Good Financial Reads 2 - May 2019

Ag Barometer - Perdue University 

I have been holding back on investing in agricultural equipment manufacturers, having only a small positions in Rocky Mountain Equipment (stock is priced below book value) and Clean Seed Capital (which is suffering while bringing a new product to a depressed market).  Why?

The following says it all:

Producers’ negative sentiment was further borne out by their perspective on making large investments in their farming operations. The percentage of producers that viewed now as a good time to make large investments declined to 22 percent from 26 percent a month earlier, while the percentage that viewed now as a bad time to make large investments increased to 74 percent from 69 percent in March. When combined these responses pushed the Large Farm Investment Index to a reading of 48 in April, 9 points lower than in March and the fourth weakest reading of the investment index since fall 2015.

At present, the outlook for agriculture in North America is bleak; however, things change.  When things improve, the pent up demand for new equipment will present tremendous investment opportunities.  Equipment manufacturers have learned to manage their way through tough times as have farmers who are not as indebted as they were in the last agricultural recession.

A list of potential investments in agriculture are presented elsewhere in this blog.  The good times will return.

China, the US and trade in a dog-eat-dog world

Unlike trade deals signed under Mr Trump’s predecessors, this one calls for no third parties to be involved. Each country will be licensed to decide when the other is in breach. Having sought a reset with China, Mr Trump would be enshrining a diet of endless tit-for-tat. If ever there was a blueprint for bilateral instability, the coming US-China deal would qualify.

Walking away: Greenfield lot defaults hit 27 per cent in Melbourne

Things are not well with the property development industry in Australia.  This chart is astonishing.

One in four new home buyers in Sydney and Melbourne is defaulting on their housing lot purchases due mainly to financing and valuation shortfalls, forcing developers to resell these lots in a market where monthly sales rates have hit seven-year lows, new figures show.

Trading Economics - great source of economic data

Comparative Statistics on Inflation, Employment etc.

Trading Economics provides comprehensive information with economic data for 196 countries.  The link opens an interactive table that provides a snapshot of conditions in these countries.  The site is very rich - well worth exploring.

See why life is not easy in Argentina.  Current interest rates are 71.87 percent.  Approximately one third of Argentinians are now living in poverty ... quite the change from the 1930's when a common phrase was "rich as an Argentine".

then ...



now ...



Trump's Lies About Who Pays for Tariffs - What American and Canadian Consumers Pay for the Same Item

This Week in Trumponomics

The foregoing article is only one of many from the "right" and the "left" chastising the President for his recent statements about the impact of tariffs.  In the end, it's the consumer who will pay.

The farming community has been devastated by retaliatory measures implemented by countries in Trump's tariff crosshairs and now, the impact will spread to the broader public.

The more insidious and serious aspect of Trump's seat-of-the-pants policy making involves the long-term reliability of the US as a trading partner.   Going forward, this capricious action in the absence of a long-term strategy which seeks to develop alliances with other trading nations concerned about China will be a concern for many countries.  Given that there are many other countries with steadier records of performance in international trade, it is reasonable to expect that companies everywhere will look at diversifying supply chains and marketing channels.

An Experiment in Cost Comparison 

A few days ago, I bought an inverter for my boat.  It was made in China.  Yesterday, I checked the price for the unit on Amazon.com and Amazon.ca.  There was a significant price difference for exactly the same item.

Americans pay the equivalent of $254 Cdn.  Canadians pay $205 Cdn.

Until Trump's announcement, it was generally accepted that most things are cheaper in the US than in Canada, or at least, the same ...

Another comparison:  This tower surge protector was $US 55.95 on ebay in the US https://www.ebay.com/itm/8-Outlet-Surge-Protector-Bestek-Electric-Power-Strip-Block-USB-Port-Charging/323191858205?epid=28031751992&hash=item4b3fbc641d:g:TPoAAOSwPhpaxo4Y  and $Cdn 54.94 in Canada's Amazon site.  The difference in price is $Cdn 20.05!

Test yourself to see how quickly Trump's tariffs will strain American pockets.

Useful Source of Information for ETF's 

EFTdb.com is one of the sources I use.  It has a nice screener and provides a nice coverage of the ETF universe.  The web site is designed thoughtfully: exceptionally well organized and easy to navigate as a result.  The content provides many departure points for more in-depth research. 

Good Financial Reads - May 2019

An Insightful Profile of Canada 

ECONOMIC ANALYSIS
The most important charts to watch in 2019
Our fifth annual bonanza of more than 70 charts to help you make sense of the economy in the year ahead

This article in MacLeans Magazine provides a wonderful insight into the fabric of Canada.

That’s evident from this year’s collection of charts to watch in 2019, as chosen by some of the top economists, analysts and business experts in the country. The worries are many, and include rising interest rates, dramatically slowing household credit, Alberta’s oil crisis, U.S.-China tensions and the state of business competitiveness in Canada. You’ll also find charts on the fight against poverty, the rise of the digital economy, B.C.’s plague of forest fires and the evolving role of dads.

We asked each contributor to submit a chart along with their explanation for why it will be important to watch in the year ahead, and present them here in no particular order. We hope you find their insights as engaging and fascinating as we did. Share your thoughts with the hashtag #ChartWeek, and enjoy.

The Hits Keep on Coming From the Great Negotiator

Farmer Sentiment Darkens as China Hopes Fade

The “ongoing uncertainty” of U.S.-China trade relations “is unacceptable to U.S. farmers,” said president Davie Stephens of the American Soybean Association on Tuesday. “With depressed prices and unsold stocks forecast to double before the 2019 harvest begins in September, we need the China market reopened to U.S. soybean exports within weeks – not months or longer.” The soybean group urged the White House to reach an agreement that will remove China’s retaliatory tariffs on U.S. soybeans. In the past, China bought 1 of 3 bushels of U.S. soybeans grown.


BBQ Season - Romaine Lettuce - a wonderful addition to the grill

A few weeks ago, we were served grilled Romain lettuce.  It was spectacular.  Best of all it was very simple and quick.

Do this and you will be delighted with the results:

• quarter a head of Romaine lettuce by cutting it lengthwise
• drizzle the quarters with olive oil and a splash of balsamic vinegar (you may also wish to dress it up a bit with salt and spices)
• place it on a hot BBQ and char all sides until most of the leaves are blackened (no need to leave it on longer as you will want to maintain a bit of crunch on the inside)
• time on the BBQ is only a few minutes

It's that easy.  

New Investment - The Western Investment Company of Canada Limited

The Western Investment Company of Canada Limited  WI  (TSXV)

WI has been added to the crew of The Financial Passage Maker.

Founded in 2015, the company is based in High River Alberta, about 60 km south of Calgary.

