duc's 'Margin of Safety' investment

[willoneau]

Hi ducati916, wasn't it to do with the discussion with Value Investor and that stock that was risky in your opinion which was an AU stock?

 

[ducati916]

Hi ducati916, wasn't it to do with the discussion with Value Investor and that stock that was risky in your opinion which was an AU stock?

This ETF was in response to someone, it may have been VC but not sure on that, to pick a stock that had a 'margin of safety' as I had criticised his pick of CZZ which did return him 10X initial investment.

So this was my choice. The challenge is to:

i. Equal or better the 10X return;
ii Over a 5yr holding period.

So this seems a good place to update.

The price is currently sitting at my entry price of $5.22, so in 7 months the price has gone nowhere.

Cash = $2054.04
Stock = $8780.84
Total = $10834.84

So a profit of $834 or 8% +/- which is the dividend return to date. As the options market is developing for this ETF, I'll start looking at increasing the return via trading options additionally.

jog on
duc

 

[willoneau]

I did follow the thread and why you are doing this. I think to include options in this challenge as well isn't really part of it as it was to pick a stock and trade it for 5years wasn't it , Value Investor didn't use options if I remember.
I understood the point you were trying to make , just hate to see you skew this trying to prove it.

 

[ducati916]

I did follow the thread and why you are doing this. I think to include options in this challenge as well isn't really part of it as it was to pick a stock and trade it for 5years wasn't it , Value Investor didn't use options if I remember.
I understood the point you were trying to make , just hate to see you skew this trying to prove it.

Actually what I said to VC was: actively trading a stock will increase the returns to that stock, unless, the stock goes [pretty much] straight up.

CZZ was one of those that went pretty much straight up. They are pretty hard to identify ahead of time. I have never had much luck in identifying one.

So trading the position, which includes trading [buying/selling] options was always going to be part of the strategy. It hasn't been to date simply because the option market for AMZA has been pretty thin. It is however starting to thicken slightly....so now I'll look to increase returns via options.

jog on
duc

 

[willoneau]

So when you said actively trading a stock you include options as part of actively trading that stock?
I thought it meant buying and selling that stock through the 5yr period.

 

[ducati916]

So when you said actively trading a stock you include options as part of actively trading that stock?
I thought it meant buying and selling that stock through the 5yr period.

Absolutely.

It is a way to increase the returns to a stock that you hold for [medium/long term] investment purposes. As I said, unless you are lucky enough or skilled enough to hold only vertical risers, then trading around the stock, options and dividends are the way to juice the returns.

As I'm going to hold this for at least 5yrs, assuming it doesn't implode, then absent it rising vertically,[which to date it hasn't] it will need as much help as possible to reach the 10X hurdle.

At the moment, due to it being the w/e, there are no market figures available for the August expiry. When there are, I'll post whatever I'm thinking of doing or actually do.

jog on
duc

 

[ducati916]

I have a buy order at $4.35, [should it reach there] for 150 shares.

jog on
duc

 

[ducati916]

So having had a quick look at POO, I'll keep my buy order at $4.35. I had considered buying here, but I'll hang on for another day atm.

jog on
duc

 

[ducati916]

Dividend paid = $134.56

Buy 28 shares with dividend
Buy 200 shares from cash

Total = 228 at $4.77 = $1087.56

New Total 1910 shares.

jog on
duc

 

[ducati916]

NEW YORK, Sept. 20, 2019 /PRNewswire/ -- The InfraCap MLP ETF (NYSE Arca: AMZA) (the "Fund") has declared a monthly distribution of $0.08 ($0.96 per share on an annualized basis). The distribution will be paid September 30, 2019 to shareholders of record as of the close of business September 23, 2019.


jog on
duc

 

[systematic]

Hi @ducati916

I’m happy to stay out of your thread as I don’t want my post to be unhelpful, but I have to ask, as I’m thoroughly confused.

Firstly, there seems to be another thread this relates to, and I don’t think in familiar with it, so perhaps that’s where I’m going wrong.

Anyway; checking this thread out and based on the title of investing with a margin of safety. Worked my way back through the thread hoping I’d find you defining exactly what you meant by that. Happily, you did, right back in the first post (which is where I should have started, lol). You give 5 criteria, which I’ve listed below.

