Pathfinder Investment Outlook
Since the end of January, we have written about the increase in market volatility (see Figure 1). As an investment team, we focus on data (rational thought) rather than the published headlines in the financial press (fear and greed). The volatility has continued over the past few days. We are now experiencing a rebound rather than a correction (volatility is both upside and downside), so you will notice that the headlines in the press have changed again. We thought that we would digress away from the market commentary for a few of issues of our Outlook to write instead about our investment process. It is our process and the work we do each day that provides the “keystone” for our portfolios. We default to our process during times of distress (market or economic) as a means to provide rational decision making. Part 1 is “Meeting with Senior Management” of the companies that we own in our portfolios. This is one of (if not “the”) critical element of our process.
We have three distinct investment mandates at Pathfinder which focus on large companies, small companies and inflation management, but the way we approach analyzing the companies that make up those mandates is the same: we focus on true value. A major part of coming to our opinion of the true or “intrinsic” value of a business is that business’ management. We make an effort to meet with the senior management of all of the companies that we own. In fact, across the three mandates, we are meeting with companies essentially every day of the year. Since we started Pathfinder, we have met people from middle management all the way up to CEOs of the smallest companies (i.e. private firms “still in the garage”) all the way to the largest companies (Wells Fargo and Microsoft, for example). We have hosted them in our office, met them at conferences and traveled all over North America and as far as Asia and Europe. I can honestly say that we learn something new at every meeting … but sometimes we get a “gem”. A gem is a piece of information that completes the picture about the company we are meeting or another company in a totally different industry. A gem allows us to make a confident and sometimes large investment in a company. It is that confidence that gives us the ability to look through the fear and greed when it is most prudent to do so.
“This means that” as we noted last week, we continue stay the course with our investment process. Getting to know our companies better allows us to take advantage of mispricing in the market. Having faith in the management makes that process easier. Please check the email for spotlights as well over the coming weeks.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.