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Decision Journal

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galumay:
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.

UPDATE 23/11/21

Well as we know we bought the boat, for the $85k asking price and here we are now 4.5 years later and about to sell her as we have bought a much larger boat, a 46' 14m sailing catamaran!

Its fascinating to read my thoughts 4.5 years ago, I must say I am very proud of the process and how strong it was all that time ago!

So we spent about $20k on the boat over those 4.5y and I am guessing a fair bit more on fuel, maybe a total of $25k plus we will sell her for $80k so a small capital loss of $5k. That means a total cost of ownership of around $7k a year. The alternative we considered at the time of purchase - Spend $15,000 per year on a charter or fishing camp based holiday Is double that amount ( and in hind sight unrealistic as it would have been nearer twice that.

Interesting to see the original "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. - Not too far off the mark!

The 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. - turns out the lose of capital was insignificant - $5k!

galumay:
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

galumay:
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.

galumay:
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

galumay:
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

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