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Stuff => General Discussion => Topic started by: galumay on April 24, 2015, 12:48:53 PM

Title: Decision Journal
Post by: galumay on April 24, 2015, 12:48:53 PM
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!
Title: Re: Decision Journal
Post by: galumay on April 24, 2015, 12:49:31 PM

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!!
Title: Re: Decision Journal
Post by: galumay on April 24, 2015, 12:50:48 PM

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!!
Title: Re: Decision Journal
Post by: galumay on April 25, 2015, 02:15:20 PM

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,

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.

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!

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,
Title: Re: Decision Journal
Post by: galumay on April 28, 2015, 12:04:54 PM
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!!
Title: Re: Decision Journal
Post by: galumay on September 21, 2015, 10:54:36 PM
Ok, so revisiting the prediction above, I am actually wrong so far! TGR have performed well and the $7200 investment is now worth $8832, but the investment in ICU has droppd from an initial cost of $7180 to $3686 for  a combined value of $12518. Had I just held onto the CCP shares they would have dropped in value from $14248 to $13872 so as it stands the decison to sell some CCP and buy TGR and ICU has cast me $1354.

I will revist down the track, 5 months is a very short time to be reassessing the decision, hopefully the situation will improve!

This week I made a decision to transfer Sal & my tax returns into the SMSF, we got about $8866 in total and I decided that the best way to ensure we didnt just spend the money was to move it to the SMSF. I bought more UOS shares after deciding they were the company trading at the biggest discount to intrinsic value in my portfolio.

I predict that this investment will ensure growth in the value of this years tax returns in line with the UOS shareprice as well as an income stream from the dividends.

A good lesson in how fickle the markets are over shorter terms, just a week or so later and those CCP shares had dropped to what i paid for them, so parcel value, $11744 and the combined TGR & ICU holdings were worth $13469 which makes the decision look much better!!

And the lesson continues, ICU up 100% in 2 days on positive profit guidance, combined holdings now worth $19000

Update 20/4 TGR initial stake of 2236 shares now $8497, ICU now worth $7659 so total of $16156. The 1252 CCP I sold are now worth $9.94 for a total of $12445 so this decision seems to continue to be vindicated.

7/4 TGR $9279  ICU $5026 for $14305  CCP now $15562 so a little bit wrong at the moment! The better decision in hindsight would have been to put it all into TGR

 5/8/16 TGR $9168 ICU $4069 for $14237 CCP now $19732 so $5000 down now. Looking more like I should have left the money in CCP, even had I only bought TGR they would be worth about $18400 so still worse off. This decision has flip flopped a few times so its really hard to come to a strong conclusion. The most consistent point seems to be that the real damage has been done by the stake in a speculative position with ICU - but of course another 6 months and that could turn around.

1/9/16 -this has really been an interesting comparison, little doubt now that just staying in CCP would have been the best of all results, they have taken off and the 1252 shares would now be worth $20500. TGR worth $9279 and ICU $5265 - as above, even had i only bought TGR I would still be down on hanging on to the CCP (  TGR - $18500 ) Lesson - dont sell shares in good companies to buy another good company - sell shares in bad companies!  

Another year, oct 2017, still would have been better leaving the money in CCP.
Title: Re: Decision Journal
Post by: galumay on September 23, 2015, 04:53:35 PM
Time to consider reinvestment of dividends options, we have about $5000 available to invest, I think I will keep $2000 aside as cash and invest the balance.

Options include increasing holdings in UOS as company trading at greatest discount to value

Increasing holdings in ICU in the expectation of a turnaround and averaging cost down

Increasing holdings in AHZ while price is low

Increasing holdings in SGH to average price down

Buy into ICS

Initial thoughts are that I really cant find any certainty about SGH's cash flow and my gut feeling is that they may not be off their fair value unless they can improve FCF.

I am reluctant to take another, small new position with ICS, i would probably feel more confident if I was closing another position, but i fell like I a already holding too many positions.

So investing more into UOS ensures an income from the investment, it also should have the most liklihood of capital improvement given that its trading at such a discount to value and NTA, on the other hand the opportunity to average down into ICU while increasing my position leaves me well positioned if as i expect this year sees a revaluation of the company based on the profit from the acquisition of Arte starting to flow though to the bottom line. Also an increasee in the holding in AHZ exposes me better to the upside once this company becomes profitable as I expect.

I currently hold $2000 worth of AHZ and $7200 of ICU (well thats what the stakes cost me.)

Increased my holding in AHZ by $2500

Title: Re: Decision Journal
Post by: galumay on October 03, 2015, 04:11:06 PM
Ok, I have another $3750 in dividends to reinvest. The question is where to allocate the funds.
The options to me seem to be all the previous options,

Plus CCP which have fallen hard back to my original purchase price.

So thinking thru the options, AHZ now holding about $4000 which is close to my position sizing for a non divvy paying spec, SGH I still have concerns about as an investment full stop, although the greed side sees the biggest potential capital gain here. ICU I am also probably a little over size in my position given the speccy nature of the company, and ICS would require opening a position in a new company - something I have been reluctant to do.

Well i decided on increasing the holding in CCP and have chased the price for 2 days! Up from $9.38 back to $9.94 now! Not sure whether to chase any further or just bide my time.

On looking at my holdings further the other opportunity to increase stake is in DWS which has quite similar metrics to CCP, it has made a couple of small aquisitions this year, which if they pay off could see an increase in earnings and a resultant re-rating by the market.

I think i will sit on it overnight and make a call in the morning.
Title: Re: Decision Journal
Post by: galumay on April 08, 2016, 07:31:04 AM
I realise that I have skipped the decision journal for some of the biggest decisions of my life - surrounding the work to win the NBN contract and all the decisions involved in that process! Lets hope at least mentally i fulfilled some of the process!

Anyway, some more dividends to consider investing, this time I realised there was another option - leave the dividends as cash because there may be investment opportunities that arise down the track that I need capital for. I actually made the decision to leave them as cash - and then of course the very next day an opportunity presents!

Tassal Group, TGR, the salmon producer released an announcement that I think the market completely misread, and hence the shares fell over 7% to $3.55 - and in fact were down as far as $3.46 during trading.

This is the body of the release,

Tassal rebalances sales channels to optimise returns
Tassal Group Limited (ASX: TGR) today announced that in line with its strategy to rebalance
sales channels and optimise returns, it has decided to withdraw its tenders for two domestic
retail supply contracts – Coles’ fresh Salmon Deli business and fresh Salmon to Simplot for
supply of packaged Salmon to Coles. The supply contracts for Coles fresh Salmon and Simplot
will finish on 4 June 2016 and 30 June 2016, respectively.
This decision was taken to ensure Tassal continues to generate sustainable returns moving
forward in light of warmer water impacting growing conditions for near term supply. As Tassal
is rebalancing its sales channels to maintain sustainable returns, this decision is not expected to
impact revenues and earnings going forward.
Tassal has had a long and enduring relationship with Coles. This relationship is not expected to
change, and Tassal will continue to supply a wide range of other Salmon and Seafood products
to Coles.
The domestic wholesale salmon market has had, and continues to have, supply restrictions and
increased pricing to ensure impacts from a warm summer can be mitigated. This provides
Tassal with the opportunity to redirect salmon production into other domestic markets to
optimise returns following completion of the above contracts.
The export market continues to present favourable conditions given supply shortages globally
that are expected to continue for the next two years, with increased pricing and a low Australian
dollar. Tassal will continue to utilise the export market to balance sales volumes in line with
optimising shareholder return.

The market has read it as firstly saying that TGR has issues with stock due to the warm weather and water temp, and secondly that this represents management lying to shareholders because when HUO notified the market of stock losses due to weather TGR replied that they were unaffected.

The release says the market has been affected, not the company. I think its a classic mis pricing by the market and as the situation clarifies the SP will recover.

Revisiting my valuation for TGR I believe they are cheap at $3.55 although my FCF valuations are a bit rubbery because of the CapEx and the impacts of the DeCosti acquisition. Overall I believe they are worth more than what I payed for my original holding of $3.22 which ws prior to DeCosti, and under the shadow of the senate enquiry and was pretty near the bottom of the market - I think the SP of around $3.50-60 is at least as cheap as $3.22 was at the time I bought the initial parcel.

If I am wrong and there is a significant issue that effects profit for TGR I still think the price is ok, EPS would have to drop from 34c to 20c for the IV to drop to the current price.

I predict that $3.55 will prove to be cheap and within 6 months the share price will rise to reflect the mis pricing by the market.

29/4/16 Well, it didnt take long, closed this week at $3.90

1/9/16 $4.15
Title: Re: Decision Journal
Post by: galumay on April 20, 2016, 08:53:33 PM
Didnt manage to fill my order totally for TGR before they made a strong retracement back up to $3.80.

Still have $4K or so to potentially reinvest.

Started looking at SMX, an IT company that has had a very large fall in SP and looks like it may be trading well below IV. I considered taking a position at around $1.66 today, my reservation is that my rough FCF IV based on the H1 figures is only $1.70. They had a pretty poor H1 and the business is in some form of transformation. My dilemma is if I wait until the good news come they will quickly recover, if i buy now and they are failing on their transformation then the price may fall a lot further.

Inverting, and asking why should I avoid this company, the financial fundamentals have been steadily falling the last few years and margins are slipping - combined with falling revenue thats not a good recipe. The market has hammered the SP over the last few years. The EPS this year is similar to 2006 - when the price was about the same.

Also inverting the share price and looking at what that might indicate for earnings, FCF simple calc would be about 7.6c ps  - about inline with 1H figures, EPS indicated would be around 10c - impossible given that 1H earnings were 10c, unless they make a 2H loss.

I think this one goes in the thread discussing companies I didnt buy!

8/16 Now up to $2.15 from the $1.70 I started looking at this one, failed to run the FY15 numbers in my spreadsheet - I suspect i would hold them had i done so!
Title: Re: Decision Journal
Post by: galumay on April 22, 2016, 07:50:25 PM
I ended up increasing my position in DDR, I had a lengthy internal battle with myself about the debt levels, everything else about the company is compelling but I wish they would do more to reduce the debt level. Dicker Data have fallen in recent weeks to what appears to be a cheap price on any metric. I played devils advocate at length in a thread on HotCopper,

I got in at $1.53 which has averaged down my holdings to $1.66

Ultimately I dont like adding new holdings to the portfolio unless the case is compelling - and it wasnt in SMX's case. So looking at existing holdings to build into, UOS is already a pretty big part of the portfolio, CCP is also built to about as much as I am comfortable with and the others are either in out of favour sectors or fully priced. So DDR it was, the binary option was SMX so my prediction is that DDR will likely perform better in the long term than SMX, with lower risk. Its possible SMX will outperform DDR if they can turn the business around, but there is a fair amount of risk that it wont turn around and it would have meant a new company in the portfolio - so lets see where these two head in the mid term.

Now a week later DDR are up to $1.70 - right for the wrong reasons, as soon as i bought DDR issued an announcement that 1st Q results were ahead of forecast by $1m - but SMX were up about 15% in the same week!!
Title: Re: Decision Journal
Post by: galumay on May 01, 2016, 09:54:35 AM
TGA reported profit impairment and downgrades this week, they appear to impact NPAT by about -30% and therefore EPS will reduce from around 21c to 14c.

Underlying NPAT would appear to basically be flat, which means EPS should return to around 20c and NPAT circa $30m next year, the current price of $1.40 seems very cheap on those metrics and the fall of 20% in the SP seems disproportionate to the long term impact of the downgrade.

To average down and take advantage of this potential mispricing I would need to sell another holding, considered options are selling SGN for a small profit and reinvesting in TGA or selling CAB at a larger loss and reinvesting in TGA.

Revisiting my analysis of CAB its worth so much more than its share price, cheap on every possible metric. The disruptive impact of UBER has smashed the price as has the regulatory changes, yet the company has not suffered anywhere near the impact the share price would suggest. I think it would be madness to sell at a loss.

SGN have recovered and with a review of operations and a merger with WPP they now look a lot more solid than when i took a punt on them originally, they pay a good dividend and are up to $1.07 from the $0.91 i paid. I am very reluctant to sell these to take the punt on averaging down into TGA.

I also have the UOS i bought to trade the +/- 5% in SP, if these can make it back to 50c while TGA are 'cheap' I may choose to swap over for a trade on TGA rather than averaging down.
Title: Re: Decision Journal
Post by: galumay on June 20, 2016, 08:28:00 PM
Well still waiting for UOS to recover to a sell, on market at my buy price of 48c - I picked up the divvy of $520 anyway so would be happy with that exit and then buy TGA. Will see if Mr Market meets my price!

17/7/16 - managed to get back out of UOS for 48c. banked the profit of $520 and retored capital to bank.
Title: Re: Decision Journal
Post by: galumay on July 17, 2016, 05:01:31 PM
ICS This is a little company that has been on my watch list for quite a while, I am thinking about taking a position. Its currently trading at about $1.65 and I have a note on my scratch sheet to look at them again at anything below $1.70.

I suspect the price has suffered a bit from the fact that nearly all their revenue comes from the UK, and there will obviously be some short term currency impacts, but the business itself should be uneffected by whatever Brexit ends up looking like.

I like the fact that they have no debt, some cash and the core business is simple to understand and seems resilient.

