflows, low purchase prices, and patience will see our share values move significantly higher. Our strategy is working.

Recommended reading

Howard Marks on earning a good return  


Ben W. Kizemchuk
Portfolio Manager & Investment Advisor
Wellington-Altus Private Wealth