Stuff > General Discussion

Decision Journal

(1/24) > >>

galumay:
I recently read about the value of having a decision journal to record the thought processes behind decisions, the risk analysis involved, the predictions of outcomes etc so that one can check whether outcomes are the result of correct/good decisions or inspite of them.

Its possible to have a good outcome, but the reason for the outcome was luck, not a good decision, eaually one can have a bad outcome, but the decsion was still a good decision!

Anyway, I thought it worth giving it a shot so here is my decision journal!

galumay:
13/4/2015

Bought $9500 NWH shares, they are the worst performer in the SMSF, falling from $1 to 20c, the rationale is to follow a set strategy, reinvest returns in the worst performing company to average down.

The strategy relies on there being no holdings which should have been sold out of on FA, NWH sails close here, dividend suspended, victim of the massive downturn in the sector and disputed contract at Roy Hill with Samsung. In the end its a contrarian position, and therefore its consistent with the strategy to invest cash flow from dividends into it.

I predict that there will more than likely be a +ve outcome from the samsung issue this month, impairment has already been taken and 0 profit written to the project, dividend suspended, good news on the outcome will see a strong rebound and with an average entry of 42c now its foreseeable that I will be back in the black this year.

If I am wrong, no or bad news on samsung issue, continued depressed business case, debt covenants come into play, potential for further downside. A longer wait for turnaround.

If I am absolutely wrong, catastrophic risk becomes real and total loss is possible.

Reflections for today, flat battery on the car again, it now looks like the passenger door not shutting properly caused the interior light to stay on and drain the new battery! I now think this was the cause of the old battery being flat, and dying. It must have been dead because it actually got worse rather than better with the 20 minute drive, whereas the new one today charged up in a 10 minute drive.

I also realise now that I made a poor judgement with buying the car, as the $800 cambelt replacement shows. I had a concern about it from the start but let the owners talk me out of getting a mechanic to check it - which in all liklihood would have drawn attention to it. The error was FOMO. Also some psychological thing going on with bias there, not wanting to push too hard with nice young couple,(social bias), trusting them because he was a teacher, (authority bias).

Interestingly sometimes FOMO is the right feeling! Last night with booking the flat in Istanbul feels like that, only 4 weeks till we get there, vacancy rate low, only property in the price range available, if I had stuffed round too long maybe cost us a lot of money? The other interesting decision is to deal directly with the owner, I didnt really save much, maybe $100, some risk remains that we will be ripped off, although I think its very small, the guy has a valid FB page, has 2 flats in the property rented thru different agencies, everything was consistent name, details, bank details etc. I think there is a point to be made for having slowed the process down a bit more, taken a bit longer to make a decision and booking thru the agencies to mitigate the minor risk.

I predict that it will work out fine, and in fact the way we engaged may well lead to a strong personal relationship to our benefit when we arrive.

My prediction was correct, Serdar has become a true friend and everything was perfect with the apartment

If I am wrong, we will lose money, have significant short term stress and waste time - for what would have only been a saving of $100 anyway!!

galumay:
23/4/15

Bought 25000 AHZ for the SMSF @ 8c

I bought into AHZ because I think this may be the last chance to by them cheaply before the price takes off on the back of real profit in the business. Its a bit of a speculation because we havent seen the results since they have increased sales and maybe costs have also increased, but the reward could be large if they turn into a profitable pharma.

Risk is a poor result will see them hang around the sub-10c mark, upside on good results is very large. The range of outcomes is probably still from zero in that there is still some catostrophic risk there, but the upside is probably north of 50c even with current capital structure.

My prediction is that once the next 4c is released, AHZ will never be 8c again.


Well, never say never, despite all good news in the 4c and subsequent news, as of 21/9/15 they are languishing at 0.066!

AHZ continues to wallow, has had a 1 for 10 consolidation and is now trading at 43c - or 4.3c in the old structure

Still looks like a poor decision - trading at 33c now or 3.3 in the old structure. I stand by my confidence in this speccy and have put more money into it in both portfolios. I dont mind the timing being wrong, as long as I am eventually right!

Oct 31, 2017 (another year on)Well they are under 25c now - or 2.5c in the old structure!! Patience is an essential virtue for investors!!

galumay:
25/4/15

Looking at a company called ICU that a friend who runs a small investment fund has been discussing, this is what he had to say,


--- Quote ---At the 14c price today, the market cap is about $18.9m, normalise for cash & debt & EV is around $16m. I think they are capable of earning nearly $4m in 2015 with the ARTE acquisition and the growth rates are quite explosive.