Thinking about the risks, I guess someone else could develop better software and market share might shrink. The other risk is probably management doing something stupid - they have a bit of form! The most recent ones being the seemingly unecessary consolidation - about which KTP on the other forum, made the pithy observation, "211 million shares on issue was considered too large".
Too large for what? Are they counting them by hand?" Also the rather bemusing move into the edu sector - with a tiny investment of $250k. Didnt really make a lot of sense to me.
Title: Re: Decision Journal
Post by: galumay on July 17, 2016, 05:03:23 PM
Also decided to sell the last of my corporate bonds, discovered the bastards at FIIG are charging me a $30 per month fee - which have no memory of! Will add it to the cash postion in UBank.
Title: Re: Decision Journal
Post by: galumay on August 07, 2016, 08:01:40 PM
so we have quite a bit of cash in the SMSF bank account, accumulated dividends and the proceeds of the sale of the last of the corporate bonds.

The first decision to be made is whether to leave some cash in the account, or to leave all of it, or to invest all of it.

The benefits of keeping cash in the account is that its easy to take advantage of investment opportunities that arise at short notice, so for example AHZ have a rights issue we will want to partake in, by having cash at hand we can invest without having to sell something else - and that seems to me to offer a significant advantage because it removes the need for a detailed, time consuming and stressful decision making process about just which shares to sell and the ongoing reflection and assessment of the desicion that entails.

Previously we have held enough capital in corporate bonds to allow them to be sold down for these sort of opportunities, now we have exited the corporate bonds completely that option is removed.

So it seems to me the decision is now clearer - hold all the cash or invest some of it. The attraction of investing some of it is firstly - its doing something! One of the more difficult aspects of long term investing is that its long periods of inactivity indispersed with moments of indecesion! The temptation to take a new position is strong, my research leads to new companies coming to my attention and FOMO makes me wish to be invested.

So even if investing part of the cash is the decision I come to, the secondary decision is whether I simply increase my holdings in an exisiting investment or add a new company to the portfolio. Again there is a strong temptation to buy into one of the new opportunities I have uncovered, its doing more than just increasing position size in an existing holding. On the other hand increasing the number of positions has 2 sides to it, it can be seen to reduce risk but that is tempered by the fact that it also reduces potential. So more positions mean the impact of one going bad is lessened - but more positions mean the really successful ones will be smaller and have less positive impact on the portfolio.

If I had bought just one share that the portfolio holds, RCG, and held it adding to my position as cash were available, I would have more than tripled our capital.

If I had bought just one share that the portfolio holds, VET, and held it adding to my postion as cash were available, we would have no capital at all, zilch, zero.

So back to the decision, cash requirements for the AHZ issue will actually be under $500, so its really irrelevant, but I think that opportunities that might require up to $5000 capital are not unlikely so we should keep a minimum of $5000 in cash.

Update - after a week of consideration and revisiting my research, I realise I will have $10k to invest and still leave $5k for unexpected opportunities. I think I am close to committing to entering SXE and TNE. One thing that crossed my mind is that there may be trading opportunities that appear this reporting season and I may well choose to "paper play" them to see if its worth looking for trading ops round reporting periods.
Title: Re: Decision Journal
Post by: galumay on August 13, 2016, 07:22:12 PM
Today saw the vindication of what I think was a good decision for the right reasons! We bought a 2000 Toyota Camry for $2000 in April, when i saw the car for sale I believed it was for sale at significantly less than its true value, also we knew we had lots of visitors coming over the ensuing 6 months so having an extra car would be very helpful.

So I bought it, paid $450 for 6 months rego, $380 for tyres and a wheel alignment, $77 transfer fees, $45 for a roadworthy and $30 to fix a puncture over the 6 months. We rented it to people as they needed it for $25 per day and made $1115 income from rentals. So that bought the base cost back to just under $2000.

This week I decided to sell it as we are not expecting any more visitors for a fair while and the rego will be due again in a couple of months. I decided I wanted $2900 for it, which I believe was a fair price for the car in the condition its in with still under 100,000kms on the clock.

It sold to the first person to view it this morning for $2900 which left us with a profit of over $1000.

I do believe that in more than 35 years of car, truck, motorbike and boat ownership, its the first time I have actually made money from one!

So it was bought based on the decision that it was selling at a discount to value, that we would get both monetary income from the rental and virtual 'income' in the sense that it would make our friends' visits more amenable, and that there was a reasonable chance we would make a capital gain on it.

Obviously the risks were that the car might be written off in an accident, or suffer some unsuspected, expensive mechanical fault or prove to be worth less than I thought. None of these risks came home to roost so my profit was well and truly at the upper end of expectations.
Title: Re: Decision Journal
Post by: galumay on August 15, 2016, 07:29:48 PM

I felt like I had done enough decision analysis about how to invest the cash in our SMSF account. I have given consideration to as much information as possible, I have thought about reasons not to invest and also reasons in favour, I have inverted, extrapolated, considered and discussed!

The end result was that I placed orders for $5k parcels of ADA, SXE and TNE - I realised that we had over $15k in the account with quite a bit more to come in the tax return for the SMSF so I upped the investment from my original target of $10K.

There are some unique aspects to these positions, I have never bought into companies that I perceived to be trading at such a premium to intrinsic value as measured by my DFCF model (in the case of ADA & TNE), but I have gained some condfidence from watching how really good businesses that are growing strongly will run ahead of value calculations based of PRP. Time will tell whether I have read this right, but particularly in TNE's case, i dont think there will often be dips to buy into in any case.

SXE is more typical of my buying, an unloved sector, an unloved company, but good management, no debt, loads of cash, diversifying business. I suspect the shakedown of NBN contractors in northern WA may put business their way too.

My prediction is that ADA will run or re rate based on their annual report numbers, strong growth update for 2017 would be the best case result.

TNE I would expect to come in with slightly better than expected numbers, further evidence of profitibility in the Cloud and UK business sectors and a strong 2nd half, which should push the SP along.

SXE will probably be more of a sleeper, although if the annual report surprises stongly to the positive then it could also move up. I think the headwinds of the sector will constrain capital growth in the short to mid term.
Title: Re: Decision Journal
Post by: galumay on August 31, 2016, 08:51:45 PM

Today was an example of rushed decision making, I tried to slow down, but still made a critical error of omission in my haste. The background was that I saw one of the micro caps I have shares in had released its annual report, ICU announced very strong growth in all their metrics, profit, revenue and cashflow. It was a massive turnaround from a disappointing year last year.

I checked and the price hadnt moved, in fact there were no sales for the day yet. I double checked the numbers and thought it was a perfect opportunity to make a quick trading purchase - pick them up for about 10.5c and sell within a week or so at whatever they rose to on the back of the good news.

Looking at the market depth I realised I would pick up about half my order at 10c, most of the rest at 10.5c and the next seller was at 12c so unlikely to pick the whole parcel of $10k up. This suggested to me that as soon as i soaked up the sell orders under 12c the price should move - but obviously there were no other buyers as excited by the AR as me!

The critical point i missed was that the results were not exactly a surprise, while slightly better than guidance, the half yearly report had pointed to profit in this order of magnitude.

This decision is an extension of my foray into UOS as a short term trade - that ended pretty poorly - I did make a little bit of money but nothing worth the bother.

The overall strategy is based around the idea of short term trading in companies that you dont mind getting caught with the shares if the market moves against you - and for that reason alone ICU is not a fit. (UOS was).

I may prove to make money from this decision, but it was a poor one and i should have slowed down the process - written about it here first would have been the obvious action!

Lets see anyway, maybe Mr Market will see the results and like them in the next day or two!
Title: Re: Decision Journal
Post by: galumay on September 11, 2016, 02:31:24 PM
Time for some more reflection - rather than hasty decision making, this is a case of failing to follow thru on a strategy due to paralysis!

I bought a small parcel of ADA a few weeks ago, and I deliberately made the position size quite small as the company seemed pretty fully valued to me - although good prospects of increased and sustained growth. My thinking was that with a smaller parcel I could add in the future if it dipped lower in a soft market etc.

What happened is that for a couple of days it rose from my buy at $3.02 to a high of $3.27 before the annual report was released on the 24/8 and they fell like a brick - although there was nothing but positives in the report, earnings up, revenue up, profit up...except the market didnt like the lack of guidance for 2017.

It fell to a low of $2.35 but basically traded for nearly a week around $2.50 - which is when I should have added according to my strategy, but I think it was so close to the time of my entry that I was unable to convince myself to average down in a new entry.

THen last week ADA released an outlook guidance for next year and the share took off again! Back up to $3.17 before settling out around $3.00.

An opportunity missed to significantly average down, in line with strategy and with immediate results!

Title: Re: Decision Journal
Post by: galumay on September 22, 2016, 07:01:13 PM
I decided to add to the ADA holding, price has been drifting around the low $2-90's so it averaged the cost down a smidge and was an allocation of cash from dividends and tax return.

I have also been having an internal battle trying to decide whether to sell some holdings to move the capital into better quality investments, both in the SMSF and the personal portfolio.

I have been mulling over selling ANZ, WES, QBE, MOC, CAB & WPP, I bought ANZ & WES because they are 'blue chips' and i thought at that stage I needed some blue chips in the portfolios. In hindsight they have both gone sideways for a couple of years and I dont see any likely growth in the short to medium term. QBE I bought because I thought I should own an insurer, hopefully I am getting over these compulsions to hold specific sectors!

MOC, CAB & WPP are all in the personal portfolio, CAB I should have sold when they were well over $4, would be happy to take a small loss and move the capital to a better home. MOC has been another sideways drifter, I worry about the exposure to the housing 'bubble' and would probably be more comfortable not holding. WPP i bought when they were SGN and it was a turn around punt, I thought they had been unduly re rated and presented opportuinty for a quick profit. In the end the profit (turn around) took longer than i expected, picked up some divvies on the way but I dont have a compelling belief in them long term.

So far the only move has been to sell WES, made a very small profit plus the divvies over the time invested.

The capital is probably going to find a home with my latest discovery from research, REH, Reece the plumbing supplier, great financials, another fully valued company at current prices but as with ADA and TNE, strong recurring growth means the premium is likley warranted, again nearly debt free, great cash flow conversion, very well run business, very tightly held by family management. All the things I like to find!
Title: Re: Decision Journal
Post by: galumay on September 24, 2016, 03:49:53 PM
Sold WES for $43.905 and bought REH for $44.975. My prediction is that REH will demonstrate more growth in earnings and hence SP while also being more recession proof than WES.

Continuing to consider selling ANZ & QBE in the SMSF and ANZ, CAB & WPP in the personal portfolio.
Title: Re: Decision Journal
Post by: galumay on October 28, 2016, 11:19:13 AM
VRS - I have found a new company that I really like the business, in the mining services sector but well diversified.

The core of the business is a roll-up model of acquired premium survey companies, so surveying, design, town planning etc.

They also provide non process infrastructure construction and maintenance services for government, resource and related industry sectors. In-house capabilities cover design and construction, hydraulics, maintenance, communications and asset management. This was the core of the business before they developed the strategy of entering the Surveying sector via the acquisition roll-ups.

The metrics all look good for the business, the only issue i discovered in my analysis was

"so far the only real concern I have is that the profit for last year is inflated by about 100% or $10m by tax benefits- including a one off due to overpayment of tax previously.

I have tried to price the impact of the tax benefit. Overall the income statement shows tax benefits of $9.75m, when you break this down its hard to separate out the way the $7m tax credit impacts the bottom line - the AR says the impact is $4.2m on income and $4.2m as a deferred tax asset on the balance sheet. (which i can't get my head around, I suspect they are offsetting the $3m tax that otherwise would be owing)

I have assumed an impact of $4.2m on NPAT which means when you take the one off out EPS drops to 5.8c from 7.4c

It still looks very cheap on those metrics, I just wonder how the market will react when the next report shows a significant drop in NPAT due to the normalising of tax benefits.

(Posted elsewhere & quoted)

I will enter by picking up a small parcel in our personal portfolio.
Title: Re: Decision Journal
Post by: galumay on October 28, 2016, 12:54:28 PM
Sold out of ANZ in the SMSF, that allowed me to build a larger position in TNE which had fallen since my initial entry, and also take a new position in SDI, a dental products manufacturer. SDI is basically a family business gone public, all the things I like, very tightly held by owners and managers, low debt, solid profitable business, flying under the radar due to small size of company.

It was brought to my attention by an online friend and fellow investor who lives in China, Andrew and I share a number of investments in various companies and obviously have a similar investment strategy. I have spent a month or so researching the company and although its already had a strong run in SP, I think there is plenty of growth to come. Bought in at $1.055.

I have an IV of around $1-1.20 based on past earnings and cash flow.
Title: Re: Decision Journal
Post by: galumay on October 28, 2016, 01:16:03 PM
A decision that I didnt document - and was more impulsive than I have trained myself to be, AHZ released an announcement that they had received FDA approval for one of their improtant medical valve repair patches and the market spiked up, as this seemed to me to be final confirmation that real profitability was arriving and it was moving from being a speccy to an investment grade company, and as our average cost of holding was higher than the price AHZ was trading at, it seemed the right decision to average down the overall cost of our positions in the SMSF and personal portfolio.

I ended up getting more at $0.465 which reduced our average cost to nearer $0.50. The shares traded as high as $0.55 and I was congratulating myself on my decision!

Then 2 days later they released great news about further success with the herpes vaccine trials and I fully expected another leg up in the share price - but it just kept falling and settled back around the $0.40 mark - something I now realise it always seems to do after good news - jumps up and then settles back in the previous range - this is the second time I have been cought with this behaviour by AHZ's share price so I am obviously a slow learner!

Today the 4c released and they fell hard again! Nothing but good news in the 4C and on track for cash flow positive by the end of the year. I resisted the temptation to find some capital to buy more at $0.375 - they will probaby drop back to even lower based on previous experience!

