The sale of our Melior Resources position brought to a conclusion the last of the three “net-net” investments made by us in the period after the financial crisis. A “net-net” is a situation where the market capitalization of the business is less than the net liquid assets that the business holds. The idea is to buy dollar bills for fifty cents. This is a common and traditional value investing strategy which has historically enjoyed success and opportunities are usually available following dramatic market declines (like the Financial Crisis). With great uncertainty in the world at the time (is there any more certainty today?) this seemed a very conservative thing to allocate some capital to. I have to tell you that at the time I was… Read More »

Date Added: September 19, 2019 | | Filed under: Blog

Tuesday I had the pleasure of a helicopter ride to Montreal for a series of board meetings. The especially cool thing about this trip was that my fellow board member, friend and excellent pilot is 83 years old and it was his helicopter in which we rode. We put down on a farm to the East of Montreal owned by a former high profile Canadian federal minister whose name I should not use, now almost 90 years old – and had lunch with he and his lovely wife. Our lunch conversation covered a range of topics including politics but also included some reference by these individuals to their lives – past, present, and future. It was during this part of the conversation that my 83… Read More »

Date Added: June 21, 2019 | | Filed under: Blog

Are regulators regulating Value Investing out of existence? Maybe! Having a look at the regulatory framework I see many potential inconsistencies between the way that value investors look at certain aspects of investing and the way that the regulators seem to look at the same. Here are some notable potential conflicts: Value investors define risk as the permanent impairment of capital. Value investors are less concerned with “volatility” (the ups and downs of portfolio pricing) than they are with an impairment of the business value of their holdings. Their focus is in buying a security below its business value with the understanding that this provides them a “margin of safety” and the expectation that over time the “market” or competing corporate interests will recognize this discount and take… Read More »

Date Added: June 9, 2019 | | Filed under: Blog

The trading price of Sherritt International, perhaps yet to prove a deep value investors dream, took a further hit from already depressed levels late last week and early this week. The carnage began with a trickle early last week as U.S. holders of Sherritt bonds began selling them following strong anti-Cuba rhetoric from the US administration (activation of the Helms-Burton Title III legislation related to claims about naTed properties in Cuba – which is unlikely to actually affect Sherritt) and accelerated with the release of Sherritt’s quarterly result Friday, affecting further the price of the already depressed shares. I’m not sure why market and analysts were surprised by the Company’s results (more on this below) but given the share price reaction clearly both market and… Read More »

Date Added: May 17, 2019 | | Filed under: Blog

The Takota Income Value Accounts rebounded nicely in the first quarter of 2019. I seeded this strategy three years ago with my own capital for the purpose of generating income in a low volatility portfolio structure following the tenants of value investing (i.e. capital preservation). It has performed very well particularly on a risk adjusted basis as approximately 50% of the account was held in high yield savings accounts over most of the three year period. This strategy now has a 3-year track record that is very good and is available to investors in the form of a Managed Account through Takota. As of this writing, the portfolio was invested in 4 bonds and 10 stocks representing approximately 60% of Account equity with 40% held in high yield savings… Read More »

Date Added: April 23, 2019 | | Filed under: Blog

The following text is extracted from Reflections, our monthly publication to customers and friends of Takota Asset Management ……mining companies maintain a marked preference for consolidating their balance sheets, soothing investors (dividends) and limiting capital expenditures at or around existing operations. What is still missing is a stronger appetite for exploring and developing new resources. While the above is true for many metals from copper to cobalt (and even iron), the metals for which the situation could become the most challenging are nickel first, then copper then cobalt. Looking at nickel, about 70% of the “new” nickel mined every year (“primary nickel”) is consumed by the stainless-steel industry, where nickel is necessary to bring ductility to the final product. This demand for nickel grows together… Read More »

Date Added: April 8, 2019 | | Filed under: Blog

A big deal was made in the press this past week about how pension fund OMERS decision to shift their portfolios toward private equity, real estate, and infrastructure investments and away from public market investments allowed them to earn a positive return in 2018. While superficially this might be the case, the reality is that this is primarily a result of the way different asset classes are measured for the purpose of recording returns. Public market securities are marked to market at the end of a reporting period. In other words, whatever the price of the security is at the close of the reporting period (year end for example) is the price at which the investment is recorded. Private market investments on the other hand (including… Read More »

