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duc's 'Margin of Safety' investment

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

  1. Value Collector

    Value Collector

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    Wow, what can I say other than this is just more rediculous stuff for Duc.

    He banged on about CZZ having a bit of bank debt, yet now says highly leveraged speculative strategies makes for a margin of safety.

    To compare this to the position CZZ was in, and say it has a margin of safety but czz didn’t is nuts.

    Keep in mind my ten bagger result with czz was achieved without adding any leverage to it with options, even margin loans weren’t available against czz st the time.

    So you may achieve you goal, but if you do kick the goal, it will be the result of speculation, far in excess of any speculation needed for czz to work as an investment.

    Good luck, you will need it.
     
  2. ducati916

    ducati916

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    1. The leverage employed by AMZA is 20% - 30%. Now that is not insignificant, but if used well [correctly] will enhance returns. Of course the converse is also true, if used badly [incorrectly] will hurt returns. The derivatives position is 1.5% of assets. This is insignificant. No different to CZZ using futures contracts to hedge currency fluctuations.

    2. Your 10x was largely made up of:

    (a) luck that nothing serious blew-up in the stock, when there were risks barely under control; and
    (b) that a merger happened; and
    (c) a bull market.

    Re. AMZA, [and my] running a covered call/covered put operation [which isn't really viable yet] hardly qualifies as 'leverage'. Leverage would be buying an outright position in derivatives. So you are incorrect.

    Whether a margin loan was available or not, that is not how I will calculate the returns. The starting capital is $10K. The ending result is by the value of that starting $10K. Again, your argument is without merit.

    3. Early on in the DK's thread 'Education...' I said to you that intelligent 'timing' of the market will beat 'time-in-the-market', unless a stock just goes straight up. Stocks that go straight up are rare. To get one is lucky. I don't anticipate getting that lucky. I don't need to get any more lucky than the stock:

    (a) doesn't blow itself up; and
    (b) fluctuates with the market and its underlying assets.

    This choice splits very evenly down the middle.

    (a) we have an active management, plying a number of strategies, to date, with varying success; and
    (b) an underlying portfolio of [pretty good] businesses.

    (a) is speculative. I cannot control or predict what management will/will not do. I can keep an eye on what they say they will do and see if they follow through.

    (b) is where the margin of safety resides. Here you have underlying assets that have been beaten down and now have prices that reflect a margin of safety in the businesses that they represent. There could well be an upset, hence a portfolio, rather than a single stock. A portfolio provides a buffer against calamity in a single stock.

    Since you are a man with lots of time, far more than me at any rate, if you wish, we can go through a stock or stocks held by AMZA and assess just how good bad the stock is. As I am now returning to my wage slavery I will not be able to do this every day, but we will get through them over a 5yr period I'm sure.

    We can also debate AMZA's performance directly via their financial statements if you prefer [certainly less work].

    Therefore my strategy is to trade around managements decisions, anticipating a 50/50 outcome [some good, some bad] which should cause the stock to fluctuate.

    I will also benefit if the underlying assets exit their bear market and enter a neutral period of consolidation and possibly even a bull market. This will also cause fluctuations.

    However if you wish to call that speculation, I'm fine with it.

    jog on
    duc
     
  3. Xendragon

    Xendragon

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    Holdings:
    NameHolding Allocation
    MPLX LP 14.90%
    EQM Midstream Partners LP 13.54%
    Energy Transfer, L.P. 13.50%
    Enterprise Products Partners L.P. 11.14%
    Magellan Midstream Partners, L.P. 7.37%
    Plains All American Pipeline, L.P. 7.33%
    EnLink Midstream Partners, L.P. 6.12%
    Phillips 66 Partners LP 5.59%
    BP Midstream Partners LP 5.45%
    Andeavor Logistics LP 5.37%
    Williams Companies, Inc. 5.08%
    Western Gas Partners, LP 4.92%
    Marathon Petroleum Corporation 4.89%
    Noble Midstream Partners LP 4.54%
    ONEOK, Inc. 4.06%
    Phillips 66 3.10%
    Genesis Energy, L.P. 3.01%
    NGL Energy Partners LP 2.20%
    NuStar Energy L.P. 2.03%
    Western Gas Equity Partners LP 1.42%
    Tallgrass Energy LP Class A 1.27%
    Antero Midstream Partners LP 1.04%
    DCP Midstream LP 0.84%
    EQGP Holdings LP 0.71%
    Kinder Morgan Inc Class P 0.59%
    Shell Midstream Partners LP 0.58%
    Crestwood Equity Partners LP 0.50%
    TC PipeLines, LP 0.34%
    Enable Midstream Partners LP 0.32%
    Buckeye Partners, L.P. 0.09%
    Holly Energy Partners, L.P. 0.08%
    EnLink Midstream LLC 0.03%
    BP p.l.c. Sponsored ADR 0.00%
    J.P. Morgan Alerian MLP Index ETN 0.00%
    OPTIONS -0.21%
    U.S. Dollar -31.73%

    AMZA.JPG
     
  4. Xendragon

    Xendragon

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    oh btw.
    1000% one minute, 205% The next your math really sux bad..
     
