The Financial Passage Maker - Interim Report in Investments - May 2014

Since the beginning of the year, the portfolio has performed beyond my expectations.  A brief commentary on some of the holdings is presented below. A more detailed commentary will be presented in the e-mail version of The Financial Passage Maker in about a month's time.

Entity	Initial Price/ Purchase Date	Price 2014-05-02	Gain/Loss since Jan 1/14 %	Gain/Loss Since Purchase %
Central Fund of Canada (CEF.A)	9.77 2007-09-04	15.2	8.3	55.6
Silver Wheaton (SLW)	12.37 2007-09-04	24.81	16	100.6
Polaris Minerals (PLS)**	10.70 2007-06-01	2.83	57.2	-73.5
Cenovus (CVE)	32.39 2010-07-27	32.58	8.1	0.6
Canadian National Railway (CN) *	48.88 2009-04-14	64.01	6.1	165.3
North West Company (NWF)	16.23 2009-05-07	25.34	0.7	56.1
Waterfurnace Renewable Energy (WFI)	28.62 2010-04-12	23.46	-1.1	-18
Oceaneering International (OII-N)	52.95 2012-12-13	73.54	-6.5	38.9
Deere & Company (DE)	88.07 2013-01-03	92.92	2.9	5.5
Rocky Mountain Dealerships (RME)	11.89 2013-01-03	10.63	-16.1	-10.6
HollyFrontier (HFC)	47.95 2013-01-28	51.95	6.2	8.3
Titan Logix (TLA)	1.25 2013-09-11	1.28	0.7	2.4
Kelso Technologies Inc. (KLS)	2.20 2013-09-11	6.48	106.6	194.5
U.S. Silica Holdings (SLCA)	25.15 2013-09-11	46.73	37.9	85.8
Oak Tree Capital Group (OAK)	56.45 2013-10-28	52.35	-9.4	-7.3
High North Resources (HN)	0.62 2014-03-06	0.51	-17.5	-17.7
Fairfax Financial Holdings (FFH)	477.98 2014-3-25	496.99	4	4

*CN split 2 for 1 on 2013.12.02

** does not reflect impact of follow-on investment @ $.67 per share

Precious Metals

Sentiment has soured on the precious metals market: 

• stock prices have cratered as companies have had to face the consequences of an expansion mania where caution and prudence were expunged from corporate mindsets
• resource nationalism is rearing its head thereby adding new "burdens" to mine development
• ETF "investors" have been spooked and have withdrawn their money from gold and silver bullion funds
• precious metals miners have been caught in the slipstream of crashing base metals miners as the global economy has slowed demand (also coupled with an oversupply in certain instances)

As a result, I am looking to establish new positions.  I outlined the basics of my strategy in an earlier posting.  It is speculation, pure and simple.  My sense is that the timing is not yet right to implement my strategy.  (I am going to take profits with some of my holdings in order to build a reserve for speculation in precious metals.)

In my view, the drivers of the precious metals market will be:  fear of economic uncertainty, a desire on the part of many individuals to secure their wealth (especially in countries where the rule of law is suspect or where banking systems cannot be trusted) and, the "bandwagon effect" i.e. when prices rise over a period of several months, the investing public will be inclined  to "invest" precious metals in order not to "lose out"  on potential profits.  

Agriculture

Rocky Mountain has had a rough patch due the overhang of a very bountiful grain harvest in western Canada and the inability of the transportation system to move product to the market.  As a result, farmers are somewhat cash starved and reluctant to invest in new machinery.  This is reflected in the price lower price for RME and a higher price for used farm machinery.  In my view, long-term investors should not be discouraged by such developments: year-to-year fluctuations in yields and farm incomes are normal, but the long-term fundamentals of investing in agriculture are very sound.  

I am considering the addition of fertilizer companies.  Sentiment has pounded down stock prices.  I will compile a watch list and in the event of a market correction, I will establish some positions.  I may write about this in a future posting. 

Oil and Gas

The theme of rail transport has been very lucrative this year.  Kelso Technologies has performed wonderfully well and I feel that it has room for further gains as regulators have imposed more stringent standards for tanker cars.  My understanding is the Titan Logix had difficulties with a new product but that these have been surmounted.  This is "normal" with new companies and investors have a tendency to over-react to adverse reports.  (After all, "analysts" have to demonstrate that they are current and able to react quickly to business "events".  As a consequence, ephemeral events often trump long-term trends with the result that twitchy investors end up losing money.  In most instances, it literally pays to have patience and an eye on the long game.) 

U.S. Silica continues to make gains, largely on the basis of its proximity to rail and road infrastructure to move products quickly and cheaply to well sites.  It is very well positioned to profit from the boom in fracking.  At one point, I looked at pipeline companies but decided that the market for sand had fewer competitors, thereby presenting a better investment opportunity.  (Besides, pipeline companies are more tightly regulated.)

The purchase of High North Resources is somewhat speculative but I figure that the potential rewards outweigh the risks.  I fully expect that the stock price will be volatile: this is the nature of the business and the trajectory of fledgling companies.  

Miscellaneous Comments

Polaris Minerals now represents my largest holding, the result of having doubled up on my position when the price cratered.  At some point, I will try to value the company but I know that the effort will be frustrated by uncertainties in demand and materials pricing - things which can only be "guesstimated".  Why the interest in valuation?  I need an exit strategy ... but not now.  For some reason, I think that analysts are mindful of previous prices for PLS which exceeded $10 per share. It is human nature to establish reference points and my thinking is that some investors are hopeful that Polaris will, once again, command a lofty price in the market place.  Me too. 

My "rainy day" holdings of Fairfax Financial and Oak Tree will remain as stalwarts: they pay a nice dividend and will likely demonstrate an ability to survive and prosper during down cycles in the market (meaning that although they may decline with the herd on the basis of sentiment, they should have resilience and an ability to outperform thereafter).  The North West Company also shares these attributes by virtue of its competitive niche in northern communities.