Date Added: March 1, 2019 | | Filed under: Blog

As I continue to work on my own comeback to peak wealth from the financial crisis of 2008 and other subsequent personal setbacks, I find myself motivated by the comeback stories of others. Here is one such story! Six years ago Jillian Halligan was the number one ranked Olympic lifter in her weight class in Canada. She took some time off to have a child and today she is the mother of a four year old named Jack. On Saturday night, at 43 years of age, and after a few months of focused training she returned to the “platform” in St. Thomas, Ontario in the Master’s category, won her weight class with lifts like this and qualified for the World Master’s Championships in August. What’s more, if… Read More »

Date Added: February 24, 2019 | | Filed under: Blog

Almost all active investment strategies seek to exploit market inefficiencies and find mispriced securities. In an excellent paper by Michael Mauboussin available at Bluemountain Investment Research’s website, (link here) the author speaks of 4 different types of potential market inefficiencies – behavioral inefficiencies, analytical inefficiencies, informational inefficiencies, and technical inefficiencies. Value investors seek to find and exploit market inefficiencies where securities are mispriced. However, many value investing strategies have had a rough go of it really since the financial crisis. Mispriced securities can be identified and can be purchased but the path to fair pricing has been long and arduous with great volatility for much of the past decade. Why is that? Perhaps the audience available to correct pricing inefficiencies is thinner than it was… Read More »

Date Added: February 16, 2019 | | Filed under: Blog

A quiet portfolio year in a tormented world Dear Partners, In a quiet year for the Takota Income Value Account strategy portfolios declined by approximately -4% before rebounding by approximately +2.6% as I write this year end letter in mid- January, 2019. The modestly lower year end mark to market valuation is a reflection of weaker global markets in the last quarter of the year. The underlying value in the portfolio has not been affected, and we retain a healthy reserve of cash and cash equivalents to take advantage of opportunities presented by any further market weakness. There were several transactions closed during the course of the year. Early in the year we submitted our Sherritt Debentures to a Company bid and closed that position… Read More »

Date Added: January 24, 2019 | | Filed under: Blog

All the past year we had been waiting for share prices to finally reflect the physical reality of the underlying business they represent given in some cases the continuing improvement and in others the excessive optimism in that physical reality. At year end we found ourselves not only still waiting but also having to witness a general market correction primarily precipitated by the U.S. administration. In my experience when the market corrects one of two things happens with the smaller less liquid esoteric type companies that we favour: – either market participants pass right over them in their desire to find liquidity and their prices are left pretty much unscathed, OR – relatively small selling has a big impact on their prices (especially if insiders… Read More »

Date Added: January 23, 2019 | | Filed under: Blog

A frustrating year 2018 is finally over, closing without having bounced back from months of declining market and commodity prices. Immensely frustrating to us, especially for the metals in which we are involved, as fundamentals point to coming shortages that will only be remedied through higher prices to incentivize new production. This general decline in prices started this last June as on June 15 the US imposed its first set of tariffs specifically on China (the previously imposed worldwide tariffs on steel and aluminum date back to March 2018). But two years of threats, escalating rhetoric and not obviously thought-through pronouncements in the US had probably already brought the market to a place where it was becoming more and more difficult to believe unconditionally that… Read More »

Date Added: January 1, 2019 | | Filed under: Blog

For 26 years now Dr. Dave Ablack and friends have gotten together every December 23rd for the annual Feats of Strength (FOS) competition. Each participant attempts their maximum on three different lifts – a clean, a squat, and a deadlift. The crowd is composed of both men and women, young and older, experienced and developing. It isn’t a competition against one another so much as a celebration of each participant’s personal accomplishments. It is both a positive and supportive environment. Eldest son Rob was only an observer this year due to the lingering effects of a concussion experienced earlier in the year in a car accident, but when able he is a formidable force of speed and power especially in the Olympic lift – despite… Read More »

