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Waiting for the “Big Fish”

Andy Preikschat, manager of the private Edgebrook Fund, released his annual mid-year letter to shareholders. He has been kind enough to share it with us this year, at the halfway point of his 30 year plan. Find out about his investment strategy as well as some of his recent buys and sells of Canadian listed companies in the fund. ~ MT Editor

At Edgebrook, we sit on the edge of a brook, patiently waiting to seize that big fish. What does a “big fish” look like? To us microcap investors, a “big fish” is a microcap company with all three of the following necessary criteria: #1 Market Leader in a niche category, with Incentivized Fanatics who won’t bamboozle us, with the potential to Grow Earnings (and the stock price) at least 3-5x over 3-5 years… CLICK to read the complete letter

How Different Generations Think About Investing

Every generation thinks about investing a little differently.

This is partially due to the fact that each cohort finds itself on a distinct leg of life’s journey. While boomers focus on retirement, Gen Zers are thinking about education and careers. As a result, it’s not surprising to find that investment objectives can differ by age group.

However, there are other major reasons that contribute to each unique generational view. For example, what major world events shaped the mindset of each generation? Also…Click here for full article.

Streaming Services Add Up: What Happened To Cord-Cutting To Save On Cable?

Cord-cutting was supposed to be the cheaper, better alternative to cable and satellite TV. Why pay for endless hours of people fixing up houses, six cooking networks and minor league Italian basketball when all you really watch is “Game of Thrones” and the Steelers?

Cord-cutting — dropping cable or satellite in favor of internet-delivered content — shows no signs of slowing. The flight from traditional pay TV has hit new records for consecutive quarters, including the first three months of this year, when cable and satellite companies, like Comcast Corp lost more than 1 million subscribers.

Just over 3 million people quit the cable-satellite habit in 2018.

As it turns out, unbundling cable channels hasn’t turned out to be a cure-all for the TV bill blues….CLICK for complete article

6 Times These Big Investors Probably Said ‘Whoops!’

Not even the wealthiest, most successful investors are immune from trading blunders. Some of the most famous fund managers and investing gurus have dropped the ball and mistimed their buys and sells.

Here’s a look at six times top investors probably thought, “Whoops!”

1. Ackman And Valeant

Pershing Square Capital’s Bill Ackman has had a roller-coaster of success and failures in recent years. Perhaps no failure has been as highly publicized as his stake in Valeant Pharmaceuticals, which is now Bausch Health Companies Inc BHC 0.3%.

Ackman reportedly first took his massive stake in Valeant back in 2015 at an average price of around $196 per share. He then defended the company as the share price tanked over the next two years before finally unloading his position in March 2017 at a price of around $11 per share. Ackman reportedly took a $3-billion loss on Valeant.

2. Einhorn’s Miss

Geenlight Capital value investor David Einhorn disclosed a 27.1-million-share stake in solar power company SunEdison in January 2016 when the stock was trading at around $2.70. By the time Einhorn dumped 75% of his SunEdison stake in early 2016, the stock was trading at 32 cents pending a bankruptcy filing and delisting from the NYSE…..CLICK for complete article

Prolonged Trade Tensions

Global financial markets took a pause in May and experienced a pullback after a very strong start to the year as U.S.-China trade tensions came back to the forefront. With no resolution to the trade conflict and more tariffs being invoked by each country, concerns regarding the tariffs’ negative impact on global economic growth was brought back to the surface. Global markets retreated between 3%-7% for the month of May, but have since bounced back in June. Given the extent of the rally from the December 2018 lows, it is healthy for the markets to take a breather and digest the gains year to date. In the short term, markets are likely to be bound in a trading range by two opposing forces.

On the one hand, global central banks remain accommodative with their monetary policies, giving markets a safety net. Recall that lower interest rates are favourable for businesses (lower cost of borrowing) and consumer spending (more disposable income). With the recent softening of macroeconomic data, the chance of a rate cut has increased considerably. The market is now projecting the probability of a U.S. rate cut at 86% by July 2019 and 99% by December 2019, while a rate cut in Canada sits at a 55% likelihood by year end*. Furthermore, the European Central Bank (ECB) recently left rates unchanged and signalled that the earliest date for a rate increase would be mid-2020 instead of 2019. Lastly, China has also increased stimulus efforts to combat its slowing economy. In short, supportive central banks are a tailwind for the markets.