Correct! they have traded about 33c in the mean time up to the end of the year message from the company - which really had no news, just confirmation of guidance and they popped back up to 36-37c
Title: Re: Decision Journal
Post by: galumay on November 24, 2016, 05:30:22 PM
Another forced, rather quick decision today. I saw right on the close of trading yesterday, that SDI had dropped over 30% and on checking there was an announcement, very poorly written, regarding profit guidance for this half year. It seems the market took a dim view of the news, and with the AGM in 2 days time it certainly spooked Mr Market.

I cannot see anything in the news that would impact the actual intrinisic value by anything like 30% so I decided to sell my QBE (which i have been considering for some time - i bought them for entirely the wrong reason - (because I thought i should be in the insurance sector and they seemed the best value at the time.). I got out of the QBE for a small loss (around $1k) and put another $10K into SDI which more than doubles my holding (put $10K in at around $1 originally)

Picked up the parcel of SDI at 70c which was within a whisker of the low today at 0.685
Title: Re: Decision Journal
Post by: galumay on December 26, 2016, 09:57:13 AM
Once again I have been a bit lax about documenting some decisions, hopefully the quality of decision is not directley impacted!

I took a postiion in SRV, and I have documented the rationale in a sperate thread in the Shares forum. Then I saw one of my favourite situations, VOC had a very sharp and big fall in their share price based on an announcement that was poorly worded and did raise issues about underperformance in a couple of areas of the consolidated company. Its not easy to get a read on the total financial situation of the group due to the mergers and acquisitions last year, but it dropped in price to the point where I thought there was an opportunity to buy at well below value. So I sold our ANZ in the personal portfolio and took a position in VOC.

The next decision I took was that I wanted to try to build a position in KTP, a very thinly traded stock. My reason was largely purely based on the fact that Tony Hansen at EGP had outlined the case for investment, i couldnt find fault with his buiness case and agreed that if the business proceeds as planned there is a lot of value to be unlocked. Its probably a 3-5 year timeline to get to that point but could be well worth the patience if it delivers.

To free up capital I had to select something to sell, and I realised that due to averaging down as they crashed over the last 2 years, and then a very strong correction as it came out of its troubles, my holding in NWH had grown to a lot larger than my normal position size so I made the decision to sell down to an average size position to free up capital.

At the same time another apparent over reaction of the market came to my attention - MYX fell by about 50% from their year highs based on an investigation into the USA arm of the business. I will detail better in the Shares forum, but suffice to say I once again judged it to be a significant overreation by the market to bad news and took the opportunity to pick up a parcel of MYX, I also got my order filled for KPT.
Title: Re: Decision Journal
Post by: galumay on December 26, 2016, 12:57:52 PM
Some reflections - I am no good at short term trades, I failed with one in UOS, one in AHZ and now one in ICU. From now on I will avoid short term trades unless the reason is a hell of a lot more compelling than the past!

I have made some errors of timing this year, in hindsight I sold ANZ & QBE at small losses when some more patience would have seen them sold at a small profit - and to make it worse the postions i swapped into fell further so there was opportunity cost there too. This is less of a serious error compared to the trading one, its impossible to get timing perfect and really the decision to swap out of one business into another can only be viewed over a much longer time frame before making assessments about its merit.
Title: Re: Decision Journal
Post by: galumay on January 01, 2017, 08:52:56 AM
another year has passed! goodbye to 2016 and hello 2017!

I am not much of one for resolutions, but i do have a couple of processes to follow next year, a focus on healthier eating, cutting back sugar & alcohol further and no smoking. I also am implementing a more rigorous process with monitoring my investments, adding some new metrics and revisiting my analysis more regularly.

I shall also attempt to develop mental models that prevent me making stupid decisions!

Finally I will be exploring processes to allow me to be a better husband and father.
Title: Re: Decision Journal
Post by: galumay on January 01, 2017, 06:21:32 PM
2017 looks like a year where we will have to make an important decision about our future housing. Rio has announced they are evicting us from the company housing at the end of the year so we have some options to consider,

* Move into our investment property

pros - cost of living would be low.

cons - we would lose the significant income from the positively geared investment.

* Buy another PPOR.

pros - we would keep the IP and have a home of our own

cons - getting finance may be problematic, cost of living would be higher.

* Re- rent this property through Rio's excess housing manager.

pros - we get to keep the IP

cons - we would have to pay much more rent ($450) and wouldnt be paying off a PPOR.

Next step is to sound the bank out about finance
Title: Re: Decision Journal
Post by: galumay on January 14, 2017, 08:42:54 AM
Ok, we have pre approval for a loan of $275,000

So with the money in the offset, $134,000 currently, we could buy for $400,000 with costs.

If we added our share portfolio we could buy for $550,000

More options have become apparent,

as above,

and buy a IP that is a more profitable IP than the current one and move into current IP.

Pros - there are better yielding properties than ours. Particularly because we paid so much for the IP.

Cons - we potentially lose a great tenant in Care flight

Also buy another property as PPOR but rent it out in the short term and keep paying rent while we can in Lacebark.

- pros - Rental income would far exceed rental expense at this time.

cons -

Other thoughts,

If we are going to move into AIsa St we should spend money now to improve while its still an IP.

(in any case if we move into Aisa St we need a valuation for CGT purposes.)

RISKS - mine closing and values falling hard again, housing crash in Australia generally, Sal looses her job and cant get another, I cant make enough from the business and cant get a job. Over invested in a high risk, low growth town with no exit strategy, or an exit strategy trap of falling values. Rio puts its vacant houses on the rental market at true market rates.

Safest option is continuing to rent here and paying down and improving Aisa St.

If Wuyal Rd houses are an option then selling Aisa, buying Wuyal Rd and continuing to rent here is another option

...or sell Aisa, buy Wuyal and move in.

Problem to be considered - bank will lend an extra $275K so if we buy a new property as an IP & move into South, or stay here, then we would need a bigger deposit than 20% to buy a suitable property. ($275K + 20% is $330K) This is not tax effective so we would need to talk to the bank about restructuring.

Another couple of days thinking has us deciding not to proceed with any of these options. We have a number of issues with buying another property, or even selling one and buying another. Firstly we would be totally committing all of our savings and investments into property in Gove, we would have no buffer at all and if anything went wrong we could lose everything. The transaction costs and realised capital loss on Aisa St if we sold it to buy say a Wuyal Rd house would also leave us fully committed with no buffer and all for a bigger and newer house.

If property values fell further, if we were unable to rent out properties, if our income dropped significantly - any of these things could basically wipe us out.

On the other hand, even if things went well, we ould have an IP we have 0 equity in, and a PPOR with a large mortgage, so its hard to forsee anyway that we would not have ongoing significant mortgage or rent obligations when we want to reduce our working hours as we approach retirement.

By not borrowing and purchasing another property we retain our investments, have a healthy balance in the ofset account and we can continue to rent here while we do any improvements we want to Aisa St while its tax effective due to the IP status of the property. It is possible to see us owning this property outright in our retirement which really should be our primary objective for the next 10 years.

Next issue to explore is converting Lacebark to a DEAL property so we can continue to rent here if we wish to.
Title: Re: Decision Journal
Post by: galumay on March 02, 2017, 09:28:48 AM
Made a decision to sell DWS shares after they announced another aquisition, this has transformed them from a net cash business to a heavily net debt, and they would fail to meet my criteria for debt to equity if I were looking to buy. I have made a profit of over 38% before dividends in 2 years so its time to take the profit. There are signs the business is in structural decline, this table from Madamswer over at HC shows the problem in brief,

"NPAT ($m)
DH2011: 9.5
JH2012: 8.7
DH2012: 8.4 ($10m acquisition made)
JH2013: 8.5
DH2013: 7.8
JH2014: 6.7
DH2014: 5.7
JH2015: 5.0 ($10m acquisition made)
DH2015: 7.7 ($17.7m acquisition)
JH2016: 9.0 ($7m acquisition)
DH2016: 9.1 ($1.0m acquisition)

Put into context, the company is basically at the same level of profitability as it was 5 years ago, except that it has needed to spend over $40m in acquisitions - a not-insignificant ~25% of the value of the business today - in order to just maintain profits."

I am increasingly wary of businesses try to build balance sheets purely with aquisitions as a proxy for growth and will look to disinvest where I hold.

I expect that this may well prove to be a poor choice of acquisition for DWS, and unless it can quickly translate some synergies by mid year it may suffer a strong re-rating by then.
Title: Re: Decision Journal
Post by: galumay on April 08, 2017, 04:35:03 PM
Well its dividend time again and we have accumulated quite a wad of cash to spend, in the end I added 2 parcels of SRV to the SMSF. I felt that of all our holdings they were currently the most undervalued. Also we had only entered with a small parcel so this gave us the opportunity to average the price down while increasing the position size to nearer the average.

We picked up the first parcel last year at $7.70, some more in March at $6.09 and now more at $6.16 for an average price of $6.96

Hopefully a bright half year will see a recovery in the price and we can get back in the black!

Title: Re: Decision Journal
Post by: galumay on April 19, 2017, 07:07:38 PM
Although not good news, its nice to see a considered investment decision turn out to be correct, I first looked at Nant Whiskey and the investment in their barrels of Whiskey about 4 years ago, basically the whole thing has gone to shit in a hand basket - worse than i predicted. I was concerned about the risk of ending up holding the Whiskey in bonded storage if things went wrong - but they were actually crooks and people didnt even end up with the whiskey!

Bad enough if you could at least drown your sorrows, but losing capital and being sober is a poor combination!!

Here is what I posted on ASF 4 years ago,

"I did a bit more research on this company and found they are also seeking to raise money via a $5m convertible note issue, minimum $50K, 3 year term, 10% paid quarterly.

I thought a bit more about the risks with either investing in the barrels or the notes and I dont think the returns are enough to offset the risks.

The barrels in particular would leave you in a very bad situation if Nant folds, sure you own them and the whiskey within, but they are in bonded store in Tasmania, you will need to pay excise and then find a buyer, organise freight and gain access to the store to secure possession - the potential to earn 9.2% compounding seems to me to be far too little for the risk.

The other thought that I had was I would only risk a small amount of capital in such a high risk and speculative purchase, so even if everything went smoothly the overall gain in dollar terms would be small - i would then regret not having risked more capital! Conversely, if they folded I would likely lose most of my initial capital - and regret having gambled on such a risky proposition.

So at the end of my consideration it appears to be a "lose, lose" situation and I decided to give it a miss."

and elsewhere, more recently, ( i under estimated the worst case here too!)

" a nice case where my due diligence paid off. I looked into in detail and posted my thoughts in an earlier thread on the subject. One of the assessments for any investment for me is what i call 'catastrophic risk' – what is the worst possible outcome I could imagine and what would the impact be for me.

In the case of Nant the high returns were compensation for very real catastrophic risk, if the main business went under for any reason, the best case scenario were that you were left with barrels of whiskey, in bonded storage, at the end of the earth – with no idea of the potential cost to retain that storage and no practical way to recover any capital. In my assessment that made the risk/reward matrix untenable and I passed."

Anyhoo here is how the story ended,

...well not quite ended yet!
Title: Re: Decision Journal
Post by: galumay on May 25, 2017, 08:49:09 PM
I am thinking of selling our holdings in SIG, for my thoughts to date see this thread,

click here to view (

I will do some more thinking, practice a bit of inversion and see where we end up!
Title: Re: Decision Journal
Post by: galumay on June 08, 2017, 09:24:10 AM
A friend is selling a boat that we are thinking of buying, its for sale for $85000 so its a significant amount of our savings if we were to buy it.

Its a 7.2m Cairns Custom Craft, built specifically to be a trainable live aboard boat for the tropics. Its powered by a 240hp Yanmar diesel.

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It has only done 260hrs and the boat is in immaculate condition, it was professionally built at a cost of around $200,000.


Its sooner than we planned to buy a big boat
Its not as big as we would have liked
It is a loss of investible capital
We might not use it much in the next few years
It will increase our budgeted spending each year
We will get a lot of new 'friends'


Its here
Its liveable and trailerable
Its economical to run
Its in incredible condition, the odds of finding another like it, in town, at a later date are remote. The cost of getting something similar here from out of town is likely to be over $15,000
By having it now we could use it for up to 1 week trips while Kai is busy with finishing the last 3 years of school
Even if we don't use it much it will not deteriorate much as its in such good condition
The ability to have the insect screens all round the cockpit is pretty unique.


Spend $15,000 per year on a charter or fishing camp based holiday
Wait and buy something later
Buy a newer better small boat
Do nothing


We don't use it, we don't enjoy the lifestyle it offers as much as expected, we realise it was the wrong boat for the job. We have to sell it and lose a significant amount of capital.


It turns out to be perfect for what we want to do and we get to explore much more of the coast and transition to retirement thru it.


Buy outright ourselves
Go halves with Dave




I have spoken to as many people as I can think of about this boat, and basically looked for non-confirming opinions, reasons not to buy the boat. The consensus seems to be that it is a good boat to buy. Also looking extensively at all boats for sale in Australia I cant find anything as good as this for anything like this price, there are cheaper similar boats but they need a lot of work done - and they are not here.

Talking to Brad Smith he says that the minimum cruising speed you need up here is 10kts and there is almost nothing on the market that is bigger and roomier - and cruises at 10kts, they are either slower (6-7) or much faster with a much higher fuel burn than I want. Brad suggested that around 10m gives you more room while still being able to be pulled out on a trailer and stored at the yacht club. I cant find anything in that category - at any price so its rather achademic. The closest is a BlackWatch 26 in Perth I have considered, but its more fuel burn - 30lt/h at 20knts, for sale at $79k, plus needs a trailer, $10k? plus its in perth so maybe $10-15k to get it here.