The Western Investment Company of Canada Limited (“we”, “Western” or the “Corporation”) is a publicly traded private equity company based in Western Canada. Our common shares trade on the TSX-V under the trading symbol WI. Our purpose is to create long-term wealth for shareholders by building and maintaining a diversified portfolio of strong, stable, and profitable Western-based companies while helping them to grow and prosper. 
Our strategy is to use our expertise and capital to cultivate already great Western Canadian businesses, ultimately contributing to their success and legacy over the long run. 

Western’s targeted industry verticals align with the industry expertise of the Board of Directors and include: (i) financial services and insurance; (ii) retail and distribution; (iii) human services; (iv) agriculture and related services; and (v) special situations. Western's ideal acquisition enterprise value is between $10 million and $100 million and ownership interest between 30% to 100%. Western will prospect acquisitions from: (i) director and executive networks; (ii) midmarket accounting and merger and acquisition advisors and (iii) private equity and corporate divestitures.
https://winv.ca/wp-content/uploads/2019/04/Q4-MDA-December-31-2018.pdf

The company seeks to acquire significant ownership positions in client companies by:

1. Offering “Continuity Capital”
2. Providing oversight using “Pattison Principles” and “Rockefeller Habits”
3. Maximizing return to shareholders through “Western Sensibility”

"Continuity Capital" is described below:

• Fund succession and/or growth for an already successful business.
• Founder share ownership with unique put/call structure and ‎earnouts.
• Buy-in program for existing management.
• Entrepreneur friendly, respectful negotiations.
• Board of Directors’ seat/voting fairness for owner.

The proposition for business owners.  

• We can provide access to capital, business development tools, strategic contacts, customer referrals and deep expertise in our chosen industry sectors.
• Our oversight is entrepreneur friendly and we encourage both current owners and their management teams to continue managing the business.
• Our experienced team can provide mentorship when and where it’s needed in a collaborative environment; we have a diversified team with skills in operations, finance and sales.
• Being a public company allows business owners to access a tax deferred rollover, if they choose.
• We want to own our businesses for a long time; there is no requirement to exit the relationship in five to seven years, compared to traditional private equity firms.

Reasons for Investing

1.   The Potential for Significant Gains 

I have a penchant for investing in new enterprises.  Why?

They offer the prospect of significant gains if/when superior performance is eventually recognized by the market.  At present, WI is not covered by analysts.

2.   The Economic Potential of Western Canada

WI confines its activities to British Columbia, Alberta, Saskatchewan and Manitoba.

The economies of western provinces are heavily dependant on the extraction of natural resources.  The impact of a downturn in the oil and gas sector has overshadowed a more basic trend:

In 2017, the west was the fastest-growing region of Canada, led by British Columbia and Alberta. GDP growth across Canada is expected to slow down in 2018 and 2019, but Western Canada will likely still outpace the national average.

The Economic Overview provides a concise overview of the strength of the region.  The economy is diverse and offers fertile ground for the operation of The Western Investment Company of Canada.

3.   Business Community in Western Canada - Ideal for WI

This is my take. The following observations may not be applicable to British Columbia as Lotus Land is very different from provinces shadowed by the brims of Stetson hats.

The prairie provinces have a very strong sense of community.  Social networks are strong and of a size where it is possible to "know of" a very large number of people in social and business circles in ways that are different from large urban conurbations.  This sense of "connectivity" provides a real advantage to companies such as WI, especially as the company operatives are prominent members of the communities.

The practical aspect of this is that WI can develop a high profile and possibly, have a stronger presence that would be the case if it operated in a more crowded and anonymous environment.  It may be possible to generate "deal flows" more easily over time.

4.   The Business Pedigrees of WI's Principals

Nothing succeeds like success.  The principals have an enviable record of achievement in business and community life.
The Team

They have much to offer to prospective partners: access to sources of financing, business/government/social networks, business acumen which understands the operating environment in western Canada.  Page 10 of the Investor Presentation indicates that 35 percent of potential acquisitions are attributable to directors and management of WI.  This is significant.  I would be very interested in seeing how many of these resulted in acquisitions.  My bet that it is higher than other sources such as M&A advisors and private equity.

It's all about people.  This is the KEY reason why I have invested in The Western Investment Company of Canada Limited.

As a measure of its commitment, management owns almost 18 percent of WI's shares.

5.  The Business Model

It is easy to understand and to monitor.  WI focuses on investing in profitable companies, thereby minimizing a major business risk.  Its investment portfolio is diverse and I have the sense that most of the companies are fairly resilient in the face of economic recessions.

The governance model is attractive.  Although WI may have a majority interest in the companies in its portfolio, it does not dominate the boards of directors of those companies and provides them with considerable leeway to manage their businesses - ownership but not business control.  The model provides incentives for the businesses to thrive and the degrees of operating freedom to adapt to changing circumstances - a collegial model as opposed to command and control.

The Management Discussion and Analysis reports are easily understood.  They provide a useful insight into to evolution of the businesses within WI's portfolio.  In my view - more investor friendly than most other listed companies where you have to wade through opaque prose and convoluted footnotes. 

6.   Access to Capital

Given the deep connections and reputation of the leadership team, I think that it will be fairly easy for WI to secure funding for its operations and future acquisitions.  Judging from the early going, it would appear that the five companies within WI's portfolio are making good progress ... a factor that will be considered by providers of capital.

7.   Valuation

Currently, the Price/Book ratio is .77.  I figure that this represents a good entry point.  In contrast to many companies with low ratios, WI is not overburdened with debt.  (Readers are urged to undertake their own due diligence, including a review of things financial.)

Risks

The company is in the early stages of operation.  The track record is only a few years long.  In one sense, however, it could be argued that companies in Alberta are operating within a rather challenged economic environment given the travails of the oil and gas sector.  In this respect, WI's companies have already been stressed tested to a certain degree.

It is still too early to see how WI will adapt to changes in management within its corporate structure as the inevitability of the" demographic harvest" is closer than some of the crew would like to countenance.  I wish them all long and productive lives.

I see no outsized risk that would deter me from investing in WI.

Concluding Remarks

1. The investment is based primarily on my assessment of the quality of management and the resources it brings to the business: expertise, record of success, extensive connections.
2. I like the business model: offers fairly equitable and tangible benefits to clients as well as WI.  
3. The Western Investment Company of Canada Limited is in its early stages.  As such, my investment horizon is in the order of 10 years or so.  
4. My initial position in WI comprises about 5 percent of the value of my portfolio.  I may increase my stake on the basis of the company's performance.  
5. The company is tiny and the share price may fluctuate significantly on low trading volumes.  I have learned to tolerate volatility in fledgling enterprises.  
6. I expect that this company will exhibit slow, steady growth by virtue of the "space" it occupies.  It is an ideal holding given the present state of the market as I believe that its member companies will be somewhat resilient in the face of a recession. 