On the other hand, trade tensions and tariffs, if prolonged, are a drag on economic growth and corporate earnings and will reduce investor optimism and risk appetite over time. As mentioned, we have already seen softening of macroeconomic data recently. President Trump and President Xi are expected to meet at the upcoming G20 Summit on June 28-29th in Osaka, Japan. This gives both sides an opportunity to advance trade negotiations, but lack of progress would contribute to negative sentiment for the markets. Our sense is that this trade tug of war will be prolonged due to the reasons below.

It’s becoming increasingly apparent that the U.S.-China trade conflict is not about the past, it’s about the future. It goes beyond traditional issues of trade imbalances and is a strategic positioning by each side for future technological dominance that will shape the power of each country for decades to come. Trade imbalances of the past are relatively easy to fix, but sharing technological prowess into the future is a much more complex issue. From the U.S.’s perspective, the headline policy is to reduce trade deficits, but the strategy (i.e. real intent) is to limit technology development by China.

This mainly stems from an initiative launched by China in May 2015 known as Made in China 2025. It is a ten-year strategic plan to upgrade China from being a “factory” to an advanced industrialized economy, driven by technological innovation and focusing on quality over quantity. It targets ten advanced-technology manufacturing industries, namely: (1) advanced information technology; (2) robotics and automated machine tools; (3) aircraft and aircraft components; (4) maritime vessels and marine engineering equipment; (5) advanced rail equipment; (6) new energy vehicles; (7) electrical generation and transmission equipment; (8) agricultural machinery and equipment; (9) new materials; and (10) pharmaceuticals and advanced medical devices. The Chinese government has pledged subsidies equaling to $300 billion U.S. dollars (USD) to domestic firms to achieve its plan. In essence, the Made in China 2025 initiative competes with the Made in America paradigm in terms of technology and innovation.

In response, the U.S. launched an investigation in August 2017 into China’s trade practices under Section 301 of the U.S. Trade Act of 1974. Section 301 is a principal enforcement tool that can be used to address a variety of unfair acts, policies, and practices by U.S. trading partners. Requests made by the U.S. to China include reducing the bilateral trade imbalance by $200 billion USD over two years, strengthening China’s intellectual property (IP) laws, improving market access into China for U.S. companies, halting China’s government subsidies for the Made in China 2025 initiative and so on. The U.S. is flexing its muscles in the trade negotiations through the systematic increase of tariffs and the component export ban to Chinese telecommunications firm Huawei, which is one of China’s most valuable companies. For now, high-tech Chinese firms are still largely dependent on U.S. firms as part of their supply chain, so the export ban could be detrimental to Huawei. China has also increased its tariffs, but has less retaliation tools than the U.S.

At this time, it appears that China is willing to buy more U.S. goods and services to reduce the trade imbalance, but there is less clarity on negotiation progress on the technology front. The meeting between the U.S. and China at the upcoming G20 Summit will be pivotal for this trade tug of war.

*Source: Bloomberg

Ethan Dang, CFA, MBA is a Portfolio Manager at McIver Capital Management at Canaccord Genuity.

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A Very Uncomfortable Question

As you know, the MoneyTalks team are full on supporters of Special Olympics. Some will say I’m a pain in the ass about it. Thankfully many others appreciate hearing about the opportunity to help out.

I know that I can go on and on about the importance of helping individuals with intellectual disabilities and their families so I promise I will be brief and ask only one question. If someone you know had a child with Down Syndrome, autism or Fragile X …maybe a niece, nephew or grandchild – would you be more interested? Would you take a couple of minutes and bid on a silent auction item or donate or get the business you work for to sponsor?

My bet is yes, which is why is why I invite people to take a minute and think about these families and individuals. The difference you can make in their lives is huge. Obviously, I think that they deserve our help – many of our MoneyTalks listeners, clients and analysts agree.  I hope you do too.

And in addition to an easy online donation option – there is a fantastic opportunity to bid on some really cool stuff! You can donate and/or bid at the Special Olympics auction by going to newmontgoldcorp.com – bidding ends on Thursday at 7:30pm.