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.