I like the present trajectory of WI.  See the most recent press release:

https://winv.ca/western-investment-company-posts-2018-year-end-net-income-of-1-13-million-adjusted-net-income-npio-at-1-7-million-6-cents-per-share/

An added benefit ... by purchasing shares of WI you are supporting the production of ice cream like this:

KAHULA CHOCOLATE FUDGE
A liqueur-inspired licker mixing our kahula coffee ice cream with a chocolate marble swirl. (an enthusiastic copy writer!)


Our old-fashioned Saskatoon berry ice cream, filled with real berries and a virtual crust of graham crunch. (could replace maple syrup as Canada's national dish)

Perception of Companies in WI's Portfolio

As part of my due diligence for each company, I did a search on the web for two things: a) customer reviews; and, b) employee reviews.

I came away with the impression that all of the companies produce products and services which are well regarded by their customers - even allowing for the fact that consumer web sites tend to attract cranky individuals with a grievance.  And for a senior living center to receive consistently positive reviews is special.

It also seems as if the companies are good places to work.  Once again, it is singular that the employees of Golden Health Care Inc. expressed such positive attitudes - noteworthy considering the nature of workloads and the sometimes stressful nature of the environment.

When assessing potential investments, I place an inordinate amount of attention on the "softer side" of businesses:

• quality of management (first, second and third) ... and then
• strategic positioning
• quality and competitiveness of the product or service 
• employee quality and loyalty 

All too often, analysts focus on financial metrics, forgetting that they are the result - not the cause - of performance.  

Along the same lines, one need only look at what happens when predatory money managers take over viable companies and "run them by the numbers".  Come on down Tim Hortons!  It is shameful to see the decline of this iconic institution.
What Happened to Tim Hortons? ... The Mother Country takes notice of happenings in a former colony ... and what's it about with that guy wearing the coffee cup?

I see none of this with The Western Investment Company of Canada, hence my decision to bring it on board in several of our portfolios.

Addendum

Conglomerates can be "good" or "bad".  Sometimes diversification works in the interest of share holders.  In other instances, it does not.  The following article makes the point that conglomerates sometimes subsidize the performance of unprofitable inmates within their corporate houses.

A Thread on Diversification

For me, it was a learning moment, especially as I have invested in aggregators such as Rocky Mountain Equipment.  

A Thought About Investing - Where to Focus

I awoke this Sunday morning with a thought:

When making investment decisions, most people concentrate on financial statements - the things which populate analysts' reports and snapshots on financial web sites.  In doing so, they ignore that:

Financials are the result - not the cause - of successful enterprises.  

In my view, the best opportunities for outsized financial gains are associated with new and growing enterprises.  At an early stage in a company's life cycle, one needs to focus on things other than financial metrics:

Management

It's all about people.  The attributes I look for:

• "muddy boots" experience
• track record of achievement in growing businesses
• ethical behaviour
• strength of the board of directors and connections with sector
• ability to manage money wisely (e.g. to stretch dollars, to secure financing in ways that are kindly to the future of the business)

Product/service

This is secondary in importance.  Ideas are a dime a dozen.  I look for concepts which are understandable and which can be sculpted into money-making products/services with the following attributes:

• confer a definable benefit to consumers
• represent a competitive advantage over other providers
• are scalable 
•  are protected from competitors through patents or other means
• are likely to have a "market life" of more than ten years

The most successful investments in my portfolios were the result of following this approach: Silver Wheaton (a new business model), Questor Technologies (new technology taken to the market by outstanding management).  CO2 GRO, a new member of the crew demonstrates the importance of management: how a moribund company was transformed into a vibrant enterprise by an individual who had the foresight and skill to see new possibilities for the company's technology and deliver it to the market place.  

It takes time for young companies to realize financial returns and for these to be expressed in the usual financial metrics.  After I established my first position with Questor, the stock price fell by half.  My patience was rewarded: a few years later it soared.   

The jury is still out on Clean Seed Capital.  Recently, the stock price tanked on news that a pending deal to purchase an equipment manufacturer had fallen through.  Further, the miserable state of the agricultural sector has created a tough environment for the sale of the company's new and expensive product.  My view: the acorn is in the ground ... in time it may grow and strengthen into a healthy tree.  The process will take years. 

Good Financial Reads 3 - April 2019

Goldman Says Fed Losing Forecasting Edge Changes Game in Markets

Risky assets are reacting more strongly to hawkish monetary shocks from the Federal Reserve in recent years, according to Goldman Sachs Group Inc. The reason, ironically, is that the Fed is losing its forecasting edge.

The Fed’s relative predictive advantage versus private economists has declined in recent years as the higher quality and quantity of forecasters makes it harder for anyone, including Fed staff, to beat the “wisdom of the crowd,” Goldman economists including Jan Hatzius and David Choi wrote in a note April 20. It also means that after hawkish monetary shocks, such as a surprise rate hike or indication of higher rates, markets tend to react more negatively and consensus growth forecasts now decline, they said.

Sources of Qualitative Information to Assist with Investment Research

Increasingly, I look to qualitative sources of information as part of my quest for profitable investments.

While the financial information presented in a company's filings is indispensable, it is subject to manipulation by crafty accountants.  Further, financial metrics are only part of the story.  Generally  speaking, I am far more interested in the quality of management, strategic positioning, competition, customer reaction to products/services etc.

Here are two sites that I visit routinely during my research.  There are others.  For example, I  visit regional and trade business publications which publish annual articles on the fastest growing companies, some of which are listed on stock exchanges.  That is how I discovered Questor Technology several years ago.  It's a wonderful company with great management and in a strategic sweet spot.  It is quietly expanding its reach into new markets, something that will be reflected in its financial returns in 2019.

Buzz Indexes

The BUZZ NextGen AI process™ applies proprietary machine learning models across vast large scale datasets to identify patterns, trends and changing sentiment which can affect market based outcomes, providing the foundation for superior investment returns.

Glassdoor  is another site which presents an opportunity for present and past employees to review companies and their management.

The Gold Mining Industry

The following article provides a nice overview of the recent history of the gold industry: an unhappy co-incidence of poor management decisions and declining commodity prices.

Can the gold industry return to the golden age?




3 Obstacles Facing Urban Agriculture in New York City

Results of a new study in New York suggest that urban agriculture may not be able to provide the bevy of benefits that have excited consumers and enticed investors.

