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Posted

I must be the contrarian to the experts and attendees, I am 100% invested as are some of my fellow attendees.  As some of my stock rise I want to be prepared to redeploy.  FFH and LUK sound like good alternatives to cash.

 

Packer

 

FFH especially seems like a good alternative to cash if someone is bearish. If there is a market down turn they can cash in on some of their hedges and put it work.

 

 

Posted

I must be the contrarian to the experts and attendees, I am 100% invested as are some of my fellow attendees.  As some of my stock rise I want to be prepared to redeploy.  FFH and LUK sound like good alternatives to cash.

 

Packer

 

Sorry Packer,you are right I should have said a lot of people not every one...that must of been my confirmation bias coming thru.

 

I am working on my cash balance coming down. I find it an uphill battle though

Posted

Keep in mind:

 

To optimize future return, you really have to assess the prospects of each existing investment every time you add a position or add/subtract from an existing position. Should that 4 bager bought 2 years ago, & working out, really be sold just because it’s a 2 bager today; and your portfolio design calls for 2.5x or better? And if that 4 bager also pays a cash yield? Point: prospects are not the same as seasoned investments, & cash yield is worth much more than potential yield.

 

You also have to recognize the existence of house money in today’s position. That 4 bager bought 2 years ago may be funded today with 40% house money, or 100% house money inclusive of leverage; simply because of successful round trips or a partial sell down in the intervening years. And if the reimbursed funds are sitting in T-Bills, the real risk in the position is almost zero. Point:  not all risks are the same.

 

Simple fixes: Measure return as compound IRR based on (original cost – house money) + 1.5 (value factor) x cash yield       

 

The more house money invested the lower the PV, & the higher the IRR will be. With 100% house money funding - your return would be infinity, you would never sell (unless the coy is likely to decline), & 100% of your original investment would be in T-Bills.  Assume at time T-2; PV is $10, FV is projected to be $30 in 4 years, & cash dividend is $0.50. A 3 (30/10) bager with a yield of 39.1% (31.60% IR%+.1.5(5.0%) cash yield. To beat this investment, you need the replacement to earn > 39.1%

 

But after 2 years of round trips & profit taking at T=0, the PV is now $20, you have recovered $4/share of investment, & the cash dividend has risen to $0.75. This looks like a 1.50 (30/20) bager with a yield of 33.7% (22.47% IRR+1.5(7.5%) cash yield). To beat this investment, you need the replacement to earn > 33.7%, and you intend to sell because you want 35% or better….. But it should really look like a 5 (30/6) bager with a yield of 134.9% (123.61% IRR+1.5x7.5% cash yield). So you have effectively just sold your lowest risk investment, & replaced it with something else at roughly 4x (134.9/36.6) the risk, for the same return! And if you simply withdrew your remaining $6, & leveraged the $4 house investment, your return would be many times higher still.

 

Not in the textbook.

 

SD

 

Posted

Very nice on the 17 percent annually. When did you start investing?

 

My firm got incorporated in 2004, and I started investing its fcf in 2006.  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

 

giofranchi,

Does Italy have any rules similar to our Personal Holding Company tax on undistributed passive profits?  In other words, can you just retain all profits within your corporation and invest them without ever yourself paying a dividend?

 

 

 

Posted

giofranchi,

Does Italy have any rules similar to our Personal Holding Company tax on undistributed passive profits?  In other words, can you just retain all profits within your corporation and invest them without ever yourself paying a dividend?

 

Eric,

I must admit I am not a tax expert. I have one who works for me and my partners. And we trust him (maybe, not the best of policies!). What we have done is that we have never distributed a dividend for the first 7 years, while for the last two years I have agreed to pay at least a “symbolic” dividend. :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

 

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