Know What You Own

Know What You Own

The first step in building a margin of safety is to research the company.

There is a plethora of literature available for anyone who is interested in learning how to analyze a company…Read the financial statements. Since the passing of the Safe Harbor Act in 1995, U.S. companies have been incented to provide timely and accurate financial statements in their 10-K, 10-Q, and proxy statements. The 10-K and 10-Q (annual and quarterly reports) each provide three financial statements: income statement, cash flow statement, and balance sheet. There is plenty of information available in these three statements to allow an investor to thoroughly understand how the company operates. The proxy statement discusses management compensation. A brief examination of the proxy statement will offer great insights into how top management compensates itself.

For investors who are seeking a deeper understanding of the company, there are many more questions to pose. Has the company increased its earnings, revenue, and cash flow consistently over the long term? Is it in an industry that has long-term growth potential? Is the management team stable and experienced? Has management laid out its goals and milestones? Has it delivered on those milestones? Has it been successful in expanding its services or its product line? Has the company treated its shareholders fairly?

Recent changes in the disclosure laws plus the ubiquitous Internet have given individual investors the ability to easily access and read transcripts of quarterly management conference calls and corporate presentations to institutional shareholders. These transcripts often give investors valuable clues into the mindset of top management. There is no excuse today for any investor, large or small, to be insufficiently informed on any public company.

Benjamin Graham and the Power of Growth Stocks,

Frederick K. Martin

All the Fun's in Getting There

All the Fun's in Getting There

This is the last chapter of Joel Greenblatt's classic book, You Can Be A Stock Market Genius. A brilliant book about investing in 'special situations' in the stock market. He closes with this chapter with some timeless advice for 'do it yourself' investors. 

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One of my favorite hobbies is sailing—no racing, no destination, just being on the water and sailing. There are faster ways to move on the water—the technology has been out of date for centuries. Certainly there are easier ways to get from one place to another; the ratio of hard work to distance traveled is great. The point, though, is not to go anywhere in particular. I always end up just where I started. The point for me is to enjoy and make the most of the journey. All the fun, as the saying goes, has to be in getting there—because there is no "there* there.

To be a successful investor over the long term, you must also pretty much enjoy the journey. Warren Buffett and Peter Lynch long ago surpassed any reasonable level of savings required to ensure that those near and dear to them would be provided for. They clearly enjoy the challenge of investing. If you're the type that is going to lose sleep after the first market dip (or worse yet if you're going to panic out of your well-thought-out investment portions just because the market falls), then maybe a more passive approach than  the one advocated in these pages would be better suited for you. In fact, if you're not going to enjoy the "game," don't bother: there are far more productive uses for your time.

Of course, if you are able to successfully manage your own investments, there can be some side benefits. While everyone knows what money can't buy, there are obviously things that money can buy: a sense of security, a comfortable retirement, and an ability to provide for your family. Even from a religious standpoint, money doesn't have to be such a bad thing. In fact, if it's used to help others, money can be a very positive force.

Some people—include the renowned eighteenth-century economist Adam Smith in this group—believe that when you pursue your own self-interest, the whole of society benefits. In the stock market, the buying and selling of stocks creates a market for corporate equity and ultimately provides a vehicle for productive businesses to raise capital and expand. While true, this kind of thinking can only go so far. Betting keeps the cashiers employed at the racetrack, but somehow I doubt that Albert Schweitzer pursued this particular style of altruism; there may be a higher and better use for most of your time.

While to many "time is money," it's probably more universal to say that "money is time." After all, time is the currency of everyone's life. When it's spent, the game is over. One of the great benefits of having money is the ability to pursue those great accomplishments that require the gifts of being and time. In fact, you can't raise a family or make your contribution to society without these gifts. So, while money can't buy you happiness or even satisfaction, it might buy you something else. If viewed in the proper light, it can buy you time—the freedom to pursue the things that you enjoy and that give meaning to your life.

This book was meant to be viewed on many different levels. (You'll see what I mean if you take it on an elevator.) If you're an investor who already has substantial stock-market experience, hopefully it has opened up whole new areas of the investment world to you. In many ways, your work should be easier now that you know where to find those special places where the investment odds are so dramatically tilted in your favor. After reading this book, you should also have a better idea what to look for once you get there. For the novice, I hope that this book has served as a first step and as an inspiration. If the opportunities described in this book look enticing, rest assured that most of the areas covered are not beyond the grasp of the average investor. You don't have to be a genius, but you do need a basic understanding of financial statements, some common sense, and the patience necessary to gain experience.

