The Financial Log Book - Performance of Investments - November 2017

Mindful of the potential for a decline in the market (see previous posts) I have decided to trim my holdings:

• to release some members of the crew whose prospects were judged not to be all that rosy in the short to intermediate term e.g. agricultural companies 
• to take profits and add to my stash of cash 

Why?

• Cash is often "king" in tough times.
• If the market declines, valuations may become more attractive and offer the potential for greater gains than presently.
• I will not get poor by taking profits.
• I've organized my financial affairs such that I can bide my time until valuations are more attractive.
• I have reconciled the conflict of trying to time the market with the desire to protect my portfolio.  On balance, I believe that markets are due for a major correction. 

This said, I have not stopped my investing activity.  If anything, I am working harder than in previous months:

• I am searching for companies with the potential to outperform their peers during a recovery period aka "rebound kings".
• I have intensified my research in a few strategic areas which I feel will offer the potential for profitable investments.  
• I increased holdings in some positions e.g. Fairfax India

Entity	Wt	Initial Price/ Purchase * Date	Price * Nov 6/17	Gain/Loss since Jan 1/17 %	Gain/Loss** Since Purchase %
Wheaton Precious Metals (WPM) (formerly Silver Wheaton)	H	12.37 2007-09-04	26.71	4.2	213.2
Polaris Materials Corporation (PLS) SOLD	L	10.70  2007-06-01	SOLD ouch	2017-08-01	- 92
Cenovus (CVE)                            SOLD	M	32.39 2010-07-27	SOLD	2017-08-24	9.26
North West Company (NWF)                  SOLD	H	16.23 2009-05-07	SOLD	2017-08-11	30.37
Deere & Company (DE)                            SOLD	H	88.07 2013-01-03	SOLD	2017-08-01	128.04
Rocky Mountain Dealerships (RME) SOLD	H	11.89 2013-01-03	SOLD	2017-08-22	11.12
Oaktree Capital Group (OAK)	M	56.45 2013-10-28	43.75	24.5	-22.50
Fairfax Financial Holdings (FFH)    SOLD	H	477.98 2014-3-25	SOLD	2017-03-08	624.10
Clean Seed Capital (CSX)	M	.51 2015-01-07	0.47	30.7	-7.84
Abitibi Royalties (RZZ)	M	2.57 2015-11-20	8.05	-0.70	212.2
Input Capital (INP)	L	1.86 2015-11-20	1.64	-14.9	-11.83
Fairfax India Holdings Corp (FIH.U)	H	10.42 2015-12-16	15.57	34.8	49.42
CRH Medical Corp (CRH)                            SOLD	M	4.43 2105-12-29	SOLD	2017-03-21	10.58

*    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 exclusive of dividends
10.58 sale price for offloaded crew members

Relative weightings of holdings in the portfolio when the position was first established:
H = >9%
M = 5-9%
L  = <5%

Commentary on Selected Holdings 

Agriculture

Farm incomes are suffering throughout North America for two main reasons:

• low commodity prices
• increased costs

As a result, farmers are economizing: reducing inputs of fertilizers, delaying purchases of new equipment, sourcing cheaper seeds etc.  

Many companies such as Rocky Mountain Equipment and Deere have adapted to the cyclical nature of the farming industry; however, I am concerned that share prices will be taken down  unduly when/if a major correction takes place in the markets.  In this scenario, valuations could become more attractive.  

Historical P/E ratio for Deere

I have retained my position with Clean Seed Capital.  It is a nascent company with "good bones": able management, supportive and understanding investors who know the farming business, a product with the distinct potential to provide a substantial benefit to farmers and which positioned to meet the needs associated with the trend to larger scale farming operations (farm consolidation is still taking place).  

I realize that this is not consistent with actions regarding my former holdings in agriculture.  I have a professional history of working with new enterprises.  As a result, I have a "soft spot" for supporting innovation and a tolerance for the volatility that characterizes that space.  Investing is a messy business! 

Ditto for Input Capital.  I am interested to see how the company will do in the depths of the agricultural cycle and how it will perform if commodity prices become more volatile.  Having skin in the game makes this more than a passive exercise.  Further, I consider that the lessons learned can be applied elsewhere.  

Resilient Companies

With some misgiving, I have jettisoned a few crew members.  

The North West Company is well positioned to survive during tough times.  In a sense, NWF has a captive market.  It is more able than its competitors in a significant part of its market area.  In retrospect, I should not have sold it but who says that investing is a rational process.  

Fairfax Financial Holdings has the challenge of adjusting to the "new normal" of climate change: more frequent and severe climatic events such as hurricanes.  I admire the management of Fairfax greatly and decided to shift my money to another of its operations; namely, Fairfax India Holdings in the belief that it presents a better investment opportunity.  So far, this thinking has been rewarded. 

Fossil Fuels

I have decided to sell off my positions in this facet of the energy field with the thought that there are better investment opportunities elsewhere.  

This said, I have a substantial position in an enterprise which is not noted in the Financial Log Book.  

Questor Technology Inc. is, in my opinion, a fabulous company.  It has great management which is well attuned to the oil patch, good financial bones etc.  Moreover, it has demonstrated its agility to adapt to a changing market (rental versus purchase of its incinerators).  It is actively exploiting the potential of its technology for applications beyond the oil patch.  Check out its recent corporate presentations:

http://www.questortech.com/investors/corporate-presentations/

While researching the company, I discovered Investorfile, a site maintained by Gerry Wimmer.  It focuses on small cap listings.  I subscribe to his blog via e-mail.  He has an excellent write-up for Questor Technologies - so no need to elaborate further on my part.  

I had the good fortune to have taken profits near the peak of its market price and the luck to have gotten in again after the stock sagged.  In recent months, investors have been rewarded richly.  

https://finance.google.com/finance?q=CVE:QST

Precious Metals

I purchased Silver Wheaton when its business model was novel and when it pretty well had the market to itself.  It was my first ten bagger.  

Things have changed.  It has more competitors.  I reduced my position in the intervening years and took some profits.  My reason for retaining a position is my belief in the safe haven value of gold and silver during tough times.  Besides, it is a favourite pet, an old and faithful companion that has served me well. 

A far more interesting company is Abitibi Royalties.  In brief, it is a play on the potential for increased gold prices and the possibility that some properties in its portfolio will be developed as working mines.  If this occurs, Abitibi will profit mightily.  See earlier posts for a discussion of the company.  

The share price increased significantly during the company's early years as a result of investor interest in its business model.  Since then, the "action" has settled down.  In recent months, there appears to be some encouraging exploration activity in a few properties in Abitibi's portfolio.  If mine development takes place and if metals prices increase, Abitibi's investors could be rewarded nicely.  This is the essence of my thesis for investing in the company ... coupled with its other laudable attributes: sage management, a great balance sheet, strong connections with key actors in the gold mining community, a business model which is somewhat novel and which addresses a specific niche without too much competition.