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duc's 'Margin of Safety' investment

Discussion in 'Medium/Long Term Investing' started by ducati916, Jan 3, 2019.

  1. ducati916

    ducati916

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    So here is my choice:

    Screen Shot 2019-01-03 at 6.32.11 AM.png

    My total investment will be $10K
    My entry price is $5.22.
    I have 1530 shares for a total of $7987 [not inc. commissions]
    I have a surplus of $2K

    This thread will not be particularly active and will simply plod along unless something really dramatic and unforeseen occurs.

    So why is there a margin of safety?

    1. This is an ETF, there is a portfolio of stocks held in the single security.
    2. Any shockers will be replaced by the fund managers.
    3.Your risk is therefore controlled to an extent through limited exposure to any 1 stock
    4. Any big individual out-performers naturally create an increasing influence on the fund.
    5. The ETF is optionable. I can increase my returns via options. On the negative, currently the Options market for this ETF is very thin. I'm hoping that that will change for the better.

    Risks not managed.

    1. All the stocks are in one industry.
    2. I would have preferred greater diversification.
    3. If that industry turns to custard, well, so does your ETF.
    4. As ETFs go, it is not a huge ETF on a capitalisation basis, I'll keep an eye on this.

    Monthly dividend of $0.11/share = $168/month return = 2.2%/month = 25%/year. Therefore in 4yrs you have a total return of your initial investment. This assumes of course the payments do not stop or are reduced. We'll see what happens.

    These are pipelines. They are essentially toll takers. The business model is simple. Whether there are any real barriers to entry apart from capital, probably not, but I haven't looked at Federal or State regulations at this point, so that may be helpful to the various businesses in restricting new entrants to the business. However, it's not really a risk as if there was a new entrant and they were wildly successful, if they had common stock, the fund would add their stock.

    The Target.

    The target is a 1000% return in 5yrs. I'll state up front that anything approaching that will require perfect conditions, viz. a lot of luck.

    However, I expect zero luck and therefore to manufacture returns through intelligent investing. This means that I have an expectation that the market will fluctuate. I will capitalise on those fluctuations. This will not be a passive sit and hold exercise. The intention is to grow this investment actively.

    jog on
    duc
     
    cynic, sasch and qldfrog like this.
  2. luutzu

    luutzu

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    Is that Amazon?

    Would be good to hear why you think Amz is a good business and a great investment at current prices.
     
  3. tech/a

    tech/a No Ordinary Duck

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  4. luutzu

    luutzu

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  5. tech/a

    tech/a No Ordinary Duck

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    :happy: Hahaha

    All thumbs
     
  6. tech/a

    tech/a No Ordinary Duck

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    Gotta hand it to Duc

    He certainly aims for the stratosphere!

    Might put a grand on it for $1,000,000 return!
     
  7. InsvestoBoy

    InsvestoBoy

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    Wow that is pretty hilarious you picked AMZA as "investment grade" with a "margin of safety".

    Did you actually do any due diligence on this ticker at all?

    Two seconds of googling shows this is not a normal ETF but rather a speculative vehicle for the fund managers who apparently suck at their job:
    - They employ a covered call strategy and have underperformed the benchmark when they should've outperformed. (As an aside, hilarious that you want to run options on a fund already running options).
    - They overweighted an extremely overvalued underlying holding, showing the fund managers can't even employ their own value investing hahah.
    - They speculate in energy markets vias USO and UNG ETFs and they suck at it. They were short USO as it moved higher, and as of Nov 3 they were holding a pretty large short in UNG right before UNG rose 46%.

    https://seekingalpha.com/article/4217857-problem-infracap-mlp-fund

    Apparently it even speculates in other macro markets and were short US Long Bonds via TLT ETF into the recent spike

    https://seekingalpha.com/article/4230192-amza-4-reasons-mlp-etf-strong-sell

    hahahahahaha, is this seriously your pick to demonstrate value investing in investment grade and margin of safety?

    Do you really actually believe the dividend is 0.11/month hahahahahaha
     
    rnr likes this.
  8. InsvestoBoy

    InsvestoBoy

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    lollll in this interview with AMZA fund manager:
    https://seekingalpha.com/article/4230898-infracap-mlp-etf-interview-jay-hatfield
    Wowwww sounds like you should definitely invest your money with this goof.
     
    rnr likes this.
  9. ducati916

    ducati916

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    There are issues with this, accepted.

    However, some of the variables that you see as a negative, I have specific reasons for wanting, viz volatility.