As I've said all along, it will take some work and some effort, but this knowledge should be comforting to you. If everyone could take advantage of the investment methods described in this book just by showing up, then you probably couldn't expect to achieve extraordinary results. What will set you apart from the crowd will be the same thing that will cause most investors to fall by the wayside. The barrier to stock market success isn't exceptional brain power, unparalleled business savvy (hey, I still own sea-monkeys), or uncommon insight. The secret, now that you know where to look, is in simply doing a little extra work. When you think about it, this seems quite fair.

While it can't be said that life is always fair, in most cases and over the long term the stock market is. Despite being a card-carrying contrarian, I agree with the now widely accepted wisdom that for most people stocks are the investment vehicle of choice. As long as the economy and the individual businesses that make it up continue to grow, sooner or later the stock market will reflect this reality. That doesn't mean that in every period the stock market will provide superior investment returns. Most recently, in a stretch lasting from the late 1960s to the early 1980s, the major market averages hardly advanced at all. But in general and over the long run the stock market will accurately reflect the progress of the businesses that it represents.

Which brings us to the final benefit of the type of special-situation investing that has been the subject of this book,  While it's nice and often helpful to have a rising market, it's not required. Because your bargain opportunities are created by special corporate events—events that take place in all market environments—new bargains are constantly being created. In most cases, though, these bargains are only temporary. It might not be today or tomorrow, but if you do your homework well, the stock market will eventually recognize the inherent value that attracted you to the bargain opportunity in the first place. That's why, in the end, a disciplined approach to seeking out bargain stocks will pay off.

The idea behind this book was to let you know about a snowball sitting on top of a hill, to provide you with a map and enough rope and climbing gear so that you can reach that snowball. Your job—should you choose to accept it—is to nudge it down the hill and make it grow.

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You Can Be A Stock Market Genius,

Joel Greenblatt

Investing Notes to Myself

Investing Notes to Myself

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1) Wager Value

Money is made in the dark, not the light.

Stephen Goddard, The London Company

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Back in the eighties I use to go to the racetrack to bet on Thoroughbred Racehorses. It was a good training ground for investing in the stock market. I came across a term by handicapping author,  James Cramer. He called it Wager Value.  Essentially it meant focusing on information that other handicappers weren’t using. Whereas most people who went to the track used speed ratings and the horse’s current form shown in the past performance tables, Cramer like Stephen Davidowitz before him, focused on trainer patterns, track bias and result charts. He reasoned that if he based his handicapping (estimating probabilities) on underused information, the horses he would come up with would help provide him with more attractive odds. So he might estimate a horse’s chances of winning to be 3-1 while the tote board (based on everybody else opinion) would have the same horse going off at 8-1. This is the very heart of handicapping a horse race, betting on the horse who has the best chance of winning relative to his odds.

Applying the concept of ‘Wager Value’ to the stock market you would want to focus on the inefficient areas of the market. Small and Mid capitalization stocks tend to be a major source of inefficiency in the stock market. Most mutual funds and institutions want to increase their assets under management so they can grow their businesses and get bigger. Most of them get so big that they price themselves out of the smaller cap world. The small and mid caps end up being too illiquid for the giant institutions to bother with so they are forced to move up the food chain to the large caps. This means there are less people buying the small/mid caps and fewer analysts following them. This makes them prone to being mispriced. The small/mid cap world is an ideal environment for the small do-it-yourself investor who is far more nimble and quick than his huge institutional counterparts. Of course small/mid caps can introduce additional risks as well. They tend to more unstable then the large caps. Small caps often have just one or two products lines and a smaller customer base. They can be overly dependent on a few key individuals in the executive suite. So you have to be careful. These risks can be mitigated by concentrating on companies that are serving a potentially big market and that actually have growing revenues, cash flow and earnings. You also like to see management own a good portion of their own stock. If it's run by a founder CEO, even better. It’s an attractive area to explore and their financial statements can be easier to read as well, and its great fun and after all that’s all part of the game.

In my own portfolio I hold some large and mid cap names, while holding some small caps as well. I run sort of a barbell approach in my own investment portfolio. It’s all a matter of taste. You might want to have just a few of the smaller cap names in your portfolio or hold many and maybe have a larger cash position, it’s up to you.

Great patience is often needed as small caps especially, can be out of favor for long periods of time and in this day of the internet can be the subject of bear raids so it’s important to be familiar with the underlying fundamentals of the company. You don't want to be shook out of your position. There are some great small cap mutual funds out there where you can get some unique investing ideas in this area. 

The small do-it-yourself investor gives up a huge advantage to the financial establishment in ignoring this area. Remember when investing you have to have some sort of edge over your competition and the small to mid cap area is a great place to exercise it. And Canada is basically a small to mid cap market and an ideal place to go hunting for under followed names.