Date Added: December 24, 2018 | | Filed under: Blog

I was bemused when the head of the Quebec pension fund sited market volatility as a reason why the Quebec pension fund was moving more money toward private equity investments and holding less in public market investments. Here was a man who surely understands the difference between “real risk” (meaning the risk of a permanent impairment of capital, i.e. of a real loss of cash) and “paper risk” (market price volatility, meaning that quoted prices change every day). Certainly value investors would find nonsensical this focus on a definition of risk as being share price volatility rather than business value. For value investors the chance of a permanent capital impairment from buying a security at a price in excess of its business value, or from a destruction of… Read More »

Date Added: December 14, 2018 | | Filed under: Blog

The stock market is challenging right now as it undergoes great volatility in what I believe will ultimately be a change of leadership like I saw in the periods 1987-1990 and 2000-2007. Whether I’m right or whether I’m wrong about the market the thing that I’m focusing on right now is continued learning. I believe that most successful investors, and in fact most successful (and interesting) people never stop their pursuit of learning. For example, many successful investors have advocated the benefits of extensive reading. I try to emulate these investor’s habits and in addition to the day to day reading I do in my business I generally have three books on the go at the same time. Right now I’m simultaneously reading about the… Read More »

Date Added: November 23, 2018 | | Filed under: Blog

From time to time there are circumstances that could cause one to consider investing in a Company that has a significant amount of debt or a weak balance sheet. Let’s look at a couple of examples. Let’s say a Company has a large amount of debt relative to the equity in the business. Generally this would be perceived as “risky”. However, what if the debt had been issued by a government agency whose mandate was both earning a return on their investment as well as promoting jobs in their region, and what if the Company in question was a major employer. Furthermore, what if the debt had a maturity date 8 to 10 years down the road (enough time for a full business cycle). Given the time to maturity… Read More »

Date Added: November 8, 2018 | | Filed under: Blog

Please note the date on this article. Could it happen again?- in Canada this time? Be Warned: Mr. Bubble’s Worried Again By DAVID LEONHARDT AUG. 21, 2005 ABBY JOSEPH COHEN, the Goldman Sachs strategist then making a name for herself as Wall Street’s optimist in chief, sat directly to Alan Greenspan’s right. One chair away was Robert J. Shiller, a largely unknown Yale economist. As they ate lunch in a stately dining room at the Federal Reserve that day in December 1996, Mr. Shiller argued that the stock market had risen to irrational levels. In a soft, Midwestern-tinged voice, he asked Mr. Greenspan, the Fed chairman, when the last time was that somebody in his job had warned the public that the stock market had become a… Read More »

Date Added: November 2, 2018 | | Filed under: Blog

Why avoiding a deeper financial crisis had a cost – and why a return to a more normal environment should be to our benefit In the depths of the financial crisis, with the financial system at risk of going completely off the rails, monetary authorities (in the US: the Feds) tried to avoid a freezing of the financial system (which would have caused a collapse of the economy) first by lowering interest rates drastically and then, with interest rates at zero and that not being enough, by the Feds buying government and corporate assets in the market to directly inject new cash into it, to an extent never tried before. The “artificial” condition of making available plenty of cash at low interest rates lasted for… Read More »

Date Added: October 23, 2018 | | Filed under: Blog

Market Contradictions The first contradiction is the divergence between rather positive economic forecasts and, in a buoyant market, the depressed stock prices of companies in sectors needed to achieve those forecasts, as if the market did not believe those companies would benefit. The second contradiction is the divergence opposing an optimistic market view of US economic performance and prospects to a rather pessimistic view of developments elsewhere, seen mostly from a US-centric perspective which these days tends to be through a Trump lens (and for Europe an additional Brexit lens). It’s as if the continuous barrage of aggressive but often ill-informed and ill-considered pronouncements and actions coming from the US monopolizes so much attention that it colours all perspectives, in the US and abroad. Given… Read More »

