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Decision Journal

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galumay:
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.

galumay:
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:
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:
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!

galumay:
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!

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