Brad also pointed out when its shit here no boat is comfortable - even the 20m Hama Pearl 3 was uncomfortable when it really blows!

Charlie Bronson also couldnt come up with any reasons not to buy it, he pointed out how well built CCC boats are,  how well they ride and how suitable the boat is for a couple to spend extended time on. He pointed out that even when its not that nce here, once you get round the corner from Wilberforce, you have a hundred miles of protected coastline from the SE's.


How will our lives be impacted if we buy it?

There will be some negative financial impact, offset by the opportunity to spend more time exploring the coastline further from home.

How will our lives be impacted if we dont buy it?

In reality, the impact will be minimal, or at least un-noticed, as we wont really know what we are missing and we are very happy with our lifestyle as it is


If we make a formal offer, I am thinking of going in at $70k with an upper limit of $75k

Interesting observation - in my past I would have looked at a new shiny thing and because i had very high disposable income, low fixed costs and easily available debt i could service, I would have bought it on implulse. I would have figured, "I can afford that because its only another $200 per month"(example) - but now that I have no debt and it has to be serviced out of real, hard, green money that we actually have, its psychologically a much harder decision. I really dont want to give all that money to someone else....for anything!

Its a good insight into why we become so easily indebted and how it snowballs because we dont really think about spending the actual amount, just whether we can afford the extra repayments.


Brad & Kim came over and talked about this boat, and boats in general for a couple of hours, they have an 865 Haines they bought last year that is quite a similar boat and their lengthy experience in charter and commercial boats is invaluable, Brad has worked a lot with Yamars and rates them very highly, once again thy were really unable to add any negative opinions about the boat. Brad offered to have a look over the boat from a mechanical perspective, so we went and did that. He couldnt fault the mechanical aspects but more impressively he was blown away by the boat in looking over it. He was amazed by the space and the quality of the build. He said it was actually much more like what he had in mind when he found and bought the Haines last year and admitted that had he not bought the Haines I would be competing with hi to purchase the boat! Hw felt that even at the asking price it is good buying.

His reaction was so positive that I put in our offer of $70k this afternoon. We will see how it goes!


Got back to Craig about our offer, turns out the other guy looking at the boat, a doctor from Yirrkala, has offered very close to the full price. He is away now for a couple of weeks in Bali so we have time to carefully consider our options. Talking at length to Craig its pretty clear it will basically take $85k to buy the boat. This is more than I had wanted to pay, but I guess it really focusses the decision! As my friend Chris pointed out, given that we have established the boat is definitely worth the asking price, the only questions that remains are do we really want to own a boat of that size at this time and are we comfortable spending that amount of our capital at this time.

Title: Re: Decision Journal
Post by: galumay on June 14, 2017, 12:01:51 PM
I am considering putting a fair amount of our SMSF funds into Tony Hansen's EPG fund. I have wanted to allocate some capital to his fund for some time and now have the opportunity to be one of the last intake of retail investors into the fund as it becomes a fully fledged fund. To do so I have to sell off some existing holdings, I am considering reducing the holdings in BRG & CCP to bring them back in line with position sizing in the fund and also some NVT. I would sell $10k BRG, $30k CCP & $10k NVT for an initial investment of $50k which would place about 10% of the SMSF with EPG.

My reasoning is that EPG's track record has been exemplary and the returns have far exceeded my own, the access he has to research and intimate knowledge of investible businesses gives him an edge I cant match.

The risks are that with the fund very cash heavy initially the returns will likely be much lower at first, of course that also creates significant opportunity if there is a significant market correction.

I dont see any catosrophic risk, the quality of his leadership and management is too great, also the fact that it is basically the vehicle for all his family wealth gives him a lot of skin in the game.

The most obvious risk is that the market keeps rising and the shares I sell keep rising while EPG is unable/unwilling to invest the free cash int he market so comparitive returns are sub-standard. Given the relatively long term focus of our SMSF this should not be an ongoing issue.

Also I keep a significant position in all the businesses I am selling down.

The other risk is protfolio concentration, I hold many companies that EPG are invested in, DDR & UOS being two that are also two of my biggest holdings, but as the fund invests the concentration in those businesses will be diluted.

My prediction if I choose this path is that in the short term (1-2 years) returns will be less than if I had held onto the shares, but after that as the fund becomes invested returns should outstrip the alternative.

Done, sold out of selected companies as described above and put $50k into EPG Capital
Title: Re: Decision Journal
Post by: galumay on August 24, 2017, 08:30:00 AM
We have a SPP offer to buy $10000 worth of NWH shares, as we hold in both the personal portfolio and the SMSF we can buy 2 parcels, the SPP will almost certainly be scaled back so for the personal portfolio we will use $10k of our personal funds to apply for the full allocation in the expectation of a scale back and after the event make a decision about what to sell to payback the $10k. Given that the SPP is at 68c and NWH are trading at $1.04 today, there is a likely profit of around 30% for doing nothing essentially.

We only have $3k available in cash for the SMSF so we would need to sell down a position in order to finance the SPP, one possibilty is to sell down NVT to a position size of $20k which would provide the funds required, another possibility is to sell a parcel of RCG which is also quite a large position now.

The NVT would be sold at a small loss, the RCG parcel would be taking profit "off the table". GIven the concerns around the retail sector with Amazon and some softness recently with RCG it may be prudent to take some of the profit.

Although the position size of NVT is bigger than my preference, the fact that I would be selling at a loss puts me off that option.

After the SPP is completed it would make sense to sell down NWH as the position size has become too large, this would free up significant capital for reinvestment. An option would be to sell NWH to buy NHW, but this may effect the size of the allocation so I am a little reluctant to do so.

I am thinking about how to apply inversion to this problem, maybe consider what would be the worst way to raise the 10k for the SMSF. Using cash from outside the SMSF because there is no way of getting it back. Selling down shares in positions I want to accumulate rather than reduce.

...this is why inversion is so good, if I sell down a position I want to accumulate into, then I can sell the NWH shares after they are issued, at a profit and buy more of the business I want to accumulate as well as rebuking the sold down position. The risk is if the allocation is much smaller than the sold parcel it becomes pretty ineffective.

Another bad way to raise the money would be to sell down a company that is below what I paid for it, and where I have a reasonable expectation of it recovering to be profitable.

After sleeping on this my conclusion is that given that I have no idea what size of parcel we will be allocated in the SPP, it makes best sense to sell down the RCG shares and then make a second decision about what to do after that once we see what the size of the SPP is.

Title: Re: Decision Journal
Post by: galumay on September 17, 2017, 03:15:29 PM
Ok, well as expected the SPP for NWH was massively oversubscribed. A pity management didnt show a bit more loyalty for the retail shareholders who stuck with them through the rough times, as usual they sucked up to the institutional investors at our expence. Anyway out of the $10000 we applied for in each portfolio we got about $2000 worth in the SMSF and $700 in the personal portfolio.

Firstly, in the personal portfolio we have another issue, a renouncable rights issue with SND - a company doing the right thing by retail shareholders, we get 66% of the capital raising. Again it will be fully subscribed, but may as well use the left over NWH funds to apply for as much as we can and then assess after the CR closes. At the end of the day the portfolio owes us $10K when everything is done.

In the SMSF I am considering using the excess funds from the NWH SPP to top up a few positions, specifically average down a bit more in AHZ, average down and increase the position in KPT, average down and increase the position in MYX. Also tinkering with the idea of buying into KME.

Given the size of the position in NWH in the SMSF I may sell down the 3000 shares we got in the SPP to increase the 'pot' for reinvestment.

Basically as above is what I did, sold the NWH parcel, added to AHZ, MYX and bought KME. Didnt add any KPT
Title: Re: Decision Journal
Post by: galumay on September 24, 2017, 12:49:09 PM
Going through my holdings in the personal portfolio and based on updating my spreadsheets post the end of year reports, I am considering selling SIG, MMS & keeping an eye of MOC to sell if it gets past $2.50 WPP is another one that may have little growth left in it.

In the SMSF it now looks like BRG are fully valued so time to sell, my IV is between $7 & $7.50 and as it is now trading at over $10.70 i think its time to sell.

I wonder about CCP as well, they are now priced close to my range of IV, $20-$25 at $19.48, but they do continue to show strong growth and another year of solid results will probably see the IV pushed up further.

MND shows the problem of paying too much for a company, I got in at $14.30 3 years ago, in the mean time it fell to $7 - and I should have averaged down all the way like I did with NWH, but I didnt, so even though they have recovered to $14.80 odd, that represents the valuation I give the business, so I am thinking of selling out and keeping on eye on MND to see if I get a chance to accumulate at a discount to value in the future, because it is a well run good business - I just paid too much!

MXI is another I need to look at exiting, its probably a bit below IV range at 72c, but there is not a lot more in it on current numbers, maybe 80c-$1 tops.

NVT is another company I paid too much for - and it has become worth less as the business has deteriorated, i paid more than my calculated range of IV, and that is for last financial year - this financial year will be worse because revenue and NPAT dropped, i havent bothered punching in the numbers because I can see it will only be a lower IV. I should have understood this sooner and got out earlier, I was emotionally attached to the business, bought it prior to developing my FCF model and then got anchored to my buy price. All rookie errors!

RCG is only slightly below its calculated IV range of 85c to $1.20 at 72c so will need to watch and look to sell once it gets past $1 unless other info comes to light to change that view.

27/9 sold SIG, MMS, BRG, NVT & MND
Title: Re: Decision Journal
Post by: galumay on October 31, 2017, 07:38:45 PM
Ok, confession time, poor decision made yesterday - notably a decision made without writing in the decision journal!

I decided to buy more shares in AHZ for both the portfolio & SMSF. Rationale was that share price was near historical lows, provided opportunity to average down parcel cost, and critically, FOMO  - fear of missing out, with the 4C due out today I figured a strong result would see the price take off ...and honestly...I really didnt consider the impact of a poor result nor its liklihood!

So i bought more at 26c and then today they released the 4C, growth was less than predicted, revenue not growing as expected, sales flat, cash burning...blah, blah. So SP fell by up to 13% and closed down over 11%.

I never seem to get it right with this business! In the past I have bought after good news and a bump in the SP - only to see it drop back to a new low a few days later! This time I bought before the bad news and paid the price!

In hindsight I should have seen the FOMO bias and the blind spot it created to a potential cheaper entry post announcement.

Overall, its a small error, with a small cost. Its not like the business is in trouble - just not growing as fast as the market expected and had priced it for. As long as it becomes Cash Flow positive and profitable next year as predicted then it will do much better and we will still be in the black!

Still its an annoying rookie error and failure to use the journal.
Title: Re: Decision Journal
Post by: galumay on November 07, 2017, 01:17:42 PM
I am thinking about selling some of the poorer performing stocks in our personal portfolio at significant losses to reallocate the capital to a speculative play  we already have in the SMSF - LPE.

The temptation is to offload TGA which has turned into an absolute dog of a company, or rather probably always was, and I should have got out of long ago, and also VOC which I bought against my better judgement about the sector, and in hindsight bought far too soon as they dropped a lot further after my entry.

The rationale is that LPE is likely to be a multibagger if it becomes profitable and has very little downside even if it doesnt do as well as expected. Therefore a double bagger result would just about cover the losses on TGA & VOC. While they may well eventually turn around and recover its also possible this may take many years or even fail to materialise. So the opportunity cost may be significant.

My concern is that if I sell them at a loss, and then LPE goes bad, then I am compounding my capital losses!

Thinking some more about it today and re-reading everything that I can about LPE, I think the downside is very low now, they will be at nearly 150GWh sales which makes them profitable into the future, they would have been cash flow positive last 4C except for one off expences to launch a new division which will start delivering profit on a 20% margin after December.

It may take a couple of years to see real appreciation as there is a fair bit of future growth already built into the SP, but it seems more likely than either TGA or VOC turning around in the same time frame.

Some of my reservations are that I sell 2 underperformers to buy another, and that there is some combination of anchoring bias and value bias in play - the idea that selling poorly performed shares and buying something that is as 'cheap" as LPE at 0.024c per share offers the chance to make lots of money quickly - because if a share priced at 0.024c moves even half a cent its a large % move.

Its worth noting that while 0.024c sounds cheap, the company is now valued at around $60m on potential earnings in the next 12 months of say $1m - so a PE of 60, which doesnt sound cheap at all!

Another risk is consolidation, wouldnt surprise to see LPE consolidate 10 for 1, so relist at say 23c, very often in these cases the SP then drops significantly - say to below 20c.

I think I have talked myself out of any extra allocation of capital to LPE, my consideration now is to instead direct the capital to KPT, I think the upside is greater and the downside less. The upside is incredible if the wharf gets approval as seems most likely, the downside is not so much even if the wharf is blocked, the value realised from the timber would still support a share price around current values. It also gels with the idea of concentrating the portfolio in the businesses with the best chance of sustained growth that can be compounded by reinvestment by the business.

There is an argument that it would be better to wait until KPT announce the success of the EIS into the wharf before committing more capital to the business, but there will be both opportunity cost and a real cost of waiting for that certainty. The SP should rise very strongly on that news. Secondly the extension of that argument is that waiting until the wharf is fully approved would further de-risk, as would waiting until the wharf was operational, as would waiting until KPT started exporting timber... if you wait long enough the business will have all the risk removed - and have a share price that is near to intrinsic value!

So the question for me becomes, is the risk of the business being worth less than the current share price in the medium term, minimal, even in the worst case scenario for KPT. In other words, can they make money by barging the timber product to ships offshore?