  5. ducati916

    ducati916

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    I think if you read the 2 posts, you'll actually see that I'm talking about (a) total return [1000%] and (b) the contribution of the dividend (i) held as cash or (ii) re-invested.

    jog on
    duc
     
  6. ducati916

    ducati916

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    Here is the business plan:

    Screen Shot 2019-01-06 at 6.36.28 AM.png

    jog on
    duc
     
  7. ducati916

    ducati916

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    Always a little more difficult in real time to judge 'optimal' buy/sell points. Given that AMZA is correlated to the POO, I'll sell 90 shares here at $5.86. This would be in 'anticipation' of some sort of reaction lower should the POO/general market stall at circa $50 level.

    PV = $11,505
    Cash = $2,540
    Shares = 1440

    Excludes commissions.

    jog on
    duc
     
  8. jjbinks

    jjbinks

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    Price heading in the right direction!

    Just trying to get the context for your choice. Do you mean this is your choice for multi bagger for the year? What were your other choices?
     
  9. cynic

    cynic

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    I would be interested to know how you decided on the qty of 90 on this occasion.
     
  10. ducati916

    ducati916

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    Simply 5% of the position.

    jog on
    duc
     
    cynic likes this.
  11. ducati916

    ducati916

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    To understand the full context you would need to have a look at the other thread, 'Education of an Investor'.

    In short, Value Collector made 10x his money in CZZ.

    I was not overly impressed with CZZ as an investment, I labelled it a speculation as I felt it lacked a margin of safety.

    This did not go down well.

    I was challenged to find an 'investment' with a 'margin of safety'. This was my choice. As you can see from the comments, this choice did not impress those people.

    This is for a 5yr holding period in which time I will try to match VC's ten bagger, with a stock [ETF] that is unlikely to go anywhere near $50, but never say never.

    I will [attempt] to do this through:

    (a) trading the position; and
    (b) dividends.

    So I would actually like this to retrace back lower, so that I could buy back and add to my position moving forward.

    jog on
    duc
     
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  12. jjbinks

    jjbinks

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    Thanks for explaining.
    Have not been following the other thread but might have a look when i get the chance.
     
  13. ducati916

    ducati916

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    NEW YORK, Jan. 18, 2019 /PRNewswire/ --The InfraCap MLP ETF (AMZA) (the "Fund") has declared a monthly distribution of $0.08 ($0.96 per share on an annualized basis). The dividend will be paid January 30, 2019 to shareholders of record as of the close of business January 23, 2019.

    $0.08 per share ($0.96 per annum) is lowered from the prior rate of $0.11 per share ($1.32 per annum), a rate which had been in place since January 2018.  The Fund recently adopted a policy of reviewing the distribution level on a semi-annual basis." The monthly dividend rate of $0.08 per share ($0.96 per annum) is lowered from the prior rate of $0.11 per share ($1.32 per annum), a rate which had been in place since January 2018. The Fund recently adopted a policy of reviewing the distribution level on a semi-annual basis.

    Jay D. Hatfield, Chief Executive Officer of Infrastructure Capital Advisors, commented: "The midstream MLP industry is emerging from a period of financial restructuring.  Despite a healthy operating environment, twelve companies reduced their distributions in 2018, resulting in a reduced flow of funds to investors.  The cumulative impact of the lowered payments is the key factor driving the fund's distribution reduction."Jay D. Hatfield, Chief Executive Officer of Infrastructure Capital Advisors, commented: "The midstream MLP industry is emerging from a period of financial restructuring. Despite a healthy operating environment, twelve companies reduced their distributions in 2018, resulting in a reduced flow of funds to investors. The cumulative impact of the lowered payments is the key factor driving the fund's distribution reduction."

    jog on
    duc
     
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  14. ducati916

    ducati916

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    So a 27% cut in the dividend reduces my yield to 18%.

    jog on
    duc
     
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  15. ducati916

    ducati916

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    So just a quick update.

    NEW YORK, Jan. 18, 2019 /PRNewswire/ -- The InfraCap MLP ETF (AMZA) (the "Fund") has declared a monthly distribution of $0.08 ($0.96 per share on an annualized basis). The dividend will be paid January 30, 2019 to shareholders of record as of the close of business January 23, 2019.

    So I'll get paid my first dividend in a couple of days. So 1440 * 0.08 = $115.20.

    The plan is to re-invest the dividend into stock. I have been looking at the chart and I'm thinking that there could be a fall coming. As (a) I haven't been paid yet, there is no rush to (b) use the money to buy anymore shares. At current prices I'm looking at 19 shares.

    It is possible that the ETF retests the lows, circa $5. That would garner 23 shares. A real issue in small trades like this are commissions. If the ETF does fall, then I might also try to hang on for Feb's dividend also, with the assumption that it will hover in that price range for a while. We'll see.

    jog on
    duc
     
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  16. ducati916

    ducati916

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    So the dividend has been paid. I will now reinvest that dividend tomorrow into additional AMZA shares.

    jog on
    duc
     
  17. ducati916

    ducati916

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    Added 19 shares at $5.93

    New total: 1459 shares.

    jog on
    duc
     
  18. qldfrog

    qldfrog

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    How did you sort out the commission issue..with comsec it would cost me 20usd....
     
  19. ducati916

    ducati916

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    For this exercise I'm not including comms. Not realistic I know, but I can't be bothered accounting for them.

    Re. $20, mine are substantially lower.

    jog on
    duc
     
  20. ducati916

    ducati916

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    Reinvest dividend = $116.72
    Buy 22 shares @ $5.81
    New total = 1481 shares

    jog on
    duc
     
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