4x EV is extraordinarily cheap for a cashed up company that looks set to grow revenues and earnings rapidly. Directors underwrote the recent capital raising, so they have real skin in the game (which I like).

The smart part about their play is that they are targeting the segment of population with no access to bank accounts or credit cards. So this neatly sidesteps Apple and Google. I suppose one possible threat is the telco’s withdrawing support. This is mitigated to a certain extent if ICU could keep building their content. Both telco and ICU benefits from increasing ARPU, so at least their interests are aligned.

DNA spent nearly $9m for iSentric. iSentric bought Arte for $18m. 2 years of growth later, a combined purchase value of $27m is now worth $16m EV on the ASX.
--- End quote ---

When I look at them its hard to find much info because its a reverse listing and the history is just not there in the financials, some takeaways though, NVAVPS is 0.05c, with a current price of 14c that means they are not a bargain in the old Graham sense of NVAV or net/net - but then nearly nothing is!

I cant see where Tony sees 4m NPAT this year, 1/2yr revenue is 4m roughly so lets call it 10m for the year with strong growth, costs would have to be around $5m and opex $1m and even without D&A or tax backed out that means a total of $4m. Maybe he sees more increase in revenue than that, because I cant see costs being a lot less.

Even if we accept a much lower figure, say $2m NPAT, thats still an EV/E of 8 which makes it very cheap by that metric alone. Although I think the EV will be a bit more than the 16m he postulates because they will burn some of the cash in that time which will mean it rises a bit, but that wont have a material effect on the ratio.

Much as I am tempted to have a punt on this company, I simply dont have any capital available at the moment to allocate to it. I think it could only be a small allocation as there is significant risk attached to this investment, no track record of profitability, untested business model, developing market, no income stream etc.

My prediction is that its next announcement will show the company is profitable and the price will reflect this within 12 months. Based on EPS using a NPAT of $2m i get an IV of around $1.

Tony and I were both completely wrong on this one, even Mr Market was too optimistic, profit completely evapourated, to be about $20K - rather than $4m or $2m or even $250k. It was always risky but didnt see this train wreck coming! Guess I will hold to see if they can pump the tyres up and get it moving. Still cant quite see where i went wrong to such an extent??? 21/9/15

OK did some more analysis of the AR and emailed tony with my thoughts, "It seems to me that basically I grossly underestimated the costs associated with the transition to a new business and was overly optimistic about an increase in profitability in the available time frame.

Now my thoughts have turned to increasing my holdings in ICU, I think its been oversold at current prices and my rough calculations suggest things could improve considerably this year. It would also allow me to average down which will certainly help my position if the price does turn around.

Looking at the Annual Report and backing out the “non-recurring” items of roughly $1m I get a NPAT of about $850K, now while that might be well under the $2m+ we had expected, its still a reasonable return on current equity valuation - a multiple of about 13.

NPAT should improve drastically as the benefits of the new entity flow through the full year, as long as the one off, non-recurring costs and write downs are completed!"

Ok, ICU released an update this week, 6/10/15 - on track for $3m EBITDA, so maybe $2m NPAT, jumped over 100% on the news!

If they only manage $1m NPAT it would mean an IV based on EPS of around 50c and if Tony is right and its $4m then it will be around $2.00

Some very crude FCFE analysis gives me an IV of about 50c based on NPAT of $2m

Invert, invert always invert, says Munger, so Mr Market thinks ICU is worth 14c, leaving my usual growth rates in the formula it suggests an eps or 0.8c in Mr Market's valuation, which translates to a NPAT of $250K.

SO Mr Market thinks that based on all the available information, NPAT of $250K is the likely outcome for this company currently. Another possible inversion is that the market expects FCFE similar to my calculation, but is attaching a Risk Free Rate of 15% to the company.

This is more plausible to me, accept the likely earnings, but apply a much higher discount rate due to the risk.

All in all a pretty compelling buy! I will have to think some more about how and where to free up capital for this opportunity.

Aug 16 Well better late than never, ICU had a much better year and delivered over $2m NPAT, trading at about 5.5 x for EV/E looks like its turned the corner. Market hasnt really reacted much yet.

The other companies on the top of my watch list are TRG Tassal Group and ICS a medical software company.