Ok, did some more research, emailing Tony Hansen & KPT directley about the questions I had. As a result I am more confident that even in the worst case scenario, with no wharf and barging the timber to ships, KPT would make enough profit to justify a share price in the range it is currently trading. (based on an EPS of around 20c.) It was pleasing that my query to KPT was answered by the Managing Director, John Seargent - one of the benefits of dealing with smaller businesses. He made the point that he is confident the wharf will be approved and that he has 55% of his personal wealth in KPT. The fact that Tony also has KPT as a significant position in EPG Capital gives me futher confidence to take a conviction position in KPT.

Its been a difficult decision to sell down TGA, VOC & WPP - TGA I should have sold much earlier, in fact should have put it into CCP instead, VOC was a investment that was not sufficiently well thought through and was against my better judgement in that I had resisted investing in the sector to that point because of the structural problems, WPP I should have taken the profit when it was there earlier in the year, it was always risky and pretty fully valued. The strength of my conviction about KPT is sufficient to believe it justifies selling all these positions at losses to put the capital into KPT, I dont expect the benefit to be obvious within 2 years but I couldnt see any of those businesses making a turnaround in that timeframe.

It has also consolidated my personal portfolio into less businesses which is preferable IMO.
Title: Re: Decision Journal
Post by: galumay on January 16, 2018, 11:34:40 AM
I have been thinking about averaging down in my holding in SDI, as i posted in the SDI thread,

SDI have really struggled to translate their plans for transitioning the business into reality, the latest check came with a very significant profit downgrade this month for H1 2018. Essentially it was a profit downgrade for 50% from circa $2m to circa $1m. I see an opportunity to increase my position at a much lower cost as the SP has fallen below 50c from my average cost of 75c.

While I am tempted to pick up some more it might be better to wait until the EOFY to see what happens for the full year results.

I was listening to the Farnham Street interview with Ray Dalio and his ideas about deision making and looking for second level consequences ( slightly different to 2nd level thinking), and somehow my mind drifted to this decision.

This is the great thing about slow thinking, as long as you consider the opportunity cost, slow thinking allows all sorts ot thoughts and ideas to permanate your decision and potentially substantially change what you think about something.

One thing that occurs to me is that a second level consequence of buying more SDI would mean NOT buying more of something else, or NOT taking a new position in another business. So one of the procedural checks in the process of deciding to invest is to consider whether that is the very best opportunity you can find for the allocation of that capital - and because of the availability bias its very easy to think of buying one thing and completly ignoring the fact that there may be better homes for the capital.

So off the top of my head there is the possibility of adding to my high conviction postition in KPT, averaging down into poor performing holdings like RFG or RCG, adding to high priced high conviction businesses like DDR or entering something new like BWF.

I have run my ruler over BWF and while it looks to be trading at around fair valuation at $1, my spreadsheet doesnt really allow for the sort of growth this business looks to be generating. I will have a bit more of a look into it.

LPE is one of my high conviction stocks in the SMSF and I think one of the options is to increase the holding there by about 30% and also put some capital into LPE in the personal portfolio. I believe the share price will get a strong rerate when the next 4C is released and the business is confirmed to be cash flow positive.

I dont have enough confidence in the future of either RCG or RFG to put more capital into those businesses, my inclination is probably more to sell than to add to them.

The more I consider it the more I think that I am confident SDI is definitely undervalued at current prices, the question really only remains whether its better to buy now or wait and see if they fall more on the results.

LPE is more compelling to add to in the immediate timeframe because they are on the cusp of profitability and will almost certainly see a rerate.

LOL! Well there is the issue with patiently using a disciplined process to reach decisions about investments - SDI spiked 15% up today on no news!

I added LPE to my private portfolio and increased the position size in the SMSF both at 0.23c.

Still tossing up BWF.
Title: Re: Decision Journal
Post by: galumay on January 24, 2018, 05:48:28 PM
Today I once again confirmed that I still make impulsive decisions without really working thru a process - like using this decision journal.

LPE released their latest 4C and announced the business had cracked the positive cash flow threshold. I saw the price had barely moved and decided to add another $10k into the business in the SMSF. The heuristic of FOMO was the most obvious one at play here, I should have balanced that by inverting the assumption that the share price hadnt risen much because the market hadnt yet priced the good result in - and questioning why the market didnt place much value on the achievement.

Had I taken even a couple of hours to work through a decision process I would have most likely picked up the shares for 5% lower price - while still arriving at the same decision! Regardless, i need to work on the self discipline and reduce the impulsive decisions.
Title: Re: Decision Journal
Post by: galumay on January 27, 2018, 10:00:25 AM
Looked at a little company called Spectur,

"Spectur Limited designs, develops, and manufactures monitoring systems. The Company offers camera-based security systems with remote solar powered and cloud recording features for construction, remote and non-powered, and agricultural sites."

I saw a comment about them by Dean Morel on twitter and it piqued my interest,

I didnt get very far before I realised I wasnt interested at the moment,

This is my analysis,

I already have as much exposure as I am comfortable with to small, speculative, loss making businesses with good narratives!

In thinking about the business itself, I can see a big risk of margin squeeze as its hardly a particularly innovative or unique product and could easily have a competitor squeeze them. This is more of a risk given SP3's small size - there are lots of very big players in the security cam market.

I dont even consider the other products in the R&D pipeline because the business already runs at a loss with its existing products and there are too many unknowns with products not even brought to market yet.

I will keep SP3 in my watchlist, if it can transition to profit successfully then I will run my ruler over it again.

My prediction is that if they can become cash flow positive this year, they will see a significant re-rate, but there is so much uncertainty that its not investible at the moment. So the probability is too low of significant capital gain, and the probability of capital loss too great.
Title: Re: Decision Journal
Post by: galumay on January 27, 2018, 10:21:54 AM
I have been starting to think about expanding my company to prepare for the inevitable drop in business activity as the NBN project in Nhulunbuy nears completion. Have been doing some kite flying about business ideas with Putty and some of the ideas are,

* Expand coffee business.
pros - existing business unit
known model
high margin
low hours
cons - really requires a dedicated business place in industrial area to scale up.

* Depot for trucking transport
pros - partnership with Putty
existing business
low hours

Cons - requires a suitable site in Industrial with room for semis and big sheds

* Equipment hire (JLG/skid steer/scissor lift/dingo etc)
pros - low hours
high returns

Cons - requires a commercial site to operate.
licencing, insurance, capital

* Flat bed tilt tray truck
pros - work available
cons - long hours, 'buying a job'

* Buy commercial property for rental income
Pros - good income, low hours, could use a small part of it myself for coffee etc.
Con - high capital

Title: Re: Decision Journal
Post by: galumay on February 16, 2018, 08:43:01 AM
I am considering selling some or all of my Apple shares and taking a position in another US company called (SPRT).

We put $15kAUD into Apple and it is now worth nearly $32K, so we have done very well.

The thesis behind SPRT is not my own at all, the analysis is here, and in brief the implied opportunity is a doubling in share price with little risk of a significant drawdown.

So the question to work through is in the first instance is SPRT a better home for our capital than Apple? My primary concern is the downside risk, and the consequences therof. So while the liklihood of SPRT going lower is low given the situation, there is a risk that the share price will drift lower over years as the cash is slowly eaten up and the business detiorates over time. AAPL is not free of downside risk either, given the very strong run up of tech stocks in the US its not hard to see a future where AAPL has a significant and sustained drop in share price. The difference is that its very hard to imagine a future where AAPL is not a profitable business, even if its in SP decline for an extended period so there is not much catostrophic risk IMO.

On the upside its not easy to see a scenario where APPL is worth twice its current price, but on the other hand it has doubled since I bought in, so it can happen!

The upside for SPRT is high in potential, but it will require a change in market sentiment, its not enough just for the business to justify a higher share price - that just makes the stock undervalued and it can take longer than I have for the market to rerate and currectly value the business. So the potential for an increase in share price, although likely, is by no means certain.

Of course on an emotional level the attraction is simply the lure of quick profits, the chance to buy something and double my money in short time, "get rich quick" syndrome.

Also the decision to sell AAPL should also be considered in isolation of the possibility of purchasing something else, and needs to be considered in the light of tax implications too.

Ok, a bit more time to think this through and do some more analysis, looked into AAPL valuation again and decided its still comfortably at or below intrinsic value. I still see SPRT as a great opportunity so will probably move some funds sitting in cash into it.

Ended up buying $10K USD of SPRT at $2.83 ps. Continuing to hold AAPL
Title: Re: Decision Journal
Post by: galumay on February 21, 2018, 04:34:11 PM
I am considering buying some more ITD at current prices, either adding to the personal portfolio or putting some in the SMSF, my detailed thoughts about the business are here, click here to view  (

I think this is one to wait and see, I cant see the SP rallying in any hurry. That was a pretty dismal HY report and essentially the business has sold off the only currently profitable part of its business - which strengthened the balance sheet but no profit is no profit!
Title: Re: Decision Journal
Post by: galumay on March 03, 2018, 09:06:58 PM
So RFG released a horrendous half yearly report, the only positive being an increased revenue on PRP, but given the issues around their franchisees in the last few months I suspect that is only temporary. Massive writedowns and hundreds of store closures along with incredibly restrictive covenants on their debt leaves RFG in a very precarious position with a dubious future.

The decision I need to make is whether to sell them at any price, and take whatever loss is offered, or do I wait and see if they can turn the business around?

The risk in holding is that the business cant recover and all capital is lost, assuming it could be sold out for $1 that means the choice is between retaining $5k capital and losing the last $5k. How llkely is it that the business will fold? I think its probably something less than 40%.

If it doesnt fold what price might it recover to? I would assume survival would include a CR which will dilute shareholders, profit will drop hugely, assuming EPS dropped from around 37c to 15c (allowing for dilution included), then I can see an IV range around the $2 mark. That would indicate a 60% chance of an upside the same as the downside - $5k.

So to expected value, lets say a 20% chance the business will fail, so (20%*0)=0c + 20% chance it will survive with a value of around $1 (20%*$1)=5c and a 60% chance it will end up around $2 after a CR & recovery, so (60%*$2)=$1.20 giving me an expected value of $1.25 The implication here is that I should probably sell if the SP is over $1.25 or buy more if I have a high conviction of the business surviving, at below $1.25. It would probably make sense to add a high margin of safety to either of those decisions!

I know those figures are completely rubbery, but I am trying to get a rough feel to help with the decison.

Another thought is to invert the question and ask "under what conditions would I buy shares in RFG?". The answer would be, only when the debt was reduced to a controllable level. So the conclusion is that there is no way I would buy them at any price, therefore conventional wisdom is if one is not prepared to buy, then one should sell. Trouble is I have never been convinced the decision is as binary as that, given that the additional factor is that one already owns a position in the business.

Still thinking...!

I am still trying to form a final decision about RFG, I think it really comes down to what the value of the business might be going forward,is it more or less than the current SP? I really have to do some more number crunching. ...
Ok so given the current shares on issue, FCF would have to drop to 30% of current amount and EPS to 14% of current amount to give it an IV range around where its trading. So thats a pretty dire outlook to see the long term value as $1. The big question is the debt, its about $250m which is 2.5 times current EBITDA, and $50m more than capitalisation with an interest cover ratio of 10 on current earnings, but probably less than 5 going forward. Its the debt that makes it a hospital case, without that its just a smaller business that can recover, with it I am not sure its not terminal.

Just looking at the financials further, intangible assets are valued at nearly $700m - i suspect there are massive writedowns coming, this will hugely negatively impact on equity and make all the metrics so much worse. Time to sell, this may never recover. I think that the odds ar so heavily against recovery here, much worse than i first thought. I would put the liklihood of failure at 50% now, so (30%*0)=0c + 50% chance it will survive with a value of around $2 (50%*$1)=50c  and a 20% chance it can rebulid and grow to a $2 business (20%*$2)=0.40c giving me an expected value of $0.90

Sold for $1.065, a loss of nearly $20k. Sobering. Next to reflect where I went wrong!
Bought for $24755 sold for $5341 for a loss of $19414 or 78%, dividends of $5788 so overall a loss of 55% on invested capital or a return of -16% per year

Title: Re: Decision Journal
Post by: galumay on March 21, 2018, 07:39:09 PM
AX1 shares have had a strong run since the positive ˝ year results, the price has run well ahead of my range of calculated intrinsic value which is 70c-$1 based on the last full year results. Even allowing for a strong full FY2018, I think the price is 'frothy' and I am considering selling out.

I have some lingering concerns about the retail sector as a whole and the current price of $1.25 implies some pretty heady growth in earnings over the next few years. I calculate that cash flow would need to increase by around 30% from last year to support that sort of share price and that seems a tall ask. I think its very prone to a rerating if the figures are not really good for the full year. Some of the 'froth' is probably generated because the PRP was pretty poor so it made the current numbers look bettter, (case in point, online sales up 170%).

If i am wrong it may well make new highs over the $1.60 mark, but if I am right it could fall pretty hard - its been as 76c this year.

I have let this sit for a couple of days, I come back with the desire to hold in case they run back up to the $1.90 range (anchoring of previous high and FOMO, 2 classic biases!), but my head says stick to the strategy, SP price significantly exceeds IV range with no compelling reason - SELL!

In trying to think of reasons not to sell, the only one that really sticks is that the next scheduled reporting will be the full year results, and that is several months for the SP to run further up. The risk with that thinking is an unexpected trading update with negative implications - the reaction would be likely fast and hard given the calculated over valuation. So I have talked myself out of that one too!

