Author Topic: Decision Journal  (Read 7390 times)

galumay

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Re: Decision Journal
« Reply #15 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.
« Last Edit: August 13, 2016, 07:26:05 PM by galumay »

galumay

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Re: Decision Journal
« Reply #16 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.

galumay

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Re: Decision Journal
« Reply #17 on: August 15, 2016, 07:29:48 PM »
15/8/16

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.

galumay

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Re: Decision Journal
« Reply #18 on: August 31, 2016, 08:51:45 PM »
31/8/16

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!
« Last Edit: August 31, 2016, 09:07:39 PM by galumay »

galumay

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Re: Decision Journal
« Reply #19 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!



galumay

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Re: Decision Journal
« Reply #20 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!

galumay

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Re: Decision Journal
« Reply #21 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.

galumay

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Re: Decision Journal
« Reply #22 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.
« Last Edit: October 02, 2017, 08:39:28 PM by galumay »

galumay

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Re: Decision Journal
« Reply #23 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.

galumay

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Re: Decision Journal
« Reply #24 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
« Last Edit: December 26, 2016, 09:39:05 AM by galumay »

galumay

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Re: Decision Journal
« Reply #25 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

galumay

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Re: Decision Journal
« Reply #26 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.

galumay

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Re: Decision Journal
« Reply #27 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.

galumay

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Re: Decision Journal
« Reply #28 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.
« Last Edit: January 01, 2017, 06:16:47 PM by galumay »

galumay

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Re: Decision Journal
« Reply #29 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