Takota Asset Management Premium Value Partnership Returns +24% in 2017
The numbers are in and the Takota Premium Value Partnership returned +24% in 2017 (+40% return 2016). While the 2017 return was solid, and far above the Canadian market return, the gap between Unit price and intrinsic value remains at historically wide levels, and the expectation is that the Unit price will be 3-5X higher on maturity of the current portfolio (without reference to new opportunities).
In general terms 2017 saw positive returns in pharmaceuticals and materials stocks held in the portfolio. Modest short selling activity contributed positive return with the exception of short selling meant to hedge long exposures which was modestly negative (as insurance premiums are).
The financial crisis, and the subsequent period of previously uncharted monetary policy, designed to stem the crisis, restart demand and stimulate global growth has, in my opinion, reinforced and rewarded investor behaviour which had always previously been unsuccessful during the course of my 30+ years in financial markets. Meanwhile, contrarian bets, the bread and butter of most value investing strategies based on the mean reverting nature of financial assets, suffered a long dark Game of Thrones type winter. Real estate, big technology, large (and especially dividend paying) "blue chip" consumer products companies, private equity, and infrastructure projects have been oh so popular with investors - oh so popular to the point of "bubbling" like conditions in many instances.
Other businesses, some of whose success are based on global growth, and especially those that produce uneven cash flows (cyclical, or commodity based companies) had been discarded by almost everyone, traded at depression like valuations, and still trade at a significant discount relative to history and their more popular peers.
In my opinion this period is now over and has been since 2016. The world is returning to some sense of normalcy, whatever that means. The pricing risks are again in what has been popular, and the opportunities are in what has been shunned. The contrarian bets averaged into several years ago in the most uncomfortable of times are now beginning to prosper. The ride that previously unsuccessful momentum like investors have been on for much of this business cycle is headed toward a difficult conclusion but nobody yet seems to know that the music has stopped, and has yet to scramble and find their safe seat. Marijuana