This sector has attracted a lot of attention recently.  Other than CO2 GRO, I've yet to find an attractive investment in the space.  The cost of real estate, high operating costs (energy and HVAC) and price points have created significant headwinds which may not offset differentials in transportation costs associated with traditional greenhouses and field crops.  However, in some exceptional situations (e.g. parts of the Middle East) where there is a limited potential for other forms of agriculture and where food security is paramount, urban agriculture may be viable.

Robots Come to Walmart

In order to cut costs Walmart has resorted to robots to clean floors, unload delivery trucks, inventory shelf stocks and fulfill customer orders.

Warehouse automation is worth investigating for potential investments.  It is complex.
The Complete Guide to Warehouse Automation: Basics of Organization and Warehouse Labeling, Automation Technologies, Best Practices, and More


The Truth About Dentistry

Many standard dental treatments—to say nothing of all the recent innovations and cosmetic extravagances—are likewise not well substantiated by research. Many have never been tested in meticulous clinical trials. And the data that are available are not always reassuring.

The Cochrane organization, a highly respected arbiter of evidence-based medicine, has conducted systematic reviews of oral-health studies since 1999. In these reviews, researchers analyze the scientific literature on a particular dental intervention, focusing on the most rigorous and well-designed studies. In some cases, the findings clearly justify a given procedure. For example, dental sealants—liquid plastics painted onto the pits and grooves of teeth like nail polish—reduce tooth decay in children and have no known risks. (Despite this, they are not widely used, possibly because they are too simple and inexpensive to earn dentists much money.) But most of the Cochrane reviews reach one of two disheartening conclusions: Either the available evidence fails to confirm the purported benefits of a given dental intervention, or there is simply not enough research to say anything substantive one way or another.

It is worth visiting Cochrane.  It is one of the go-to sources of information for unbiased opinions on a wide variety of medical treatments:

Cochrane is for anyone interested in using high-quality information to make health decisions. Whether you are a doctor or nurse, patient or carer, researcher or funder, Cochrane evidence provides a powerful tool to enhance your healthcare knowledge and decision making.

Cochrane’s 13,000 members and over 50,000 supporters come from more than 130 countries, worldwide. Our volunteers and contributors are researchers, health professionals, patients, carers, and people passionate about improving health outcomes for everyone, everywhere. Our global independent network gathers and summarizes the best evidence from research to help you make informed choices about treatment and we have been doing this for 25 years.

The following link provides an index for topics addressed by Cochrane:

Cochrane Library

Getting a Perspective - It's Always Good to be Uncomfortable

This essay addresses the issue:

getting from here

to here

Background

In a previous post (see below), I reviewed my portfolios with a view to trying to understand gains and losses over a 20 year time frame starting  in 2007.  

Portfolio Management - A Few Thoughts About Gains and Losses

The results were eye opening:

1. Major gains in the value of the portfolios were due largely to the outstanding performance of a few investments.
2. Major losses were attributable to a general decline in the market as a whole - not outsized losses due to the poor performance of a few individual investments.  

It led me to question previous assumptions I had about the basics of portfolio management; namely,

• the benefits of diversification in order to distribute risk more evenly
• the optimum number of holdings in a portfolio (20 to 30 are often cited as being ideal) 
• the dictum of buying and holding through thick and thin (the thesis is that long-term trend in the market, when measured over decades, is always "up")
• the convention that one should limit the size of an individual holding to no more than 5 percent of a portfolio and then "rebalance" 

The academic literature and convention that I had accepted as gospel simply did not hold up in the light of my practical experience.

I reached two conclusions:

1. It is useful to look at portfolio performance with a new perspective - one that goes beyond the usual monthly, yearly outlook - viewpoints which are artificial and which can blind one to the dynamics of a portfolio's performance
2. I was able to detect some identifiable patterns and hope that I will incorporate the lessons learning in future investment activity.  

Extending the Review

I extended the review by assessing how I spend my time on things financial and discovered that I fell into the habit of following a routine path: reading the same sources and downplaying viewpoints which didn't conform with my habitual way of thinking. 

It's easy to get into an "investment rut".  It's comfortable.  It's also dangerous, especially with the advent of unanticipated events and/or the inability to adapt to changing circumstances.  

I'm reading a beautifully written book entitled, The Gentry: Stories of the English by Adam Nicolson.  It chronicles the rise and fall of several families from 1410 to the present: how they rose from obscurity, shone briefly and then declined in episodes ranging from a generation or two to a few hundred years.  

There were a few takeaways:

• the precarious nature of society in the past and present and the role of chance in rearranging the pieces on the game board of life 
• how pride in one's family can be both a balm and a hinderance 
• the rather closed nature of the families' social circles and the strictures posed by social expectations 
• that change offers opportunities to some and pitfalls for others who fail to adapt

There is yet another theme which is buried in the text; namely, that there is a strong element of deliberate personal choice which contributed either to the downfall of a family or its rise to wealth and position.  In some instances, family members, when presented with options, deliberately chose paths which were disadvantageous to their future well-being.  Was this a product of a narrowness of vision and an unwillingness to change perspective or was it the result of "tiredness" - a loss of drive and resilience?  While these processes took many decades to unfold, there are lessons for the shorter term when it comes to investment.

1. It literally pays to be open to new trends.  A case in point is the cannabis industry: easy to discount as a fad and to make moral judgements.  However, a few alert individuals have done well by moving early and taking measured risks.  
2. It pays to expand one's horizons beyond the usual social circles and sources of information.  It means developing new sources, making an effort to understand differing viewpoints, always questioning one's viewpoints and approaches to investing.  
3. Being willing to take the first steps on new paths.  

What this means to me:

• I never read the financial press and increasingly, I don't read newsletters or annual reports by money managers. 
• I make a deliberate effort to expand my knowledge and to live outside my comfort zone. 
• When I am out and about, I take an active approach to my environment: always look at the way people conduct themselves (e.g. what they wear, how they spend their time, what they eat, drive); question how people make their living (note trends in stores on the street, look for emerging products/services and those with a lot of competition or in decline) ... in short making an effort to be more sensitive to the world around me and to the potential for investment.  A ride on public transportation, a walk down main street, a visit to the library ... all these things suddenly become more interesting ... even more so when you engage in conversation with others ... much better than burying one eye's in a book or in a computer screen.  

As a result, my "learning time" has become more interesting and productive.  I find myself traveling along lines of inquiry which are not well visited by members of the "investment community".  Additions to the Financial Log Book, CO2 GRO and Clean Seed Capital were the product of this activity.  

The picture of the pathway was taken during a walk on a stretch of the Camino de Santiago de Compostela where a tunnel of trees encloses a narrow slice of Spain, making one oblivious to the surrounding fields and even the sky.  The viewpoint in northern Georgian Bay overlooks one of my favourite anchorages.  One day we decided to bushwack our way to the crest of the La Cloche Range.  It was a sweaty undertaking but we were rewarded with a breathtaking view.  If you look carefully, you can see several sailboats beyond the islands.  Almost no one ventures into this anchorage as it's off the main route.  

