Author Topic: Decision Journal  (Read 7096 times)

galumay

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Re: Decision Journal
« Reply #30 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.
« Last Edit: January 15, 2017, 10:31:58 AM by galumay »

galumay

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Re: Decision Journal
« Reply #31 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.

galumay

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Re: Decision Journal
« Reply #32 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!


galumay

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Re: Decision Journal
« Reply #33 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,

http://www.abc.net.au/news/2017-03-09/hundreds-of-nant-whisky-barrels-never-filled-audit/8338106

...well not quite ended yet!

http://www.abc.net.au/news/2017-08-23/nant-whisky-to-be-investigated-by-tasmania-police/8836186
« Last Edit: August 23, 2017, 08:58:32 PM by galumay »

galumay

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Re: Decision Journal
« Reply #34 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!

galumay

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Re: Decision Journal
« Reply #35 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.



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

CONS

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'

PROS

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.



ALTERNATIVES

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


WORST CASE SCENARIO

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.

BEST CASE SCENARIO

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.

OPTIONS

Buy outright ourselves
Go halves with Dave

OTHER CONSIDERATIONS

Insurance.

FURTHER THOUGHTS

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.

SECOND LEVEL THOUGHTS

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

CONCLUSION

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.


UPDATE 15/6

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!

UPDATE 19/6

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.




« Last Edit: June 22, 2017, 08:21:55 AM by galumay »

galumay

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Re: Decision Journal
« Reply #36 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
« Last Edit: June 15, 2017, 09:03:30 AM by galumay »

galumay

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Re: Decision Journal
« Reply #37 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.




« Last Edit: August 29, 2017, 07:54:31 PM by galumay »

galumay

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Re: Decision Journal
« Reply #38 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
« Last Edit: September 24, 2017, 12:51:04 PM by galumay »

galumay

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Re: Decision Journal
« Reply #39 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
« Last Edit: September 27, 2017, 11:27:14 AM by galumay »

galumay

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Re: Decision Journal
« Reply #40 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.

galumay

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Re: Decision Journal
« Reply #41 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.

« Last Edit: November 14, 2017, 05:02:06 PM by galumay »

galumay

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Re: Decision Journal
« Reply #42 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,

Quote
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.
« Last Edit: February 14, 2018, 07:37:50 PM by galumay »

galumay

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Re: Decision Journal
« Reply #43 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.

galumay

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Re: Decision Journal
« Reply #44 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,

Quote
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.