Thinking about expected value, maybe a 20% chance of dropping back to 80c, = 16c and a 60% chance of trading around $1.25 = 75c and a 20% chance of making new highs at $1.90 = 38c so a total expected value of $1.29, on that basis a sell looks pretty well the right decision at this time.

 Sold,26/3/18 at $1.265 invested capital, $25249, proceeds $46683 profit of $21434 or 85% plus dividends of $9806 so total return on capital invested not adjusted for holding periods and sale timing, $31240 or 124% over 3.5 years so 35% per year26/3/18

Title: Re: Decision Journal
Post by: galumay on April 06, 2018, 12:47:15 PM
Without documenting the process, I bought another parcel of ADA, the price is well below my range of IV, the business has no debt, a good flow of contracts and a comptetive advantage. I increased the position by $10k.I believe the price was depressed by the combination of a soft market and the news that ADA missed out on the NASA contract, once the next FY report is in I expect there will be a re rate of the business.

I am also considering putting another $50K into the EPGCVF fund, I would prefer to have the funds invested rather than sitting in cash, and unless I can find a compelling investment opportunity I am probably better paying a small fee for EGP's expertise and time in finding opportunity.
Title: Re: Decision Journal
Post by: galumay on April 09, 2018, 05:10:58 PM
Still equivicating about putting more money into EPG, in one way I feel like its an admission of failure to follow my strategy through, its accepting that even after fees EPG is likely to make a higher return than I can. Of course that may not be an admission of failure so much as a simple fact!

I did increase my holding in KME, i only bought a small parcel originally and the business has performed in line with my expectations and I think its looking like a good decision to invest in it so it makes sense to increase what was a very small opening position. I realise its not something I have done often enough, and it should be part of my strategy, averaging up as a business improves and consolidates and the market starts to recognise the unlocked value.

I also increased our stake in LPE, although its already quite sizable, EPG bought 3m shares off market this week from the 2 founders of the business, that is a large vote of confidence in a business that is just starting to show profitibility and I felt the opportunity to increase our position and average down a little was not to be missed.

My belief is that both KME and LPE will continue to show growth in the businesses and for different reasons both should see a reflection in share price with a market rerating as the long term earning potentials continue to be realised.
Title: Re: Decision Journal
Post by: galumay on April 09, 2018, 09:13:47 PM
Had another look at GCS, a construction business that EPG have a significant holding in, they got in at below 50c and when I looked at them last it was trading at around 85c which was towards the top of my calculated range of IV. Now they have slid back to 68c despite a very healthy HY report in Feb.
My IV range is around 70c-$1.00.

Bought in for 67c. 10/4/18
Title: Re: Decision Journal
Post by: galumay on April 11, 2018, 09:33:59 AM
Added to my position in LPE in our personal portfolio, I had built quite a large position in the SMSF and the more i look at it the stonger my conviction becomes. As mentioned previously EPG increasing their stake was a big confidence booster. For a fund to invest significantly in a business not yet paying a dividend seemed pretty compelling and strong endorsement. This will average down the cost in the personal portfolio and make the position a meaningful size.
Title: Re: Decision Journal
Post by: galumay on April 12, 2018, 03:36:37 PM
Owen Raszkiewicz from RaskFinance recently sent me an email with his "Better Half Checklist" - a series of questions his wife asks him prior to him taking a position in a company. I think its worth trying to add a version to my decision journal,

What does the company do?
How does it make money?
Why will it go wrong?
Who are the competitors?
Why is now the time to buy?
Title: Re: Decision Journal
Post by: galumay on April 12, 2018, 03:43:56 PM
In the spirit of the above, and in retrospect, I shall apply this to my decision to increase my holding in LPE yesterday,

What does the company do?
- installs a single electricity meter on the front of multi dwelling complexes and through its purchasing power is able to offer discount electricity to tenants and residents

How does it make money?

LPE makes about 20% margin on sales of electricity.

Why will it go wrong?

Biggest risk is probably new competitors or power companies trying to squeeze margins

Who are the competitors?

None I could find

Why is now the time to buy?

EPGCVF have just bought a significant extra position, off market from the founding directors, so increased institutional attention (albeit small end of town) recent market softness has pushed shares under 2c, has just become cash flow positive and secured finance (rather than picking shareholder's pockets, always a sign of a maturing business.)
Title: Re: Decision Journal
Post by: galumay on May 07, 2018, 08:00:49 PM
REH have made an offer to acquire MORSCO a similar business based in the US, so plumbing supplies, waterworks and HVAC (heating and cooling equip). The offer is nearly $2b and as a result REH are doing a capital raising to retail and institutional investors as well as raising debt of about $1b.

We will be able to buy 1 share for every 11 we already hold with a chance to increase that by about 40% to maintain holding size after dilution. The issue price will be $9.30 which is a discount of about 13% to last close.

For me there are 2 main questions, do we want to continue to hold REH post acquisition and do we want to take up the offer at $9.30.

Reasons not to continue to hold include the belief that not many ASX companies pull off large acquisitions in the US, the potential that the market will have reservations and the share price may drop and remain depressed for a significant period of time, and finally the acquisition may detract from REH existing business and damage the stellar results over the previous years - and given the high prices REH has commanded due to its record any sort of reduction in growth could cause a serious re-rate.

Reasons not to take up the issue even at the discount are that the market may present an opportunity to buy at less than $9.30 as concerns about the acquitsition may cause the SP to drop below $9.30 anyway, also if the decision is to sell our position then it makes no sense to buy more at a higher price than our original entry of $9.

Alternatively, if REH can make the acquisition work then it will likely drive further growth on a bgger scale and the share price could rise strongly over the next 2-5 years, in this case the ability to buy further shares at a discount of such size should not be missed.

It really comes down to a question of my confidence in REH being able to make the acquisition work as per their narrative.

Other concerns, MORSCO have been owned by private equity for about the last 5 years, PE wants its pound of flesh for their dirty work, thats a serious concern. Multiple of 15 X EBITDA is an expensive acquisiton by any terms, debt stretches the balance sheet in what has been a very carefully managed business.

Obviously the market and institutional investors dont share my concerns! Price has shot up to $12 and the instiutional placement was strongly supported, and in fact the size of the offering was increased. Aso the price ended up being $10.30 - a fair indication of how strong the support was. These factors seem to indicate participating in the SPP makes sense, even if we sell out post issue.
Title: Re: Decision Journal
Post by: galumay on May 08, 2018, 07:08:27 PM
...and today AHZ have announced another Capital Raising - after promising shareholders it wouldn't be necessary. It leaves me deeply conflicted, I have held such confidence in the long term prospects of this business, but this feels like the straw to break the camels back, further dilution, more lies from management, maybe its time to re-assess whether its not better to cut the losses and find a better home for the capital.

Having a quick scan, every time I have taken part in an AHZ issue, within 6 months I could have bought the shares cheaper on market. Something to keep in mind. They have had some form of CR EVERY single one of the 5 years I have held.

I will wait until the details emerge and give it proper consideration.

In no great surprise to me, the AHZ share price has fallen hard from around 38c back to just under 30c - meaning you could buy on market for less than the SPP (30c). I will be sitting this SPP out, I have lost my strength of conviction about this business, and particularly lost faith in management's ability. 
Title: Re: Decision Journal
Post by: galumay on May 16, 2018, 08:54:54 PM
As much as I see the value in a deision journal, and I really think its helped me make better decisions, I realised today that there are times where its imperative to make quick decisions where time is of the essence and an opportunity may be lost if the process is too drawnout.

Obviously the hope is that some of the lessons learnt from writing a journal such as this will flow into quick decisions as well, inversion, baysian probability, expectancy etc.

Todays example was that I saw a hilux ute for sale at $3750, we have saved nearly $3000 towards a replacement car for Sal as her old hilux ute has a pretty serious death rattle in the engine and needs quite a bit of work done on it. The problem was that when I rang the guy selling the car, he already had someone who was coming to look at it and had received a lot of calls from interested people.

I went and took it for a test drive, and took it to our mechanic to have him look over it for anything that really jumped out. He said everything looked good with it and that it drove well. I knew I had got in for a test drive before the first person who had rung about it, but obviously he would get first refusal at the asking price. I decided on the spot that we should buy it, cars like this in this condition dont come up often and the price was more than fair. (on checking the cheapest similar car I could find in australia was $5000 and most were nearer $9-10K.) I figured we would likely sell Sals old ute for what we paid for it, $1500, so we would get into the new one for under $2500.

Having decided I wanted the car, I then made another decision, I knew that if the other party offered the asking price, they would get it on the basis of first in, best dressed. So I made the decision to offer $4000 or $250 over the asking price. I figured $250 was nothing really to secure the car if I really wanted it and I suspected that such a strong offer, with a '4' in front instead of a '3' would make it very likely the owner would sell to me despite me being 2nd in line and I thought it unlikely the other party would want to offer more.

It proved to be correct and we got the car. Had I taken time to deliberate, and write down a case for and against the decision we would certainly have missed out.

What I could have done better was apply some of the models that I have practicised in the decision journal into the 'on the run' decision.

So, invert, "What happens if we dont buy this car". Well, we have our budgeted cash still to buy something else. We might not need to bbuy anything else as the old car might have kept running for another how ever many years.

So, probability, The car has already lasted 3 years  without dying, probability is likely better than 50% it would go another 3 years. But it does need a new exhaust and the brakes are sounding like they need money spent on them too. The probability of the motor dying may only be less than 50%, but the consequence would be that there was no residual value, so say 50% * $1000 for a sale later = $500 plus 50%*$0 if it dies, =$500 + $0 = $500. That implies if we can sell it for anymore than $500 we are better to sell it now.

Also probability of finding another car for round our budget if the current one dies down the track is quite low. I reckon maybe 6 or so a year come up, so in any given month only a 50% chance. I think we could say a 50% chance of buying something at $4000 =$2000 plus the 50% chance we would have to pay more like $10K which is the next sort of price bracket for utes = $5000, so an expectancy of $7000. This implies buying at $4k now and still having a saleable car for $1K+ is the better option.

What could go wrong, we could sell the old car and then the new one could have some unexpected mechanical fault that turned out to be expensive. We could find we cant get any decent offers for the old one, something much better could come along for a similar price. None of these seem to be worse consequneces that the possibility of the old one dying, being worth nothing and no cheap replacements available.

Update - we sold the old ute for $1600, which is $100 more than we paid for it 3 years ago! Mind you if running costs were included it would be a different story, none the less its no mean feat to sell a car for more than you paid for it and now we have done that twice in a row. The result is that it only cost us $2400 to move into the new Hilux, which is a satisfactory outcome in my view.
Title: Re: Decision Journal
Post by: galumay on May 22, 2018, 10:54:12 AM
TNE released their first half results and promptly dropped nearly 10%, I think that the business is priced to perfection so any concerns in announcements lead to a pretty harsh rerating, in saying that I couldnt see much at a first glance, UK a bit soft and high receivables are a bit of a concern. Thinking about averaging down with some cash.

What can go wrong? If they miss the profit guidance of +10-15%

I think I paid too much for them originally at $5.45, the question is are they cheap at $4.46?

Even averaging down it only drops the average price to $5.29 so i suspect there are better homes for the capital.

Waiting for the full year results is probably the best course of action
Title: Re: Decision Journal
Post by: galumay on June 11, 2018, 04:42:15 PM
Its time again to reinvest some dividends, we have about $5k in cash and first of all, it will go into adding to an existing position - in the past I was always keen to find a new position to put money into, I am now trying to consolidate and concentrate the portfolios so I try very hard to resist any temeptation to add new positions!

I think ADA is the most obvious home for some extra capital, it continues to be an undervalued compared to my range of IV, and I have high conviction that the business will grow. They have recently confirmed guidance for EBT to increase about 35% for the FY.

The competing homes for the capital were other businesses we hold that are apparently undervalued, such as SDI and SRV, but I have less conviction about their recovery and they are already larger postitions. The other idea would be to add to profitable postions where we saw potential for further growth despite solid gains, so KME, GCS, and SXE. It will be interesting to revist in the future and see which strategy would have been better, as smaller positions SXE and KME would have made the most sense, I probably would have opted for KME given it has had less SP growth to date.

Bought $5k ADA at $1.85
Title: Re: Decision Journal
Post by: galumay on June 24, 2018, 01:15:54 PM
I was considering selling AAPL, they have hit $190 and we have made nearly 100% return on them. I considered some articles suggesting AAPL had an IV of around $150 and that got me thinking that they were starting to run a fair way ahead of fair value. On reflection I realised I havent actually run a valuation on APPL so it seems a bit rash just to use someone elses valuation.
Title: Re: Decision Journal
Post by: galumay on July 28, 2018, 03:37:03 PM
once again considering any future investments, thoughts about buying another property again, if we bought a house in Wuyal and used all our offset plus a bit say $450k, then we rent to gov for $1000pw, pays off in under 10 years. If we had to move out of here, we cant move into IP because we wold lose tax benefit of offseting interest costs, if we lease to gov for 10 years we cant move into wuyal rd.
Title: Re: Decision Journal
Post by: galumay on August 11, 2018, 12:03:00 PM
Considering opening a position in LBL - Laser Bond Limited.

LBL is a very small business based in SA who specialise in hardened surfaces for high wear applications. They service agriculture, oil & gas, mining, drilling, boring, - basically any 'tool' or machinery part subject to high wear from errosion, corrosion or impact. They have a strong R&D program tied in with a university as well as larger clients. Its a profitable little business, very tightly held registry with about 70% held by founder family & director interests so its quite illiquid.