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2) Margin of Safety 

What is it that makes outcomes tolerable even when the future doesn't live up to your expectations? The answer is margin of safety.

Howard Marks, The Most Important thing

The Margin of Safety (MOS) is the difference between a stock's intrinsic value (what the company is truly worth) and its current market price.

In simple terms, it's a principle of buying a stock at a price significantly below your estimate of its true value.

Here's a breakdown of what it means and why it's so important:

Core Concept: The Protective Cushion

The Margin of Safety acts as a protective cushion or buffer for the investor. This idea was popularized by Benjamin Graham, the father of value investing and mentor to Warren Buffett.

• Protection against Errors: No valuation model is perfect, and human judgment can be flawed. The MOS provides room for error in your intrinsic value calculation. If you were wrong and the company is only worth 15% less than your estimate, a 40% MOS ensures you still bought at a discount.

• Protection against Market Volatility: It minimizes your risk of capital loss during market downturns, bad luck, or unforeseen corporate challenges. When the market price drops, you are protected because you bought the stock for a price that already had a significant discount built-in.

• Maximizing Returns: When the market eventually recognizes the stock's true value, the price is expected to rise from the discounted purchase price to the intrinsic value, providing a higher potential return.

A wide Margin of Safety is the central principle for value investors. It means:

Never pay full price. Always buy assets for significantly less than their worth. (As Warren Buffett famously said, "You leave yourself an enormous margin. When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it.")

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3) Buy and Hold

Investment is a process in time.

Hyman Minsky

'Buy and hold' is a long-term, passive investment strategy where an investor:

1. Buys a financial asset (like stocks, bonds, or mutual funds) based on the belief in its long-term growth potential.

2. Holds that asset for an extended period—often many years or even decades—regardless of short-term market fluctuations or volatility.

Key Principles of Buy and Hold:

• Long-Term Focus: The strategy relies on the historical tendency of the overall market (or a fundamentally sound company) to grow over long periods.

• Ignoring Short-Term Noise: The investor deliberately ignores daily or monthly price swings, resisting the urge to sell during market downturns (panic selling) or buy into temporary speculative bubbles (chasing returns).

• Time in the Market, Not Timing the Market: It emphasizes that consistently staying invested over a long time is more effective than trying to predict when the market will peak or bottom.

• Benefits of Compounding: The strategy maximizes the effect of compounding, where the returns on your investment are reinvested to generate their own returns over many years, creating exponential growth.

• Lower Costs and Taxes: Fewer trades mean lower transaction costs (brokerage fees/commissions). In many jurisdictions, holding an asset for over a year qualifies for lower long-term capital gains tax rates, which is a significant advantage.

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4) Concentrated Portfolio

The strategy we've adopted precludes our following the standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by conventional investors. We disagree. We believe that a policy of concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying it.

Warren buffet

Since we're familiar with the underlying fundamentals of the company we've invested in, and are judgements are based on hidden or neglected information, it only makes sense to concentrate your holdings on your best ideas. Why diversify your edge away? As Marty Whitman and Charlie Munger both said, "diversification is a hedge for ignorance."

Joel Greenblatt too observed, as the number of stocks in the portfolio increases, the benefits of diversification drop quickly. In other words know what you own and pick your spots. Put your money into your best ideas and learn to think for yourself. Ten stocks in your investment portfolio are enough if you have good well-thought reasons for investing in them and you spread them out between different industries. Yes, it may be volatile, but volatility is not risk, it's noise. The longer you hold your positions the more the risk will go out of them. A better way to approach diversification is by putting money into low-risk investing instruments (cash, T-bills). Sort of a barbell approach. 

In my own investing, I run an unbalanced as well as a concentrated portfolio. I put most of my money into my best ideas. It's all a matter of taste. The longer you are in the market, your investing style will gradually emerge over time. The market not only teaches you how to invest in stocks, but it will teach you about yourself as well.

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5) Be a Contrarian

If everyone's doing them, there must be something wrong with them.

Henry Singleton

Don't do the obvious thing. Because if it's obvious, it's already a crowded trade. A crowd yields to instincts that an individual, acting alone, represses. The crowd instinctively  follow the impulses of the herd. An individual who becomes involved in a group becomes less capable of thinking for himself. In a crowd every sentiment and act is contagious, and contagious to such a degree that an individual readily sacrifices his ability to think for himself and to stay dispassionate about his investments. He gets emotionally swept away with the crowd and soon finds himself lost and out to sea.

