Last week I had the opportunity to sit and listen to a presentation at our head office by Norm Lamarche.
Norm Lamarche is a veteran investor who has made a name for himself over years by bringing tremendous investment performance. His investment philosophy tends to be very thematic, and his portfolios tend to be volatile and considered high risk. Norm is a partner and vice-president at Front Street Capital.
I want to share some points from his presentation... Enjoy;
- Norm started by talking about the change in landscape for the energy and resource sector. Although he is still primarily invested in energy and resources as this is his area of expertise, the reasoning for this is much different than in the past.
- In the past it used to be primarily a supply and demand story, in other words they would be invested in resources because global growth was happening (led primarily by China) and they wanted to participate in that growth by investing in the companies that would benefit from that growth.
Today it is a story about volume. Allow me to explain...
There is an energy revolution happening in North America right now due to cheap Natural Gas. New technology has spurred an excess amount of Natural Gas in North America which has driven the price way down compared to the rest of the world. For example at the time of our meeting Nat Gas was $3.50 (US) in the United States while the cost is $18.00 in Japan and $14/$15 in Europe. What this does is creates a demand for the use of the cheap energy, and has caused manufacturing to move back to the US from off shore.
For example;
- Dow Chemical is closing 20 plants and moving them to the US.
- There is Ammonia plants being built in the US right now. There hasn't been an Ammonia plant built in 20 yrs.
- Methanex is shutting two plants down in Chile to move to Louisiana.
- There is $2 billion worth of liquid natural gas projects in BC alone right now.
Here are some more comments from Norm;
- "I am not investing in these company's because I think that Nat Gas prices are going higher, but because the companies products that we own are going to be in high demand"
- "China is slowing down...Get out of resources."..."I am not in it for that"
- "Five years ago America was building Nat Gas receiving terminals. Now they are retro fitting the terminals to ship liquid natural gas." (A complete 180 degree turn)
- "I don't own one Iron Ore, Coal, Nickel or Gold company"
- "We have the cheapest molecules here is Canada...The issue is that we are far away from markets. This is getting better with pipelines."
- "Coal and Nuclear cannot even compete with Natural Gas for price. Nat Gas even burns cleaner than coal."
- "We have been giving up a lot in returns, but our companies are doing extremely well." (It goes back to the fact that resources as a sector is getting beat up, regardless of the company)
- "Natural gas demand is up 20% over the last five years in the US."
A final thought
Norm Lamarche has typically been an aggressive high growth money manager. He is a manager who identifies a theme or opportunity, and keeps his head down until his strategy comes to fruition. We do not see this as an investment opportunity where someone should put all there investible money, but for the investor who can handle volatility Norm presents a great opportunity. Norm has been managing money professionally for a long time, and typically when his strategy goes out of favour for an extended periods of time, the upside potential is large.
We often recommend using dollar cost averaging to reduce the risk in this strategy. Dollar cost averaging works best in a volatile environment, and Norm is not afraid of volatility. We also like to use dollar cost averaging as a way to "take risk in the safest way possible".
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