Good Financial Reads 2 - April 2019

Hash Users Smoking ‘Dangerous Amounts of Fecal Bacteria’

The lows of trying to get high in Madrid.

Most cannabis sold on the streets of Madrid is not suitable for human consumption, according to a new study.

Samples of unregulated drugs from the Spanish capital often contained dangerously high levels of E.coli bacteria and Aspergillus fungus. ...

Speaking to the Spanish newspaper El País, Pérez explained that the acorns were more likely to be contaminated because the cannabis samples were wrapped up in plastic packets and swallowed by the drug smugglers. These contraband-containing couriers would then “take a laxative and expel” the pellets in a toilet.

... material for a skit on Saturday Night Live or for Cheech and Chong? (Watch it to the end for the punchline.)

A Wonderful Post on Experience and Investing

I subscribe to periodic posts which are written by inmates of the Collaborative Fund.  They are wonderful and I would recommend that readers also subscribe via the blog section of the web site.

Here is a noteworthy post.

You Have to Live it to Believe it

The post explores 

the effect difference experiences we’ve had have on our ability to make smart decisions about business and investing risk.

Morgan Housel, the author, has a delicate touch.  It's a real delight to follow a thinking process which synthesizes a variety of seemingly disparate observations into a coherent narrative.  

I'll not spoil the experience for readers by providing a summary of Housel's line of thought.  After reading the article you'll see why.  

It is also well worth visiting the section of the web site entitled, What We're Reading.  When you read the posts, also explore the sites which host the posts.  For example, one of them, What It's Like to Grow Up With More Money Than You'll Ever Spend, is hosted by Cut.  

Visit the sites listed on the top of the page and you'll be introduced to the world of the hip, urban, millennial and an environment of "first world problems" ... my take as a member of the leading edge of the baby boomers.  One of the sites is quite hilarious ... and a bit sad ... my bet is that the contributors to the site are "helicopter parents" with a low tolerance for risk.  Visit Cut to see why.  Then the cynical side of me then takes over and I surf it with a view to ferreting out potential investment opportunities ... 

It is also worth visiting the Collaborative Fund's investment portfolio.  Exposure to the thinking of others is always useful when it comes to investing.  The fund is focused on five themes: cities, kids, money, health and the consumer.  I find it fascinating to see how the investment team has approached each of these themes, especially as I would take a much different approach through the lens (millenial speak) of my experience and formal training.  But then again ... isn't that what makes markets?  As my father-in-law often opined ... "That's why they make Chevs and Fords".   Among the themes that I would explore: survival (food security, coping with climate change); energy (management and distribution); "human substitution" (robotics, systemized decision-making); innovative upstarts (novel business models); urbanization and the aftermath in non-urban areas.  

How to prepare for volatility exploding 

Low volatility sounds like a good thing in markets. And it can be, unless it's masking or ignoring problems. The real trick is preparing for an end that can be quick and unpleasant.

"Volatility rarely picks up bit by bit. It tends to spike when the late-cycle bullish narrative goes off the rails," Cantor Fitzgerald LP's Peter Cecchini wrote in an email.

As noted in previous posts, THE single most important cause of  my losses in the past 20 years was general declines in the markets.  Equities markets have had a wonderful decade of growth and are due for a correction over the next two years or so in my view.

In the past 18 months, I've dismissed weaker members of the crew and have a large cash position in my portfolios.  I'm now exploring ways to profit from a general decline in the markets without taking undue risks.

Precious metals are represented prominently in my portfolios on the assumption that investors will seek "safe havens" during times of uncertainty.  In order to profit from market declines I intend to use other vehicles such as inverse index funds and options.

Another observation:  I have little faith in the ability of President Trump and his inner circle to deal prudently with economic dislocation and crashing markets, especially considering that they may be unintended consequences of their handiwork.  Further, the U.S. simply does not have the option of declaring bankruptcy - something that The Donald has done habitually in order to escape responsibilities for his ineptitude.  How many times?

Why Donald Trump's Companies Went Bankrupt 

CO2 GRO

GROW's share price has risen nicely this year.


https://stockhouse.com/companies/quote?symbol=v.grow

Several factors have contributed to this increase:

• tests which demonstrate a substantial increase in growth rates for a variety of commercial leaf and flower crops
• a growing recognition of the benefits of GROW's technology
• a low risk business model to encourage adoption of the technology
• technology which can be incorporated easily into existing overhead irrigation systems within and outside greenhouses

To date, the company has focused its efforts in North America.  The recent expansion of marketing efforts to include Europe and the Middle East should result in a significant expansion in GROW's footprint.  

CO2 GRO to Present at the GFIA Global Forum for Innovations in Agriculture in Abu Dhabi, UAE

GROW's intention to expand its presence is described in the above-cited news release:

GROW’s objectives at this international agriculture technology innovation conference include:

1) To meet with potential Middle East Agri Industrial Partners/Distributors

2) To meet potential Middle East, EU and other international customers

3) To tour various greenhouses and shade facilities in several Emirates (i.e. Abu Dhabi and Dubai) that have expressed interest in CO2 Foliar Spray.

The Conference is significant in that it was attended by 7000 delegates from 122 countries. 

On April 10, 2019, Aaron Archibald, COO, made the following observations about the conference:

• GROW was fully booked with one-on-one meetings with clients 
• he mentioned GROW's intention to explore collaboration with a major European greenhouse manufacturer 
• an interesting tidbit: Aaron identified numerous quality revenue opportunities at the Conference. In addition, Aaron visited major indoor greenhouses that had expressed interest in the CO2 Foliar Spray technology, reviewing initial installation requirements and terms. Currently, none of these facilities can use CO2 gas due to excessive heat that has to be vented. This leaves CO2 Foliar Spray as the only logical value added CO2 gas service that can be integrated into existing spray racks.  Who knew? 

My View

• GROW has not been an overnight success story.  Rather, new management changed the strategic focus of the company and in a methodical way, developed and tested the technology  and  its application in recognition of the fact that the agricultural sector is a "show me" industry.
• It focused initially on North America, a market which it knows and whose cultural and commercial values are within the genetic make-up of the company.  
• It developed a business model which reduces risk for adopters of the technology and which is respectful of the need to minimize the demand for cash on the part of growers at the front end of contracts.
• It has the pragmatism to be willing to enter into contractual agreements with larger partners (e.g. equipment manufacturers and others) in order to expand its market reach through existing channels.  This should also have the collateral benefit of bringing more muscle to the table to defend potential incidents of IP infringement.  