Market extremes represent inflection points. These occur when bullishness or bearishness reaches a maximum. Figuratively speaking, a top occurs when the last person who will become a buyer does so. Since every buyer has joined the bullish herd by the time the top is reached, bullishness can go no further and the market is as high as it can go.

There’s only one way to describe most investors: trend followers. Superior investors are the exact opposite. Superior investing, as I hope I’ve convinced you by now, requires second-level thinking—a way of thinking that’s different from that of others, more complex and more insightful. By definition, most of the crowd can’t share it. Thus, the judgments of the crowd can’t hold the key to success. Rather, the trend, the consensus view, is something to game against, and the consensus portfolio is one to diverge from. As the pendulum swings or the market goes through its cycles, the key to ultimate success lies in doing the opposite.

Howard Marks, The Most Important Thing

And above all, at times of extreme emotion in the market...Be Contrary.

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Stockwatch...Northwest Healthcare Properties REIT (TSX: NWH.UN)

Stockwatch...Northwest Healthcare Properties REIT (TSX: NWH.UN) 

"The most valuable commodity I know of is information."

Gordon Gekko

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The investing thesis for Northwest Healthcare Properties REIT (TSX: NWH.UN) has evolved from an "aggressive global growth" story to a "deleveraging and simplification" turnaround play.

Historically known for its rapid expansion into international markets like Brazil, Australia, and Europe, the REIT faced a liquidity crunch in 2023 due to rising interest rates and high debt levels. As of late 2025, the investment thesis is centered on the success of its strategic restructuring.

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1. The Core Bull Case: Defensive Assets & High Yield

The foundational appeal of Northwest remains its "infrastructure-like" asset class:

• Recession-Resistant Tenants: Most revenue comes from hospitals and medical office buildings. Tenants are typically major healthcare systems with government-backed funding, making them extremely stable even in economic downturns.

• Long-Term Lease Profile: The REIT maintains a Weighted Average Lease Expiry (WALE) of ~13.4 years, one of the longest in the Canadian REIT sector.

• Inflation Protection: Roughly 80% of its leases are indexed to inflation (CPI), allowing the REIT to pass through rising costs to tenants automatically.

2. The Turnaround Thesis: Simplification & Deleveraging

Investors are currently betting on the REIT’s ability to "shrink to grow." Key pillars include:

• Asset Dispositions: Northwest has sold billions in non-core assets (notably its UK portfolio) to pay down expensive debt. It has successfully reduced its leverage from over 50% toward its target range in the mid-40s.

• Repatriating Capital: Under CEO Zach Vaughan, the REIT is shifting focus away from complex international joint ventures and back toward core North American assets.

• Normalized Payouts: After a significant dividend cut in 2023 (from $0.067 to $0.03 per month), the AFFO Payout Ratio has stabilized at around 85%. This makes the current yield (~7%) much more sustainable than the previous double-digit yield.

3. Key Risks (The "Bear" Case)

• High Leverage: Despite progress, Northwest still carries a higher debt-to-gross book value than many of its Canadian peers.

• Interest Rate Sensitivity: Because it uses significant property-level financing, prolonged high interest rates increase the cost of refinancing expiring debt.

• Complexity Discount: Operating across four continents involves foreign exchange risk and complex tax structures, which often leads the market to trade it at a discount compared to pure-play North American REITs.

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Financial Summary (As of late 2025)

Metric	Value (approx.)
Annualized Dividend	$0.36 per unit (~7.1% yield)
Occupancy	~97%
Price / NAV	Often trades at a 15–30% discount to Net Asset Value
SPNOI Growth	Consistently positive (~3–4% year-over-year)

Summary for Investors

The thesis is that Northwest is deeply undervalued because the market is still punishing it for past management missteps. If they continue to successfully sell non-core assets and lower their debt, the gap between the unit price and the underlying value of their high-quality medical hospitals should narrow.

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Senior Management Changes

The senior management team at Northwest Healthcare Properties REIT (TSX: NWH.UN) has undergone a significant transformation recently. Following the exit of the company's founder, Paul Dalla Lana, the new leadership is focused on professionalizing operations and fixing the balance sheet.

Here is an overview of the key executives leading the REIT today:

Key Executive Leadership

• Zachary (Zach) Vaughan – Chief Executive Officer (Appointed July 2, 2025): A high-profile hire from Brookfield, where he was a Managing Partner and CEO of Brookfield REIT. Vaughan is a seasoned real estate veteran with deep experience in international markets and complex portfolio restructurings. His appointment is seen as a signal to the market that Northwest is moving toward a more disciplined, institutional-grade management style.