    The biggest risk are the various strategies employed by the Fund Managers. They are employing derivatives, which increase the volatility, as some pay off, and some don't. This is a mixture of skill and luck. I need them to be at about 50/50. If they can get to that 50/50 mark, this will jump up and down, which is exactly what I'm looking for. I have no illusions that this is going straight up.

    Dividends are always at risk of underperformance. Could it be cut/reduced....of course. Until it is however, it is good to have.

    jog on
    duc
     
  10. Xendragon

    Xendragon

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    No "Margin of Safety" to be seen here so far.
     
  11. ducati916

    ducati916

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    So a further issue: falling NAV.

    Is this an issue, yes, of course it is. Why has it been falling:

    (a) in part due to poor or unlucky trading by managers, take your pick; and
    (b) a bear market for their assets, as an example:

    Screen Shot 2019-01-03 at 2.18.19 PM.png

    Stocks go down, stocks go up. Could it fall further [as any of the holdings] of course. Could it go up. Of course. The NAV is far more affected by asset price movement (b) than (a).

    Could they [management] completely blow-up the fund? Of course, which is why I limit my total financial exposure to 10K. Do I WANT to lose the 10K...of course not, but, if I do, that is manageable.

    Now, assuming that they do not blow up the fund and can limit their derivative trading to a 50/50 scenario, will their assets [stock holdings] fluctuate? The probability is good that they will.

    If the NAV rises due to fluctuating assets, will the ETF price fluctuate? It is probable that it will.

    Can I make money if it fluctuates....oh yes.

    So re. the 'margin of safety'. This ETF is pretty beat up and almost universally hated. For me, that is the ideal starting point, things could get worse, but there is also a very good chance that things improve. The price reflects how beat up this is. The yield, although at risk, will provide excellent returns if the managers can get their s*** together, hell that's 100% in 4yrs, only another 900% to find!

    jog on
    duc
     
  12. InsvestoBoy

    InsvestoBoy

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    What? No.

    The price does not reflect "beat up", the price reflects actual value destruction caused by the managers investing in overvalued assets and speculating badly in macro markets.

    If you look at the second last link I provided, you will see the dividend you keep harping on about is a serious concern and nowhere near as certain as you seem to be banking on.

    I can't believe all the hoopla you threw up in the other thread about business analysis compared with how you are talking about this stock.

    So far all I can see is you apparently are claiming a "margin of safety" here is:
    - investing in a fund managed (very poorly) by others,
    - that the price will fluctuate so you can profit off the fluctuations.

    I thought you were going to pick an actual business.

    Quite amusing.
     
  13. ducati916

    ducati916

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    1. Yes it does reflect value destruction, which means that the price has been beaten up. What would you call it.

    2. Accepted. However steps have been taken to rectify that problem. Will it work? I have no idea, in theory, yes it should. We will see.

    3. The difference is that I am aware of most of the risks and specifically chose to take exposure to them. VC in CZZ had no idea of the risks that he ran.

    Is this stock [ETF] carrying more risk than other comparable ETFs? Yes it is. We will see if that is a good thing or a bad thing.

    4. Well then you need to look a little harder.

    5. Don't you think this qualifies as a business? If not why not?

    jog on
    duc
     
  14. So_Cynical

    So_Cynical The Contrarian Averager

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    Its hard to be a contrarian, against the common consensus, at first glance AMZA looks to be the kind of stock that interests me, then again management have made some poor decisions over a long time frame and a managed fund is very much only as good as the managers.
     
  15. ducati916

    ducati916

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    True they have.

    Have they learned anything? One would hope so, even if it is to stop actively managing the fund.

    jog on
    duc
     
  16. ducati916

    ducati916

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    A few assumptions here:

    (a) that the average share price maintains [with fluctuations] $5/share; and
    (b) that the dividend of $0.11/month is not reduced/eliminated; then

    Reinvesting the dividend, will over that 5yr holding period, take your initial $10K to $30.5K

    jog on
    duc
     
  17. cynic

    cynic

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    That would be 100,000% return! I don't think le Duc is aiming quite that high, but don't let me stop you!
    After all, there's nothing quite like watching a duck gopher it!
     
    Cam019 likes this.
  18. luutzu

    luutzu

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    I'm looking at BUffett's investment in the original Washington Post Co.

    It returned him over 100,000% over some 40 years. From an initial investment of some $10.7m, ignoring dividends... he sold it for $1.1B.

    Quite impressive that guy.
     
  19. cynic

    cynic

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    I know that many adore WB, but let's not overstate his achievements.
    Care to revise your claculation.
    According to mine the return was somewhere in the order of 10,000%
     
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  20. luutzu

    luutzu

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    It's only one zero off. So that's nothing :D
     
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