April 2019 Update

Value investing is by its very nature contrarian. Out of favour securities may be undervalued; popular securities almost never are. – Seth Klarman

 

This matter of training oneself not to go with the crowd but to be able to zig when the crowd zags, in my opinion, is one of the most important fundamentals of investment success. - Phil Fisher

 

We continue to make solid progress over the first quarter, benefiting from improving operating results and improving investor sentiment towards our companies. The future for us looks brighter than the past, and so I expect material improvement of our results to continue through 2019 and 2020. Particularly, the new machine learning program I reported on late 2018 has already begun to yield substantially better buy signals. Value is still our biggest driver of expected return in the portfolios, which gives us a lot of runway ahead to remain more positive than usual. For our Canadian portfolios specifically, a number of catalysts are on the immediate horizon that will help realize this value. Our uniquely built and highly selective portfolios are within the lowest valuations in history, offering protection from record high valuations in the general market, and an opportunity to reward intelligent and patient investors.

Switching gears to the bond market, I continue to observe evidence that USA and Canada will see economic deceleration in the near to medium term. This is the most natural and obvious course following a years-long debt expansion, combining now with inflationary pressures. It was widely reported that the yield curve inverted in March, one signal (of many) that a recession is likely on the horizon. My view towards a slowing economy is one reason our Income Portfolio bonds keep appreciating in price. Bonds tend to benefit when investors look for safer harbours. I expect this to continue, as the slowing progresses.

Recommended reading

Persistence is more important than positivity https://fs.blog/2019/03/adversity/

90% of your happiness is up to you https://www.ted.com/talks/shawn_achor_the_happy_secret_to_better_work

Cordially,

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