Bucket of Distressed Companies
Idea (From Geoff Gannon) to buy a handful of companies in the worst industries impacted by COVID-19 that have seen their price fall significantly.
Outcome would be either the business struggles due to having no revenue and fails to manage costs proficiently leading them to recession OR the business comes out the other side market prices it as normal (multi-bag).
Rupam Deb discussion about Carnival Long expiry options.
Sell a put that then helps to pay for a long expiry call. That way you don't see a capital outlay (Capture the upside without the upfront commitment)
Risk is that you are placed with the put option assignment your shares.
Therefore focus on the margin of safety is key as well as position sizing.
Repeat this Long expiry strategy with the best companies in the worst industries impacted.
CruiseLine's, retail, restaurants, airlines, airports etc.
Trust Portfolio
Some progress has been made with the Trust set up this month. Documents are set up, bank account is just about set up and approval docs have been sent to interactive brokers.
Have therefore been thinking about how I am going to invest the capital injected into the trust.
Have written an investment strategy, STICK TO IT!
Focus on very high conviction scenarios, it's not a race it's a marathon.
Asymmetry but also catalysts/outcomes are important.
All on just one broker so I can use the portfolio analyst tool on IBKR
Deposit monthly into the cash management account and no rush to deploy.
Accounting software is important too.
Really want to set myself up on 'Class Trust' although it seems the release isn't going to be properly deployed until 2021 which is a bummer.
Might therefore be worthwhile to just prepare 'Annual accounts' on a free or nearly free software until then.
If this isn't possible I'll commit to using a common general ledger system like Xero ($5 a month for just importing) and preparing accounts on an annual basis using the Interact reports and ATO exchange rates.
Emotions
With the market down several dozen % this month, has been difficult to expose myself to the wave of emotions. Others around me aren't really helping in this regard. Finance group are filled with talk about bear markets, put options and speculative market timing.
Reduction in the exposure to this reactionary behaviour has been my focus this month, muting notifications where I could and deleting stock quote apps I regularly checked before. obstacles between me and them.
I don't want my decisions to be of this reactionary kind, rather I need to think about the causality of the economic outcomes rather than focus on the stock price. Market going down mean the underlying businesses are unsound.
Being a business Owner
I think I've generally impressed myself with my inactivity this month. I've struggled with remaining calm whilst on the way up. But surprisingly I'm as calm as anything in a recession ( terms) like environment.
Has been a blessing to buy capital-light companies with strong balance sheets which I partly attribute to my success. No need to act besides selling off the low quality 'Ambertech' w horrible decision in hindsight.
I read an interesting article called 'A Value Investor's Guide to Stoicism' which I found an excellent and timely read. Key takeaways were
Long-term mindset
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framew making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the discipline.”
Most of the time spent should just be inaction. Sitting and thinking rather than trading in and out. Action
Stop looking at prices every day
I've been exploring a systematic way of reviewing my portfolio. These notes are a part of that. Throughout the month I jot down thoughts in this format and only at the b each month can I commit to action, that is of course if timing demands action at any other time.
Write a Pre-Mortem before you buy
This is sort of a list of things that could go against you that when you see them help you cope with it if it does occur.
Get comfortable with Losses
This is just in reference to a lack of reactionary decision making. It's inevitable your portfolio will go through periods of drawdown, getting comfortable with this allows y on more aggressive strategies and in the long term benefit from just that. Focus on the business not the stock price variations.