The company should be fairly recession proof in the sense that the cannabis industry is expanding rapidly due to the legalization of pot in North America and elsewhere.  The use of pot and booze during hard times is not likely to diminish.  Further, the company occupies a nice strategic niche in the cannabis industry.  Competition and the number of players in other niches such as production and distribution make it more difficult for investors to profit.  

GROW has surmounted many hurdles on its journey.  At present, the only major concern I worry about is IP infringement and the time lines associated with the company's efforts to register its patents.  Food stressed countries such as China cannot be depended upon to respect the company's IP.  In light of this, it may make sense for GROW to partner with an international corporation based in the U.S.  - this given American political sentiment about the theft of IP.  

I have the sense that the best days lie ahead for this well-managed company.  Its growth will present the usual management issues (e.g. staff recruitment/training/retention, increased legal demands, expansion of the capacity to build and install and monitor systems etc.)  However, management and members of the board of directors have "been there" before.  One thing is certain: GROW should have no difficulty in securing additional financing at reasonable terms.  My hope is that the share count will not be expanded as part of the process.  

GROW is now the most valuable member of my crew.

I expect that the share price will be volatile.  The company is tiny and the price is subject to significant change on small trading volumes at current pricing levels.  One needs to be prepared for this with the hope/expectation that over time, the general trend will be upward as GROW starts to earn revenues through direct contracts with growers and collaborative agreements with larger companies.  There is also the possibility that GROW will be bought out at a premium, but I hope that this will not occur as I consider that the best days for the company lie ahead.  It's been an interesting journey so far. 

To date, investors are betting on the quality of management, GROW's strategic sweet spot and what appears to be a superior technology with varied applications that convey demonstrable benefits to growers.  However, in order to sustain its share price, GROW will need to show an sustained increase in revenues.  This will be the metric I will be using to monitor my investment in this company. 

The Growing Gulf Between Canada and the U.S.

Canada and the U.S. have enjoyed a very close relationship.  However, the polarization caused by President Trump has stressed this relationship to the detriment of both countries.

It goes beyond personal animosity between the nation's leaders, something that prevailed during the Johnson and Nixon eras and spilled over into Canada's domestic affairs.

A more fundamental change is underway - a rather amazing shift in just two years.  The President has come to symbolize the differences between Canada and the U.S. in a number of arenas:  guns; environmental protection; racial and ethnic harmony; economic disparity; approaches to diplomacy, and so on.

The irony of Trump's imposition of tariffs on steel and aluminium in the name of national security on his closest military ally, Canada, has set the groundwork for pushback.  In Canada, the political calculus is such that the Canadian Government feels confident in public support for the measure described below.

Canada Considers New Retaliatory Tariffs on U.S. Agricultural Products

“When the U.S. imposed (steel and aluminum) tariffs, we said we could put in corresponding tariffs – dollar for dollar – in retaliation of unjustified and illegal tariffs,” says MacNaughton. “Our position is that the tariffs are unjustified and illegal and should go.”


U.S. agricultural products on which Canada may add tariffs include apples, pork, and ethanol. During a 45-day consultation period, Canada would determine which would have the least impact on Canadian consumers and the most impact on the U.S.

--------------------------

There is a growing gulf between Canada and the U.S. - something that the Trump administration has encouraged, if unwittingly.

Canadians are seeing the whole world through an anti-American lens

For the first time since pollsters started measuring such attitudes almost 40 years ago, a majority of Canadians now hold an overall unfavourable view of the United States. As of last year, only 44 per cent of Canadians said they hold a positive view of their neighbouring country, the lowest ranking ever.

It is not a subtle drift – Canadians were overwhelmingly positive about the United States as recently as 2016, until Donald Trump’s inauguration put a majority into the anti-American column. The proportion of Canadians who see the United States as “a negative force in today’s world” is now almost 6 in 10, a 12-per-cent rise over 2008, making America by far the most negative country in the eyes of Canadians (even North Korea comes a distant second, at 46 per cent).

What is apparent, reading the rest of this survey’s results, is how much this antipathy to Mr. Trump has also shaped Canadians’ views of other countries, of their opinions on economics and trade and immigration, of their leisure-time activities, of their own government’s priorities.

Here are a few extracts from the aforementioned report, Canada's World Survey:

Canadians view of their country as a trading nation has
strengthened over the past decade. There is a strong and
growing consensus that international trade is important for
Canadian jobs and the quality of life in the country; close to
three-quarters of the population now hold this view. Close
to two-thirds believe NAFTA has helped rather than hurt the
Canadian economy, a sentiment that has also become more
widespread since 2008. 

More than six in ten (63%) Canadians believe NAFTA
has helped the Canadian economy, over three times the
proportion (18%) who say it has been hurtful. The positive
view has grown significantly since 2011 (up 13 points) and
is now at its highest level since Environics Research starting
asking this question in 1995.

When asked which countries stand out as being a negative force in the world, Canadians once again put the United States squarely at the top of the list. Next most apt to be named include North Korea and Russia. Just over one in ten identify Iran, China, Iraq, and Saudi Arabia.

The positioning of “bad” countries has shifted over the past
decade. The United States is more firmly entrenched at the
top of the list (up 6 points from 2008). More significantly,
North Korea moved five spots, from seventh to second, and
Russia jumped from eighth to third.

Amidst the drama and chaos that has characterized the first year of
the Trump Presidency, one that delivered a major jolt to that
country’s political and cultural fabric, Canadians’ views of
their neighbour to the south have taken a negative turn. Less
than half of the Canadian population now holds a very (12%)
or somewhat (35%) positive overall opinion of the United
States; this is down substantially from 2012 during the lead
up to Barack Obama’s re-election victory. Although slightly
more positive than in April 2017, Canadians’ overall views of
the U.S. remain at their lowest point since Environics began
measuring it in 1982.

Two-thirds of Canadians have travelled to the U.S. in the past
five years, but one in four reports changing or reconsidering
plans for future visits because of the current political climate.
Canadians’ overall opinion of the United States has worsened
significantly since Donald Trump became the President, but
a majority believe US-style populism is unlikely to come to Canada.

Interesting times.

This shift is taking place throughout much of the world, including America's closest allies.  However, it would be a mistake to ignore the nuances of the relationship of the U.S. with the rest of the world.  No better is that illustrated than in a recent Pew Research Center report:

How the world views the U.S. and its president in 9 charts









The implications of this shift are concerning, especially given the rather muscular entry of China on to the world stage in recent decades.  Ditto for Trump's apparent blindness to Russia's recent interference with elections and its virtual annexation of the Crimea.  Perhaps the underlying reasons for this stance will eventually come to light.

How will this chaotic presidency affect America's standing and the world economic and political order?