Date Added: October 13, 2018 | | Filed under: Blog

The beaten up shares of the following three companies have 10 Bagger Potential (i.e. in certain scenarios the share price could improve by a multiple of 10X or more) and they are not pot stocks or crypto currency companies. Each has its owns unique set of strengths and weaknesses. Investors should not view this blog as a recommendation to invest in any of them without consulting their investment advisor. Takota owns each of these securities in our Classic and Premium Value Managed Accounts as well as in our Premium Value Partnership. We may buy more or sell some or all of any of these securities at any time without notice. Acerus Pharmaceuticals: (ASP.T) Pharmaceuticals Strengths: Leadership Product/Science Skin in the Game Weakness: Balance Sheet U.S. Distribution Partner Fortress Global: (FGE.T) Dissolving Pulp… Read More »

Date Added: October 2, 2018 | | Filed under: Blog

At Takota as at our predecessor company we practise “bottom up” value based investing. This means that we search for attractive and inexpensive opportunities one at a time and our portfolios are the sum total of these opportunities. In the lead up to the financial crisis I engaged in many conversations with customers about the growing risk of derivatives and what that might ultimately mean for the economy. However, our investing activity was only impacted by these discussions in that it reinforced our discipline to not pay up for securities and insist that they only be bought at attractive prices. The financial crisis arrived at a time when I had not been doing much travelling and so was not as aware of the slipping standard… Read More »

Date Added: September 19, 2018 | | Filed under: Blog

According to Statistics Canada in 2013 there were 3,634,815 Canadians who were 70 years of age or older. By 2017 this number had grown to 4,198,454 an increase of 563,639. This number will continue to grow as the baby boomer bulge ages. What are the implications of this for the asset class known as residential housing? For most (but not all) Canadians, their family home is their primary asset. In order to fund the cost of housing or accommodation in retirement, most Canadians whether they are just downsizing, living independently in some sort of retirement community, or whether they will require some sort of assisted living care or memory care will sell their home to fund these requirements. Therefore, one could expect an accelerating “surge” of home sales… Read More »

Date Added: September 13, 2018 | | Filed under: Blog

At Takota we take the “active” part of active investment management seriously. Active management to us is not active in the sense of actively trading securities. No, for us, active investment management is the act of trying to always dig a little further and enhance our understanding of the businesses that we own and taking those actions to protect, and advance the real value of those businesses. Let me give you some examples of what I mean by recounting a typical week at Takota which saw us: 1. Negotiating and signing a lock up agreement in support of a forthcoming merger between a portfolio company and another public company which will bring value to our holding in the form of cash, other assets, projects, and importantly share… Read More »

Date Added: September 7, 2018 | | Filed under: Blog

Just back from another great summer holiday with family, extended family and friends. Perfect weather, and cool Muskoka waters. As someone who travelled extensively and lived abroad once said to me, “it is hard to beat an Ontario summer”. The BBQ, fresh August peaches and corn, were all enjoyed at progressively later and later lunches and dinners. Lazy days of swimming, paddle boarding, Kan Jam, and badminton were followed by lazy nights of movies, conversation and games. Even when one controls his/her own schedule and therefore creates a life of balance, the occasional vacation can work wonders, creating some distance from everyday business issues, helping to regain perspective, and creating a reservoir of patience, tolerance, and resolve. I highly recommend it and need to remember to… Read More »

Date Added: August 21, 2018 | | Filed under: Blog

Yesterday I attended my first Wolfpack rugby game at an event organized by an investor relations firm I had one of my portfolio companies engage to help promote the opportunity in that portfolio company to the brokerage community. See my blog Stock Ownership Begets Stock Promotion First off let me say that the rugby was fast paced and violent and very enjoyable for even a novice fan to watch. In attendance in my group were about 20 broker (advisor) types, a couple of whom I enjoyed talking to because they had been in business long enough, and had enough market sophistication to have some practical knowledge of the areas of market inefficiency that had allowed me to compound money at an approximate 20% rate for approximately… Read More »

Date Added: July 22, 2018 | | Filed under: Blog

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