TRG are at near 52 week lows, no doubt the combination of concern about potential restrictions due to investigation of environmental concerns and also the report from HUO about the impact of Norwegian Salmon dumping on the Australian market due to russian boycotts has had this impact.

Again inverting, the current share price suggests the market has either revalued the growth, risk or earnings - one would imagine its the earnings and or growth, and the price suggests a 30% hit to earnings. The notice from HUO suggested the likely impact for them will be 20% hit to earnings so there may be some over reaction in the market. Although +/- 10% is hardly significant.

Interestingly the following article points out the ban will likely end in August! http://www.seafoodsource.com/all-commentary/27645-norway-s-seafood-exports-unscathed-by-russia-s-trade-ban

Still, I think at around $3.20 I am keen to be a buyer.

My prediction is that neither the environmental issues or the norwegian imports will prove to have as much impact as Mr Market has priced in, so i would expect that once the financials for the 2nd half are released the price will recover to around $3-50-$4.00. Its quite possible the dividends will not be impacted at all.

Seems my prediction was on the money this time, trading at $3.95 in a very soft market. Nice to get one right!

Worst case scenario is that both the enviromental issues and supply issues conspire to impact earnings more than i have predicted, the current price should give a buffer to one or the other, but not both. In the event of both risks turning to reality, I will have made a poor decision and capital will be at risk

ICS is fully valued now that its trading over  $1 and so it goes back on the watch list.

My pediction is there will not be much growth unless there is consistent good news on earnings growth

So that very good news on earnings growth came to fruition and they would have been a much better buy than ICU in hindsight! With the recent fall in the market i reckon they are cheap at $1.25 and i would love to have some free capital to allocate. 21/9/15

in looking at what I could sell to free up capital, the obvious contenders are BRG, RCG, RFG, CCP and ANZ.

ANZ I feel are pretty fully valued at current prices and any softening of the property bubble will have a negative impact, wouldnt mind waiting till they went ex div though, CCP when I revist them I think they have more value to be unlocked yet, RFG is much the same, the early figures on the mixed business are looking awfully strong, RCG probably need to take a clip at some point, another $15000 @ 70c coming in the CR - and they would be worth around $23k at current prices. (note - not quite, will get clipped on over subscription.)

BRG i suspect I paid pretty near fair value at the time I bought, I dont think there is a lot of upside left in them so they may be the best choice to divest.

So at this point strategy is to sell out of RCG to rebalance to $20K approx, and sell BRG to reinvest in TRG and ICU. There will be CGT implications with these trades as they have been held less than 12 months, but being in the SMSF it will still be low.

On thinking about it, better not to rebalance RCG at this point, $20k from BRG is enough to take initial stakes in both TRG & ICU. WHY DID I THINK THAT! must put reasons down. Reviewing it I think its better to rebalance RCG, when i went back and looked at all my research on BRG, yes I probably paid near fair value at the time, but they are still a company I want to own and they are a business i understand very well. Selling the excess of RCG provides enough capital to take a position on both TRG & ICU so that is the direction i will take.

I predict both growth and yield will be better from TRG & ICU than from continuing to hold BRG,

galumay:
Well things didnt quite work out as expected, tryed to sell down RCG yesterday but the price was very soft, very few buyers and most of them well below the last trade price. It opened at 1.07, and settled at 1.04 - but my offer to sell at 1.04 never looked like getting taken up. At the same time TGR was dropping, down about 4c to $3.16.

I tried again to get out of RCG at 1.035 but again the buyers just moved away from me. I reassessed the decision to sell RCG, I was either going to have to drop to 1.02 or so or else sell down something else.

Rather than sell down that low I instead sold down CCP, my position size was rather large on these due to accidently buying an extra parcel when i first bought them. So I sold down CCP so that I once again held a parcel of about $20K and used those funds to buy TGR & ICU.

Of course the market had moved against me the other way with TGR! An Investor briefing today was full of positivity and good news so the price had firmed to $3.22.

Now the real test is to measure the decision, i predict that the overall value of the TGR and ICU postions will grow faster in value than if I had left the capital in CCP.

7/16 funny to read the comments about RCG now, I had forgetten how bloody hard I tried to sell those shares!! Now the best performer in the SMSF by far, a triple bagger today as they hit $1.87. Thank fuck I couldnt find any sellers back then!!

Navigation

[0] Message Index

[#] Next page