For example, the preparedness of the U.S. to deal with unanticipated geopolitical tsunamis appears to be diminished: a bureaucracy under assault by an erratic and capricious president; a constantly changing inner circle populated by sycophants without a strong moral compass; an apparent reduction of resources to invest in projecting America's interests due to tax cuts and an ever-increasing national debt.

The country is divided.  The extreme partisanship of the political structure has seemingly hobbled the ability of the country to work in its own best interests.  Fortunately things have not deteriorated to the sorry state of the UK birthed by  David Cameron's breathtakingly stupid and cynical gambit to put Brexit on the table for strictly partisan political purposes.

This financial navigator is starting a storm watch and making preparations to batten down the hatches and head to a safe haven. 

Good Reads - April 7 2019

The Economics of Local Vertical and Greenhouse Farming Are Getting Competitive

There is a growing interest in what I term "contained growing systems", everything from container units, to vertical growing systems to greenhouses.  This article looks at comparative economics of various systems.

While one might quibble with some of the assumptions and the methodology, I feel that the conclusions are in the right ball park.

• The economics of enclosed systems are improving with advances in technology.
• Given the high upfront costs and technological uncertainty, most investors are reluctant to commit large sums of money as the returns take longer than most are prepared to entertain.  

This said, considerations other than financial returns are driving the movement to expand contained growing systems:

As leaps occur in technology, I predict the days that consumers are going to have their produce shipped months in advance and from thousands of miles away, are numbered.  Technology is available today to grow locally and bring fresh produce to the mass-market within days or even hours.  Additionally, as climate change brings dramatic weather changes, controlled-environment agriculture allows for constant conditions regardless of weather patterns.  As time goes on vertical farms and greenhouses will increasingly grow greater sums of our produce both domestically and across the world. 

There are investment opportunities here, especially with technological innovation in a few areas:

• software
• lighting
• heating/cooling
• automated growing and harvesting systems
• methods to increase plant growth, health and quality including genetic engineering and nutrient management

I was lucky to have made significant gains with CO2 GRO (GROW), a company that has developed the technology to increase yields and plant health.  The company is described in earlier posts. 

Portfolio Management for the Coming Recession

It is impossible to know when the next recession will come and even more imponderable, to determine its form and the nature of its impact on one's investments. 

That "something" will happen is in no doubt.  As mentioned in earlier posts, I have the sense that the present bull run in equities is getting a bit stretched.  I also noted that my major losses were the result of a general downturn in the broader markets ... to the extent of more than 30 percent at times. 

As a result, I have reduced my positions in equities and retain only those with the prospect of offering some resiliency e.g. precious metals companies with low cost production or strong income streams from royalties.  Also, a few companies that should be profitable in hard times e.g. GROW. 

My approach going forward is based on a few assumptions:

• that the trade-off between holding more cash and selling off some equities is worth the "lost opportunity" cost of maintaining equities positions during the mature stages of a bull market - this as balanced against the potential of a significant decline within the next two years
• that holding cash and precious metals will minimize losses and position me to purchase "bargain" stocks once they have been beaten down

I am the first to admit that I could be wrong. 

I have "gamed" a few potential scenarios in order to arrive at my present position ... thinking along the lines of the type advanced in the following article:

A Playbook for a Recession-ready Portfolio, even if it never arrives
If there is anything to know about the current situation, it’s that usual rules don’t always apply.

In recent testing, we examined the impact to a portfolio on an equity downturn through three scenarios: do nothing, sell to buy bonds, or hedge via equity options. The last was the clear winner, effective under a range of debt/equity correlation assumptions.

Thoughts About Giving Back and Sharing Good Luck

Introduction

Many people are fortunate. They have the financial wherewithal to provide for their personal needs and those of their families and then some. I count myself in this group.

Like many, I reached this status for a variety of reasons:

• the good fortune to be raised by parents who instilled in me a set of values and behaviours, including a respect for education and a strong work ethic;
• a lucky series of breaks and the ability/desire to exploit them;
• the good fortune to be born at a time of growing economic prosperity and to avail myself of a variety of progressive programs: a reasonably priced university education (where it was possible to pay tuition and expenses by working summer and part-time jobs and later, by scholarships); defined pension plans; comprehensive medical care (removing the need to pay for private health care and the need to plan for catastrophic events); living as a Canadian in a civil society which is safe, respectful of others (for the most part) and which rewards effort.

A Brief Overview of Giving

Much has been written on the topic of charitable giving.  One of the most fascinating overviews is presented here:

Who Gives Most to Charity

In addition to the usual rankings of rates of charitable giving by state, the article also provides some interesting insights, including:

Interestingly, when rich people live in separate enclaves they are not as generous as when they live interspersed in normal communities. The “How America Gives” study showed that when households earning $200,000 a year make up more than 40 percent of the residents of a particular ZIP code, they give just 2.8 percent of their discretionary income to charity. If they live in more mixed neighborhoods and towns, though, they give an average of closer to 5 percent.

Physical separation and economic stratification corrode social cooperation and generosity. In towns, villages, and cities where Americans of differing fortunes live in more traditional combinations, though, generosity flourishes. And for many Americans, the resulting giving seems to be deeply connected to satisfaction in life.

It is one reason why I dislike gated communities - they are physical expressions of the divide between "them" and "us".

The following article provides a synopsis of eight forms of giving:

8 Types of Charitable Giving

Of course, these are in addition to volunteering one's personal time - perhaps the ultimate way to express a personal commitment to the betterment of society.  

Another Way to Determine How Much to Give

This year, I'm going to try an approach which differs from allocating a set percentage of my income for charitable purposes.

1. I am setting aside a set number of shares of GROW and Abitibi Royalties.
2. The price at the date of the set aside will be recorded at the start of the tax year (or any other time). 
3. Any gains resulting from an increase in the value of the set aside at the year end will be allocated for charitable giving. The amount used for giving may not necessarily result from the sale of those holdings.  Instead, the cash could come from other sources (e.g. cash portion of the portfolio) in order not to dilute the potential for further gains.  
4. My intention is to repeat the process in subsequent years. 
5. Set asides may involve the selection of other stocks with the potential for capital gains. 

In good years, the amount the charities receive through this approach could be substantial.

If losses take place at the end of the year, the amount I give will revert to a preset floor in order for my selected charities to receive a steady income. 

It is one way to share one's good fortune.

Financial Log Book - First Quarter 2019

Positioning for 2019

In an earlier post, I remarked on the process of winnowing out crew members and adding a few new members with better prospects.  You can see it here:
https://finanacialpassagemaker.blogspot.com/2019/01/the-financial-log-book-performance-2018.html

The measures avoided some of the pain that would have otherwise been felt due to the poor performance of the broader market in 2018.