• Michael Brady – President: Formerly the REIT’s Chief Operating Officer and General Counsel, Brady was promoted to President during the leadership transition. He has been instrumental in executing the REIT’s "disposition strategy," including the multi-billion-dollar sale of assets in the UK and Australia to reduce debt.

• Stephanie Karamarkovic – Chief Financial Officer: Appointed in early 2024 (initially as interim, then permanent), she replaced the previous CFO during the company’s liquidity crunch. Her focus has been on "simplifying" the REIT’s capital structure and reducing its interest expense through debt refinancing and repayments.

• Tracey Whittall – Chief Operating Officer: Manages the day-to-day global operations across North America, Brazil, Europe, and Australasia. Her role is critical in maintaining the REIT’s high occupancy levels (~97%) and ensuring that the portfolio’s inflation-indexed leases are managed effectively.

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Strategic Shift in Governance

The management team’s culture has shifted notably away from the "growth at all costs" mindset of the previous era.

• Internalization of Management: In late 2025, the team completed the internalization of management for Vital Healthcare Property Trust (its Australian/New Zealand arm). This move simplified the corporate structure and provided a cash influx of roughly $170 million for debt reduction.

• Renewed Board Oversight: The Board of Trustees was also refreshed, with Robert Julien taking over as Chair in May 2025. The board now includes more independent trustees with specialized backgrounds in audit and governance to provide stricter oversight of management decisions.

What This Means for Investors

The "new" Northwest management is generally viewed as more conservative and transparent. While the previous management was praised for building a world-class portfolio, they were criticized for taking on too much debt. The current team's "investing thesis" is essentially a commitment to fiscal responsibility and operational efficiency.

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The New CEO, Zachary (Zach) Vaughan

Zachary (Zach) Vaughan officially took the helm as the Chief Executive Officer of Northwest Healthcare Properties REIT on July 2, 2025. His appointment followed a period of strategic turbulence for the REIT and signaled a major shift toward operational simplification and debt reduction.

Vaughan is a highly regarded real estate executive with over 20 years of experience, particularly known for his long tenure at Brookfield Asset Management.

Professional Background

Before joining Northwest, Vaughan built a reputation as a global leader in real estate investment and asset management:

• Brookfield Asset Management: He spent a significant portion of his career here, serving as Managing Partner and Head of European Real Estate. Most notably, he was the CEO of Brookfield REIT, where he oversaw massive global portfolios and complex capital structures.

• Arrow Global: Immediately prior to Northwest, he was the Global Head and CIO of Real Estate at Arrow Global, a leading European investment firm.

• CPPIB & Reichmann International: Earlier in his career, he held senior roles at the Canada Pension Plan Investment Board (CPPIB) and International Property Corp/Reichmann International.

• Education: He holds an Honours Bachelor of Economics from Western University.⁷

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Strategic Mandate at Northwest

Vaughan’s primary mission is to stabilize the REIT after a challenging period characterized by high debt and a complex global footprint. His strategy, often described as a "back to basics" approach, focuses on three pillars:

1. Operational Simplification

Vaughan is moving the REIT away from being a "global aggregator" toward a more focused operator. This includes:

• Regional Focus: Prioritizing core markets in North America (Canada and the U.S.) and Australia, while looking to exit more fragmented European markets like Germany and the Netherlands.

• Management Internalization: In late 2025, he oversaw the internalization of management for Vital Healthcare Property Trust in New Zealand, a move that simplified the corporate structure and provided Northwest with approximately ⁹$170 million (NZ$214 million) in cash.

2. Debt Reduction & Deleveraging

Under his leadership, Northwest has aggressively sold non-core assets to pay down debt. By Q2 2025, leverage had dropped to 48.5%, and the REIT has successfully lowered its borrowing costs by amending revolving credit facilities.

3. Growth in "Local" Healthcare

Vaughan views healthcare as a hyper-local business. He is focused on the trend of moving elective surgeries out of large hospitals into specialized outpatient facilities (like medical office buildings and ambulatory care centers), which offer better margins and long-term stability.

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Key Performance Indicators (as of late 2025)

Metric	Status Under Vaughan
Occupancy	Stable at approximately 96.9%
Asset Sales	~$1.6 billion sold over 18 months to shore up the balance sheet
Profitability	Returned to profitability in 2025 after a net loss in 2024
Dividend	Focused on a sustainable payout ratio (approx. 88% AFFO as of Q2 2025)

Vaughan has described this current phase as a "prove it" moment for the REIT, aiming to rebuild investor trust by delivering consistent, recession-resistant cash flows from their $8.4 billion portfolio.

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Source

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