The growth potential with the business is their growing international sales and more especially a new technology services division. In this sector of the business they sell a Laser Bond facility to a foreign customer, they build, install & train then there is a 5 year service agreement for revnue based recurring income. This has potential to be a significant source of income for the business if they can successfully build on the first few clients in the division.

Management seem very focussed and 'no nonsense", typical of founder/owners IMO, the reports and announcements are refreshingly frank and with few of the bullshit bingo words and motherhood statements common in ARs.

Based on my calculation of range of IV i have them at around 30c fair value, based on the 2017 Annual report, they currently trade at 17c - after a run up from 13-14c caused by the announcement of another Technology licencing contract and a positive update on revenue for the full FY.

It should be noted that profit was significantly impacted by the first Tech services contract - it added about $1.4m to revenue and this will not appear in the 17/18 FY, but as the update of revenue for the FY noted, growth in revenue in the other divisions have more than offset this. Also the announcement of the new contract means that revenue will again be increased by this division in 2018/19 FY

The business has little debt, 25 year history of profitable operation other than a blip in 2013 when they made a loss as a result of closing their unsuccessful Qld operation, and a niche market with strong IP.

The downside is that its a very small business, with illiquid registry and the value I see may remain locked up and not apparent in the price for a long time. The risk appears assymetric to me, its quite possible that continued expansion into the international business and growth of the licensing model would see increased profits, dividends and eventually share price. On the other hand if they dont get any real traction with the international push, and the licensing model flops, then the business should be valued on its 2017 numbers anyway - which still makes the current price look cheap.

In terms of catostrophic risk, the consevative nature of the business, low debt and strength of underlying business even without growth, makes it hard to foresee an event that would cause the business to fail.

Its an easy to understand business, it has some competitive advantage with IP and niche marketing. Margins should be fairly easy to maintain as incremental price changes in the product will be easily absorbed by customers and outweighed by the overall cost benefit of the proprietry process of protection for wear surfaces.

Competitors in the industry are Hardchrome Engineering, Laser Cladding Services Australia, and Dura Metal,part of Axalta group a large USA based international coatings specialist. The first couple are small private businesses, I suspect they would only service within their own state. Dura Metal is part of a much bigger international business, but I dont really see them as a direct competitor, they are more selling complete laser cladding machines for manufacturers who want to clad in house. (although that is a potential market for LBL as well>0

Now is the time to take a position, because LBL will release results for this year in August and I expect there will be a further positive reaction.

6/9/18 I have taken a small initial position at 16.5c. I will accumulate any softness.

5/12/18 Well, a lesson in anchoring, I hesitated and didnt buy more because the price kept going up, they were quickly over 20c and having bought at less than 20c I couldnt bring myself to buy more over 20c, today they announced new sales to USA and price jumped 39% in one day - my position is up 93% in 3 months!

I have been fighting my anchoring and trying to find a way to build my position in LBL, finally they fell nearly 15% today and I was able to get an order filled, at 30c, so down from 35c last week. This parcel took our average price to 20c so still up 50% overall.
Title: Re: Decision Journal
Post by: galumay on September 07, 2018, 02:58:24 PM
Looking closely at another business, Joyce Corporation Ltd. A business that has been around for 132 years and readers my age will remember they sold foam mattresses etc in the past. It is now basically an investment company with a majority holding in Lloyds Auctions, owning Bedshed and Kitchen Connection as well. The business is tightly held with the top 20 shareholders owning 70% of issued shares and the CEO holding 40% on his own.

The business is profitable and pays a healthy dividend yielding about 8% and growing, its a cash cow generating relatively large free cash flow. There is some debt but its quite manageable. The business owns property that is valued conservatively on the books for about $9m. The business has about $6m cash on hand. All on a capitalisation of only $43m.

By my calculations the range of IV is somewhere around $4 and it currently trades for around $1.60.

Basically I think its just an unloved business, not understood and slipping under the radar.

Thinking about what could go wrong, the car auction business is susceptible to competition, barriers to entry are low as are switching costs. Revenues would presumably fall in a recession, but its unlikely such a conservatively geared company would suffer too much from economic head winds. A housing crash might see the Kitchen renovation business become less profitable, although its entirely possible the effect would be positive as people chose to renovate instead of selling. The bed business is not threatened by online growth, people want to 'road test' a bed before buying, but again in a severe recession it could suffer. Basically all the business units are vulnerable to negative consumer sentiment given the products they sell, so share price and dividends could suffer in a protracted downturn, but the business should be resilient enough to come out the other side of the cycle.

I cant see any catostrophic risk with such a conservative business, people are going to still buy cars at auction, sleep in beds ad cook breakfast in a kitchen!

Buying now makes sense only because the discount to value is so great, and given the trajectory of revenue, earnings, profit, cashflow and dividends, its unlikely it will continue to trade at such a discount indefinitely.

Considering selling a small parcel of NWH to fund an entry position in JYC, it is now my 2nd biggest position and selling this parcel would represent returning the original invested capital and leave the rest as pure profit.

A mixture of quick & slow thinking! I have put in an order to sell down NWH, buy some JCY but also add to my holding in KME after it fell 8% yesterday when the founder owner notified he was selling down his holding by 15% over the next 4 years. IMO that is an over reaction because its actually positive that it increases liquidity a little in a very tightly held business - he is selling 500k shares over 4 years and that only reduces his holding by 15%! bought more at 65c which is more than 5% below recent prices.
UPDATE - more fast decisions, bought more today at 62c nearly 10% below recent prices!! I won't throw any more at it, although I think it may drop some more in the short term.
Title: Re: Decision Journal
Post by: galumay on September 13, 2018, 09:18:19 AM
We have 3 months of power cuts coming up while the power network is being upgraded, decided to get a proper switch and outlet added so we can run a genset to keep the house powered up. Can buy a cheap genset for $1100 but will probably get the more expensive yamaha at $1700 because of better resale value.
Title: Re: Decision Journal
Post by: galumay on October 05, 2018, 06:53:59 PM
Guys of Gove.

Cons- cant find someone to manage business, then 1 of us have to run. (at any time)

       - Opportunity cost, if we do this we cant do much else.

       - Create debt

       - catostrophic risk - one of us dies, town closes, cyclone.

       - more work/involvement/stress

       - Negative impact on family
       - Working with staff


Pros -   Potential passive income stream

       -   High return on invested capital

      -   Possibility of active engagement in both the business & community.
      -  Providing employment opportunity

      -   Leverages the line of credit in our IO loan while its still IO.

Alternatives - Do nothing
      -  Buy more property
       - buy commercial property

      - potential investment with Putty

      - do nothing now, something later

      - Buy Phil's business

     -  Start a similar business from scratch after they leave.

     - Invest similar amount in share market.


   - Follow up lease

   - Talk to Jess

   - Decide on a structure

Title: Re: Decision Journal
Post by: galumay on October 28, 2018, 09:40:02 AM
I am starting to come to the view that one of the biggest errors in my investing history has been failing to sell my positions in businesses that have failed to execute in the way I had hoped. My strength has probably been not selling the positions in businesses that have executed as well or better than I hoped.

As part of this thought process I am looking at my personal portfolio and considering how to adjust for this error. In alphabetical order,

AHZ - Should have sold when I realised management interests were not aligned with the business or shareholders. I actually specifically identified this point in time and failed to act. I cant sell now as they are suspended.

CDA - best performer in the portfolio, a multibagger. Should have put more into the position as management executed the turnaround, I did average down a little, but should also have averaged up.

ICU - a stupid exercise in trying to short term trade, something I since came to accept was outside my circle of competence. SELL

KPT - although price has dropped, management executing as planned and remains a long term high conviction postition. HOLD

LPE - ditto, next 4C very important for conviction on postion HOLD

MOC - I have held because of the yield and more recently because of the belief that the financial services sector may be a growth area for the business. SELL

NWH - My big mistake was not averaging down when NWH went to 20c, as I did in the SMSF. Still a strong HOLD

SND - Should have sold when the business failed to execute, still possible its able to turn around and need to look at H1 report when it comes out.

VRS - bought too early, position size is so small its probably not even worth exiting.
Title: Re: Decision Journal
Post by: galumay on November 08, 2018, 06:46:18 PM
Thinking I should sell ADA, they released a profit guidance for the FY with a projected drop in profit of around 25%, management are abjectly failing to execute and in the past I have held businesses like this waiting for them to turn around. This time I think its time to sell, can always buy back in later if they do manage to start running the business profitably. The adjusted IV based on drop in EPS would be at or below current price.

Well missed out on the sell, tryed to get out at $1.45 this morning but the bottom dropped out of the market, they are now under $1. Now my inclination has flipped to thinking they may be worth averaging down at below $1. $1 would be around the IV if EPS drops by 30% this year. The choice is between selling and losing $15k now, or averaging down with another $5k which would leave me with a $32k investment worth $15k, or holding at an average of $2.25

Averaging down doesnt make sense, doesnt reduce the average price much and just commits more capital. So its sell or hold!

Well the price keeps dropping and the averaging down is starting to become a consideration, on a value point of view, if I assume a drop in EPS of 35% this year, i get an EPS based IV of around 90c, given that its trading at under 80c now, that is a further 10% margin of safety.

In terms of averaging down, it brings the average price down to $1.78

Can now average down at 68c and bring the price to $1.65. That means they would still have to more than double for it to be profitable.
Title: Re: Decision Journal
Post by: galumay on April 06, 2019, 02:13:20 PM
Looking at starting to build a position in a new business, Global International (GLB). It is an Australian company, that is a global producer and distributor specializing in purpose-built apparel, footwear and skateboard hardgoods (decks, wheels, trucks, etc.) for the boardsports, street fashion and workwear markets with products sold in more than 100 countries worldwide. Founded in 1985 by three Australian brothers, Globe International’s core business is divided between proprietary brands, licensed brands and distributed brands.

It meets many of my investing criteria, it has a superior ROE, strong free cash flow, no debt, owner run and managed with the 3 brothers holding about 70% and the top 20 holding 90%, growing revenue and earnings, stable share count with no issues since float, an executive management scheme based on cash payments which i prefer to issuing shares, or even worse options. (the brothers took no salary at all for many years after floating in 2001) Its also cheap by any metric, trading around $1.75 i have a range of intrinsic value between $2.70 and $2.90. Its on a p/e of 8.5 and E/EV of 12.75. NTA is over $1 ROE is around 20%.

Its an easy business to understand, and while fashion is not a popular industry these days, good businesses with good management can prosper in this space.

So why is it so cheap? The long standing chairman passed away suddenly, he had been with the company for 14 years and as a older and very experienced businessman, was a contrast to the young entrepreneurial founders of the business, but that event didnt seem to impact the price much. Also his replacement would appear to be equally qualified, experienced and competent. The main drop in the last 12 months was after the ˝ yearly report which showed growth in earnings and revenue, but extrapolating those results would see less top line growth for the full year after a stellar 2017-18. So maybe its cheap because the market doubts its ability to continue to grow at the historical rate of the last 5 years. The illiquid nature of the company also means its more volatile and this would explain the sharp fall on the HY1 results.

No doubt operating in the retail clothing sector also makes it out of favour in the current climate, add youth fashion as a sector and there is probably even more (deserved) nervousness about the business.

So what can go wrong? The biggest risk seems to me to be simply the capricious nature of youth fashion, they could quickly find themselves just as uncool as they have been cool historically. Also a severe economic downturn probably effects this end of the clothing market more as its more discretionary than basic clothing. Poor capital allocation or management missteps is another risk, but both look unlikely based on the track record and amount of skin in the game. There is also some FX risks and exposure to economic circumstances in their global markets - but equally there are not insignificant opportunities from the same.

One thing to look at was what has gone wrong in the past, 2013-14 were tough years with losses recorded, looking back it was a less diversified business and there were substantial costs with growing the business and some heavy impairment charges that made marginal earnings report as significant losses. Its worth noting that even though profit was marginal and revenue base was 33% less than today, the share price was still over $1.35.

An interesting insight out of researching the old reports, in 2014 management had 2 strikes in voting on renumeration, management as holders of over 70% of the votes couldnt vote in the second renumeration vote and subsequent spill motion! So a tiny minority of shareholders were able to force a spill of the board! Of course the subsequent vote where management were able to exercise their votes, they were basically unanimously re-elected. Only 6 shareholders voted against it. It seems that Solomon Lew might have been the activist fiddler! He held about 6% It does highlight an issue I had never considered with companies where the directors hold most of the shares - activist shareholders have the potential to cause significant annoyance!

That leads to a probalitic consideration, it seems not unreasonable to assume the downside for the share price would be at worst the previous lows when it was a smaller business making a loss - around $1-35, which represents a drop of around 25% from current price. On the other hand a move towards the range of IV i have for the business sees an upside of at least 50% - and thats without any meaninful growth in revenue, profits or cash flow. So whats the liklihood we might assign to things going tits up? In such a well run business with no debt and hands on, skin in the game management I would have thought maybe 30% chance, so 30% * $1.35 = 0.41c + the chance that the business will at least tick along as is and no bad news seeing a close on the IV, I would think that is a 60% chance, so 60% * $2.80 = $1.68 and maybe a 10% chance of a strong increase in metrics and the IV being exceeded, so 10% * $3.00 = 0.30c  for a price expectancy of $2.40 which makes $1.75 look reasonably cheap.