Performance for the First Quarter of 2019

Entity	Wt	Initial Price/ Purchase * Date	Price * March 15/19	Gain/Loss** Since Purchase %
Wheaton Precious Metals (WPM) (formerly Silver Wheaton)	H	12.37 2007-09-04	30.4	145.8
Oaktree Capital Group (OAK)	M	56.45 2013-10-28	48.99	-13.3
Clean Seed Capital (CSX)	M	.51 2015-01-07	0.39	-24.5
Questor Technologies Inc. (QST)	L	1.74 2015-05-22	4.2	141.4
Abitibi Royalties (RZZ)	M	2.57 2015-11-20	13.21	414.1
Fairfax India Holdings Corp (FIH.U)	H	10.42 2015-12-16	13.6	30.5
CO2 Grow Inc. (GROW)	L	.15 2018-12-18	0.33	103.1
Rocky Mountain Equipment (RME)	L	8.81 2019-01-05	8.9	1

*    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

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

Commentary 

1. The performance of CO2 GRO  has been gratifying.  I have the sense that the share price will be volatile given the small size of the company and the potential response of the market to announcements such as partnerships with major equipment/service providers, the provision of services to more greenhouse operators and the like.  Approval of the technology for cannabis by federal regulators will be a key catalyst.  I see no reason to take profits at this stage.  
2. The precious metals companies have been steadfast crew members and should perform disproportionately well in the event of a major downturn in the markets as investors seek "safe havens".  Abitibi, in particular, is on the potential cusp of significant new revenue flows from royalties and has the added benefit for investors of a play on increases in the price of gold by virtue of its significant holdings of stocks in well managed mining companies.  
3. Agricultural stocks are being held with the long view in mind.  At present, farm incomes are at a decade low and commodity prices present highly uncertain prospects for North American farmers due to foreign competition and trade wars.  At the same time, the stock of farm equipment is getting aged and in need of replacement as it's always a compromise between reliability and operating costs. The farm economy will eventually recover.  Having some skin in the game at this stage has focused my attention.  As mentioned in an earlier post, I've assembled a watch list of agriculture-related companies that I'll buy once the sector starts performing better.  Clean Seed was purchased with the long view in mind and it continues to make significant progress despite the rather miserable state of the farm economy.  To my mind, this demonstrates the potential of the technology and the acumen of management.  
4. Oaktree is in flux.  Google "Brookfield and Oaktree" to learn more.  OAK is a crew member because it should be resilient during market downturns.  The accumulation of healthy dividends since the purchase in 2013 have blunted the impact of the reduction in the share price.  
5. The best days for Fairfax India are ahead.  Management has assembled its portfolio of companies in a deliberate manner and is in it for the long game - a play on the potential of India.  

I will monitor the portfolio more closely than normal as I have the sense that markets are facing the potential of a major adjustment.  As noted in an earlier post, THE most significant contributor to my portfolio losses in past years was a downturn in the broader market.  This time around, I am maintaining a large cash position and am monitoring conditions as per the approach of Howard Marks' Mastering the Market Cycle.  I have also tried to select stocks which should be fairly resilient in the event of a broader market correction. 

Good Reads 2 - March 2019

Speculation 101

The article explores many facets of speculation.  For more on the subject, nothing beats Reminiscences of a Stock Operator.

In my view, speculation can be very profitable.  I have learned to practice it only with an in-depth knowledge of the investment sector.  Also - to be patient in awaiting opportunities. See following item.

Going Short on China

It is inevitable that high rates of growth cannot continue forever.  China is being faced with that reality for a variety of reasons which will not be addressed in this post.

With the view that Chinese-based equities will decline, I have started to investigate potential strategies to profit from that decline.  Here is one take, among many:

Looking to Go Short on China?  Here's How

Inverse China ETFs


Why You Can't Believe What China Says About African Swine Fever 

An interesting account of the various stories presented to a group of Iowa farmers while on tour in China.

Good Reads 1 - March 2019

The Broyhill Letter 2019

I was so impressed by the annual letter from Broyhill Asset Management that I immediately subscribed to their e-mail distribution list in order to receive more regular offerings.

This one is interesting:
Late Cycle Behavior

Oaktree Capital Group (OAK) is mentioned in the annual letter.  It has been a significant member of the crew for many years.  I purchased for it two primary reasons: the quality of its management, and the prospect (hope) that the Group will perform well during periods of economic turmoil.  It seems as if the boys at Broyhill also subscribe to this thesis.  Meanwhile, I collect substantial dividends while waiting for the playing field to tilt in favour of OAK.

I will add some of Broyhill's other holdings to a watch list and will undertake my due diligence before deciding whether or add them to my portfolios.

I maintain a substantial stash of cash in order to position myself for purchases when the general market heads south and sentiment sours.  My sense is that these value stocks will be fall in concert with other more less resilient entities with the result that they will be even more attractive.  Again, my strategy is heavily influenced by Howard Marks and his Mastering the Market Cycle.  

Speculators Anonymous 

An interesting site maintained by Adem Turkeman.

Our tone is cynical and skeptical. Putting it simply – we don’t believe (not trust) the mainstream at first glance. 

We also believe that in order to make outsized gains you must go against the crowd – doing the kind of things that most find very uncomfortable. That’s where the opportunities are. 

Contrarian sites are a dime a dozen but this one does not follow the tracks of "Chicken Little" by wandering in fear inspired circles.  It is thoughtful - well worth visiting from time to time ... or you can subscribe to newsletters as I have.

Turkeman's schedule is much like mine.  When I started investing, I would arise at around 2:00 AM and work until 4:00 - a period which was quiet and when my thoughts could roam freely.  After 8 years of that routine, I started earning more from investing than from my wages.  It's a habit that continues to this day.

WTO RULES CHINA GAVE ITS GROWERS UNFAIR WHEAT AND RICE SUBSIDIES

“Today’s ruling is a huge win at a time when such wins are sorely needed,” said House Agriculture Chairman Collin Peterson, adding, “It’s also my hope that this ruling can help our negotiators reach a positive path forward to reopen trade with China and reclaim the markets that the trade war has cost our farmers.”

The impact of this ruling has yet to be determined.  My bet is that China will rag the puck but ... retaliatory tariffs on the part of the US could ratchet up pressure for change.

An Interesting Take on Brexit 

Der Spiegel often provides an interesting perspective on global affairs - one which differs from viewpoints expressed in North America and the UK.  This one is especially interesting:

Ivan Rogers on Brexit

As the UK ambassador to the European Union, Ivan Rogers had a front-row seat as Brexit negotiations got underway. In an interview, he speaks with DER SPIEGEL about the mistakes made in London and the huge challenges that remain.