The Financial Log Book - Performance of Investments

The performance of equities discussed in previous posts is noted below.

Entity	Wt	Initial Price/ Purchase * Date	Price * June 9/17	Gain/Loss since Jan 1/17 %	Gain/Loss Since Purchase %
Wheaton Precious Metals (WPM) (formerly Silver Wheaton)	H	12.37 2007-09-04	27.04	5	118.6
Polaris Materials Corporation (PLS)	L	10.70 ** 2007-06-01	1.0	-17.4	-90.6
Cenovus (CVE)	M	32.39 2010-07-27	11.10	-45.2	-65.7
North West Company (NWF)	H	16.23 2009-05-07	31.74	17.4	95.6
Deere & Company (DE)	H	88.07 2013-01-03	125.95	23.5	43
Rocky Mountain Dealerships (RME)	H	11.89 2013-01-03	10.20	6.5	-14.3
Oaktree Capital Group (OAK)	M	56.45 2013-10-28	47.50	30.6	-15.5
Fairfax Financial Holdings (FFH)	H	477.98 2014-3-25	sold 624.10
Clean Seed Capital (CSX)	L	.51 2015-01-07	0.40	10.5	-22.6
Abitibi Royalties (RZZ)	M	2.57 2015-11-20	9.3	6.5	261.9
Input Capital (INP)	L	1.86 2015-11-20	2.02	3.1	8.6
Fairfax India Holdings Corp (FIH.U)	H	10.42 2015-12-16	14.75	27.7	41.6
CRH Medical Corp (CRH)	M	4.43 2105-12-29	7.84	9.3	77

*    Prices are quoted in the currency of the exchanges where equities are listed.  As a result the gain/loss is not an accurate measure of the performance of the portfolio as the $US has risen significantly against the $=Cdn since many US positions were established.
**   Gain/Loss not inclusive of dividends
*** does not reflect impact of a large follow-on investment @ $.67 per share

Relative weightings of holdings in the portfolio:
H = >9%
M = 5-9%
L  = <5%

A few observations:

Polaris Materials had great promise; however, it was plagued by poor management:

• the original assessment of potential markets was never realized
• there was poor execution of the unloading facility in California - a financial fiasco
• arrangements for marine transportation were poorly executed and the company suffered as a result of high costs
• most important - it seems as if the company has lost direction and focus as its efforts are split between getting its primary resource up and running and securing other potential sources of material: you can't do both in nascent enterprises
• there is no stability in management 
• most egregious was the dilution of shares as a result of the company's need to make up shortfalls in revenue - this in a climate of record low interest rates!

All in all, this has been a painful lesson in how not to operate a company.  I keep it as a crew member as a reminder of a failure in judgement on my part.  In any event, my original position was very modest - the thought being that I would add to my position as the company achieved various milestones.  

Cenovus and other oil sands producers are out of favour.  Low oil prices coupled with expectations for lower fossil fuel demand as a result of cost efficient renewable energy sources and greater efficiency in energy consumption has soured investors on the oil sands patch.  Other producers have much lower costs of production and transportation.  Unless supplies in the Middle East are compromised through socio/political unrest, the short-term future of oil sands producers is not all that promising.  

Fairfax Financial Holdings was sold for a nice profit.  Why?  I figure that Prem Watsa's new vehicle, Fairfax India Holdings Corp, is a much better prospect:

• it is managed by a very well respected crew
• I have misgivings about the short-term future of the insurance industry as it adjusts to the "new normal" of major weather events associated with climate change
• the business model of FIH.U is powerful and has used successfully by Watsa and other investors of his ilk 
• India is a very dynamic country and it has prospects of superior economic performance over the next 20 years or more

So far, my thesis has resulted in some rather nice gains.  I had a large position with FFH and simply allocated the proceeds of the sale in establishing a position with FIH.U.  Note that FIH.U does not pay a dividend.  Given the nature of its business model, profits are better applied to purchasing interests in promising companies in a growth mode.  My time horizon for this investment is in the nature of decades.  

Abitibi Royalties has outperformed most of its peers by a large margin.  It is a core holding.  I have great respect for the acumen of Ian Ball, its president and CEO.  His recent Annual Letter to Shareholders is, in my opinion, a masterpiece. Mr. Ball has a very clear sense of direction and communicates it clearly - a nice departure from the crap composed by communications hacks associated with many listed companies.  I plan to add to my position.  

I was pleased with the performance of agricultural holdings.  Farm incomes have dropped significantly over the past three years as a result of low commodity prices and high input costs.  Burned by the last downturn in the farm economy, farmers have adopted a very conservative approach to expenditures, including the purchase of new farm equipment.  However, it is inevitable that commodity prices will recover and that the pent-up demand for replacement equipment will have a very positive impact on companies such as Input Capital, Deere, Rocky Mountain Equipment, and Clean Seed Capital.  

Note re Dividends

Some of the holdings pay very respectable dividends.  

My primary reason for investing in the Northwest Company was that it is well managed and occupies a commanding competitive position in its market area and that the demand for its products and services is subject only to fairly minor fluctuations.  Its reliable cash flow enables it to pay an annual dividend of approximately 4 percent.  While the company has expanded its operations in markets roughly akin to the far north, its recent effort to reduce transportation costs has involved the purchase of North Star Air which is based in Thunder Bay.  While the company has successfully absorbed retail stores, it remains to be seen how this new venture will function in its new environment. 

Oaktree was purchased for its dividends (5 percent plus) and the quality of its management.  The field of alternative/novel investments is crowded but I figure that Oaktree has capacity and staying power.  The market seems to have recognized this on the basis of a recent increase in its share price. 

Rocky Mountain is another core holding.  It pays a hefty dividend, a bonus for investors anticipating an upturn in the agricultural cycle.  Other equipment distributors have sought to diversify the range of their offerings by expanding into new areas of business - this to make up for poor returns from the agricultural sector.  This comes at a cost: the diminution of focus, and added debt (and we all know that interest rates will increase inevitably).  RME has focused on adapting through a variety of strategies to reduce internal costs.  It has been through tough times before and in my view, the company is well positioned for a recovery in the sector.