Title: Re: Decision Journal
Post by: galumay on May 08, 2019, 07:28:26 PM
My decision making slipped in standard today, back to old impatient habits! Saw that Pushpay had released their annual report early this morning, pre open. I had a very quick breeze thru the headlines and thought it was a very good result, saw there had been no move in the price on open so bought some more at $3.56, it ended up closing at $3.45 and the market assessed the report as being less than optimum. Had I spent more time considering the report and comparing it to ealier guidance I would have realised that revenue was at the lower end of guidance and cash flow conversion not as good as hoped. Also growth seems to have slowed a little. Must learn to be be less impulsive! I do generally have it under control but weakened today, no doubt!
Title: Re: Decision Journal
Post by: galumay on May 24, 2019, 10:27:17 AM
I keep mentally revisiting a thesis to sell the deeply underperforming capital and re-employ it elsewhere. Underlying this thought is the idea of recovering the lost ground in another position as psychologically it seems more likely. Of course this is nonsense and its entirely possible that whatever I swapped the capital into would fall also, and compound the loss of capital. So clearly this is the wrong way to think about it.

The consideration should be only whether the remaining capital allocated in a losing position, can with any certainty, be better employed elsewhere, or whether its just impatience at play and the thesis can still play out successfully.

So lets look at the individual businesses, ADA, trading at 64c. At the EOFY on my metrics it was well undervalued and were it not for the management issues I would see it as a good business to buy at this price, but there are some dangerous signs, cash is very low, the business is now cash flow negative and management have left the business recently. The risk of waiting until the end of this financial year is that further poor performance could see its share price collapse further.

MXI is another where it raises the question of when is the thesis broken as opposed to it just taking a lot longer to play out than expected, I think that underlies all of the poorly performing businessses and why I find them so hard to sell, being right can look like being wrong for a very long time! While there are signs of a turnaround in the business, the debt is now a huge red flag. It would not be a buy for me regardless, due to the amount of debt its carrying so for that reason alone I should sell.

MYX - A turnaround play, that turned around, and then turned back again! Had the chance to get out at a small profit, now down 50%+. Its had a big fund buying up recently and maybe the turnaround is in. I always think about what a strong conviction buy this was for an online friend ROE, he rarely got em wrong!

SRV has also fallen from grace, but they have cash and no debt, skin in the game management...

WPL is the last one on my list to consider selling, now only about 10% down on my entry some years ago, its the only 'blue chip' and the only resources business I hold, it seems silly to sell this just to buy something else, a rise in oil will see it re-rate, its steady growth and well executed core businesses make it a steady and safe investment.

So really when I go through the underperforming businesses I cant find much conviction to sell! Which is annoying because I would like to reduce the portfolio size and I would like to invest in other opportunities as well as building postions in  good businesses I already hold!

Revisting this 20/6 - I am revisiting because I have uncovered another business I wish to invest in and don't have funds on hand to do so.

Back to the dilemma - if I sell the poorly performing businesses to buy the new one, no gaurantee the new business will not fall in price compounding the losses.

But...if I dont sell the poorly performing businesses they may continue to drop - and the new business I didnt buy may go up! Opportunity cost!

Overall the portfolio is performing well, so ignoring the anchoring bias of considering the purchase price of the poorly perfoming businesses, is there a better home for the capital in another business? Without the aid of a crystal ball thats hard to say!

My inclination is that i want to sell WPL, but I am not sure the reason is simply that its much nearer its purchase price! Thats a dumb reason to sell, its definitely the best business of the ones I am considering selling.

I am also trying to think about the whole portfolio as a value point rather than looking at individual prices, so we are well up overall, made nearly 20% last FY on a TWIRR basis, up 50% TWIRR over 5 years, 90% in absolute terms including savings contributions, so anything I sell has no impact on the existing performance and if the resultant capital can be put to work somewhere better then I should sell - but that comes back to making sure I have high conviction of any postions I switch into.

Inverting that thought though, is the fact that I already hold these businesses and just because they have fallen so hard, probably means they will revert to mean at some point and again, I can consider the base price as not what I paid, but where the overall portfolio sits today. COmplicated.

I am trying to get the feel for how to look at this, one way is that given the positive overall performance of the SMSF, its reasonable to regard the underperforming businesses as costing whatever they are currently trading for today - so the decision is simply is company A the best home for that capital (regardless of price), or is there a higher conviction home elsewhere for it - either in increasing existing positions or taking new ones. This way of thinking helps remove the anchoring inherent in considering the price paid. So the question becomes is ADA a better position at 43c than say PAR at $1.50 or AER at 13c, or more @SFC at $13.80?

The best way to try to think about it is in fact remove the sell consideration for the moment, if ADA represents $5k, where is the best home for that $5k - ADA or one of the others?

Title: Re: Decision Journal
Post by: galumay on July 04, 2019, 08:54:38 PM
Paradigm (PAR.ASX) is the business I have been researching and considering freeing up some capital to take a position. Essentially PAR have adapted the use of an existing oral drug, that is used for urinary tract conditions, to an injectable drug that treats OA (osteoarthritis), it is made from the timber of the beech tree and the base drug is manufactured by just 1 private company in Germany. Its a gerneric drug, out of patent, but due to the difficulty of manufacture no one has successfully made the gerneric in the 10 years since the patent expired. PAR has a huge potential market with OA as well as a varitey of other related conditions like Ross River Virus that can be treated with the drug. It has plenty of working capital with about $78m in the market with cash burn of about $10m per year.

The real grunt work of research has been done by Fifty One Capital and can be read here,


I have been burnt by bio-techs previously (AHZ), but this seems to be a case where the hype and promise would seem justified and the realisation of tangible profits seems likely within 12 months.

The liklihood of a valuable partnership with a large pharma or even a total buyout is farily strong as well.

It does look to be a strongly asymmetric investment opportunity with enormous upside and small likelihood of downside. The main thing that tempers my enthusiasm is that while its asymmetric, the downside is total loss of capital - if this doesnt come off the company has nothing and will go broke in all liklihood. EDIT - funny I raised the concern about the impact of the downside and then the next morning read this article -

For this reason I think its sensible to limit the size of any initial postion to $5k and wait to see if they can actually get to market.
Title: Re: Decision Journal
Post by: galumay on July 05, 2019, 09:25:04 AM
So back to whether or not to sell out of some positions! Looking deeping into WPL, my back of the envelope modelling tells me it's fully valued and then some at current prices so unless there is an explosion in the price of oil or some other external factor, probably little growth to be had there. I think there are better opportunities to invest in other holdings that have more growth likely. So I am going to sell WPL and spread across some of the other positions.

Would I buy ADA & MXI at current prices, no, too many redflags even at current prices, so I will sell them also

MYX I will hold because I would be a buyer at current prices, as I would with SRV.

I am going to open a small position in PAR as discussed elsewhere and maybe also AER, also increase PPH & SFC holding

Title: Re: Decision Journal
Post by: galumay on October 29, 2019, 07:46:14 AM
Looked at KPG which is basically an accounting roll up, the numbers all look good, good FCF, healthy ROIC, a pathway of growth etc. My interest was piqued by a write up by a fellow #fintwit investor,

As good as the business looks and as compelling as the linked narrative is, the company is operating with significant debt, above a level I would be comfortable with so its a hard no in this case.
Title: Re: Decision Journal
Post by: galumay on October 29, 2019, 08:03:09 AM
I sold about 66% of my DDR holdings last month after the share price hit $7.30, i believe this is so far beyond any value I can asign the business that it would be irresponsible to continue to hold such a large position in my portfolio. I still retain about 8000 shares so its still a reasonable position.

I have mainly distributed the realised capital into existing holdings in AER, SFC, SRG, PPH, KME & JYC.

My thinking was to increase the holding in AER to a more meaningful size as the execution appears to be on track, in the case of SRG it appeared to be the most undervalued of current positions, KME & JYC i had identified as accumulate targets following strong execution identified in the AR's, JYC i waited for a dip after it ran up, but KME I paid up for as I think the probability of it growing strongly is above 50% with only a 20% liklihood of underperformance.

SFC remains a very strong conviction and hence I increased postion size on some price weakness.

I also put a significant amount of capital into OMN which is a pure arbitrage play, the business is being wound up after the founder became very ill, and it is that rare circumstance of a net-net where the assets significantly outweigh the capitalisation. Shareholders should see a return in the order of 15% over 6 months. This is one of those rare situations where the upside is as near to 100% as possible and the downside is close to 0%.

Title: Re: Decision Journal
Post by: galumay on March 18, 2020, 01:34:46 PM
So the world has changed, probably half our net worth has disappeared in the 2020 share market crash on the back of concerns about corona virus colliding with a vast bubble in world equity markets and basically zero fixed interest markets.

I have always considered our offset account as being our dry powder for such a drawdown, but its a damn difficult decision to implement, as I discussed with Tony recently,

Agree with your thoughts on using debt, I have been trying to think about what could go wrong with that strategy, first risk is CV outcome has maximum impact and this follows thru to falling dividends such that interest is not covered, and capital gains fail to materialise within the remaining 4 year term of the IO loan. So potentially we are left having to make interest and capital repayments on the loan going forward. By then I will be over 60 and if I had to come out of my lazy semi-retirement to get a job to manage those payments it may be difficult to get work. Also if things had played out in that way our super would still be significantly less than planned. So I think the worst case scenario is that we would be putting ourselves under financial stress right at the time of our lives when we would want it least of all!
Title: Re: Decision Journal
Post by: galumay on August 19, 2020, 01:46:31 PM
Spent a lot of time considering buying the storage sheds at 3A Miller Close, was going to offer $300k which was the valuation i reverse engineered from needing a total return within 10 years due to catostrophic risk. Was going to use the IP line of credit. Decided in the end too risky even at 300k.
Title: Re: Decision Journal
Post by: galumay on August 19, 2020, 01:50:25 PM
Made the decision to sell down some underperforming shares with no dividend stream and no real prospects of ever returning to break even. sold AVH, ICU & KPT

AVR 640 for $4.05
ICU 47866 for 0.04055
KPT 8952 for 0.84

Total was about $12000 added 180 cash and bought 22090 NTD for 0.55 on the 19/8/20
Title: Re: Decision Journal
Post by: galumay on September 16, 2020, 08:54:44 AM
Bought some FFI shares, the rational for the decision is in the individual thread on the business in the Shares forum.

I am also looking at entering a position in KOV, my only reservation being that we hold some in EGP CVF, but I think its a very small position. I am also thinking about exiting some more poor positions, TGR is my lowest conviction profitable business and I would be happier with the capital elsewhere, SRV I am trapped by having paid far too much for the business and I think it will be an extremely long wait to see it come good.

LPE is a total dog that I should have sold ages ago, its just hard to realise the massive losses because of my stupidity in adding more as it fell.

SXE I dont really see the point in holding, its gone pretty much nowhere and really having NWH in the portfolio is a much better services business anyway.
Title: Re: Decision Journal
Post by: galumay on October 19, 2020, 09:53:00 AM
Took a position in KOV. Still holding LPE and SXE.

Revisiting this decision in the light of thinking about taking a position in KIN (see company thread).

SXE is much better than I suggested in my previous post, its debt free, strong cash flow yield, and trading on low multiples with over 6% dividend yield, if anything should consider adding to position.

I am trying to move out of the speculative positions in the SMSF, on that basis I will probably consider seeing AER, CXZ & LPE - they should probably have been bought in the personal portfolio, if at all.

Also thought about selling BCT, a funny little business i bought on the NSX, again buying someone elses conviction, the same culprit and he was wrong again! Paid a bit over $2, they are now $1 and hardly ever trade. The thing is it pays 5% yield on the original purchase price, so it doesnt make much sense to see.

That raises the elephant in the room - should i get out or EGP CVF? The funds performance has been sub par, and well below my own performance, ever since i invested back in Dec 2017. It has returned 4.26% CAGR while my returns over the same period are double that. (and that includes the drag on overall performance from the fund, eg my returns would be even higher if I was not invested in the fund.)

I am concious of the large number of businesses in the SMSF, a total of 26 currently, I would be much more comfortable at 15 or so.
Title: Re: Decision Journal
Post by: galumay on November 27, 2020, 11:06:30 AM
Our SMSF has reached $1m in the value of the investments, which are 100% equities. Its funny how numbers can trigger us, having reached $1m I am now nervous about leaving 100% in equities and thinking I should realise some capital and reinvest in a less risky asset class so we have an alternative source of income if the market crashed and we had retired - which given i am 59 soon, is not a distant event.

The hard thing is to know what asset class to invest in as an alternative, cash and cash like assets are basically returning zero for the forseeable future so that is no good, property has at least as much risk as equities, which probably leaves some sort of business as an investment vehicle, but it would be a challenge finding something we could run from such a remote location and I dont want to tie too much capital up in Gove and we already have an IP here.

Gold would be one thing others might suggest, but I see it as high risk with no intrinsic value.

Title: Re: Decision Journal
Post by: galumay on January 11, 2021, 08:27:13 AM
Considering taking a position in DSK, Dusk. This is a company that IPO's this year and the business sells Home Fragrance Products, offering a range of dusk branded premium products at competitive prices from its physical stores and online store. dusk's products include candles, ultrasonic diffusers, reed diffusers, essential oils and fragrance related homewares.

The business has grown strongly since listing earlier this year and while an obvious beneficiary of Covid, it still looks cheap on first glance. I estimate its H1 2021 earnings will be close to 30c which at the current SP of $2.28 would be a P/E of 8. It has no debt, positive free cash flow, a strong cash balance of around 25% of capitalisation.  EV/EBITDA will also be very low, probably under 5 now.

The risk to the business is probably consumer discretion, if a new brand comes along, better marketed, better pricing, and steals market engagement then the business will be easily damaged. The narrow, niche focus leaves it very exposed - if it loses the home fragrance market it really has nothing else.

Just read the reviews on, feedback is very negative, poor products, made in china, over priced.