Now, I don’t consider myself a value investor in the ‘margin of safety’ sense anymore than I consider myself a chartist. However, I do know what the ‘value guys’ mean when they talk about it.

Then I come to your criteria and I’m simply perplexed. Your points are clear enough but they lead to a conclusion that you can’t possibly mean? I’ll quote, then ask...

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.

Okaaaay.

Your definition of why this has a margin of safety (points 1 through 4) are simply...that it’s an ETF(!)

Said another way, virtually any ETF qualifies as a ‘margin of safety’ investment if I use your criteria 1 through 4. If you can get options on it, it qualifies under criteria 5 as well.

Therefore, to invest with a margin of safety...just buy ETF’s!

Am I wrong?

We can go through each of your criteria individually, but it shouldn’t be necessary. They clearly lead to the conclusion that any ETF qualifies. Unless you meant something completely otherwise to what you wrote?

This is so far removed from what is meant by a margin of safety that I thought you couldn’t have meant this. But your points are so clear that I had to ask. I was too curious not to.

Hopefully this is not unhelpful though. There must be others who’ve thought the same thing, so it might help to clarify for a few of us.

 

[ducati916]

Hi @ducati916

I’m happy to stay out of your thread as I don’t want my post to be unhelpful, but I have to ask, as I’m thoroughly confused.

Firstly, there seems to be another thread this relates to, and I don’t think in familiar with it, so perhaps that’s where I’m going wrong.

Anyway; checking this thread out and based on the title of investing with a margin of safety. Worked my way back through the thread hoping I’d find you defining exactly what you meant by that. Happily, you did, right back in the first post (which is where I should have started, lol). You give 5 criteria, which I’ve listed below.

Now, I don’t consider myself a value investor in the ‘margin of safety’ sense anymore than I consider myself a chartist. However, I do know what the ‘value guys’ mean when they talk about it.

Then I come to your criteria and I’m simply perplexed. Your points are clear enough but they lead to a conclusion that you can’t possibly mean? I’ll quote, then ask...



Okaaaay.

Your definition of why this has a margin of safety (points 1 through 4) are simply...that it’s an ETF(!)

Said another way, virtually any ETF qualifies as a ‘margin of safety’ investment if I use your criteria 1 through 4. If you can get options on it, it qualifies under criteria 5 as well.

Therefore, to invest with a margin of safety...just buy ETF’s!

Am I wrong?

We can go through each of your criteria individually, but it shouldn’t be necessary. They clearly lead to the conclusion that any ETF qualifies. Unless you meant something completely otherwise to what you wrote?

This is so far removed from what is meant by a margin of safety that I thought you couldn’t have meant this. But your points are so clear that I had to ask. I was too curious not to.

Hopefully this is not unhelpful though. There must be others who’ve thought the same thing, so it might help to clarify for a few of us.

I have highlighted your summary and issue.

This thread, as you suspected, was a continuation of another thread. Hence my 'definition' of a margin of safety is somewhat truncated. Be that as it may, an ETF is still, as a standalone criteria, capable of meeting many of the requirements of a full definition of a margin of safety.

This was the thread: https://www.aussiestockforums.com/threads/the-education-of-an-investor.34402/

Other criteria would be that it offered 'value'. Without going into how one might calculate value, suffice to say, that you would need to look at the stocks that formed the ETF and gauge their individual values to come to any valuation (this particular ETF was constituted from MLP's, which had, as a sector taken a beating).

So 'any' ETF would not (on that basis) fulfil the definition of the margin of safety. As a generalisation however, I like ETFs because you can hold a single security and have the diversification of more than one security (outside of the provider risk etc) which is part of the definition (or concept of) margin of safety.

So in answer to your question: no an ETF is not the only thing required, but, it is (for me) a good starting point.

jog on
duc

 

[systematic]

Thanks duc,

Okay, that makes a bit more sense now. You've ascertained (by whatever method, like you said - that's not the point here) that the constituents of the ETF, in aggregate are at a value price (for you). Phew!

Value investors of course invest in any number of structures...not just straight, ordinary shares. So I had no problem with an ETF. Just that the criteria listed in the first post defined ETF's as a margin of safety (whereas they're not - only in the sense of offering diversification, but you do that anyway with individual equities).
So the constituents of this ETF, in aggregate at least (if not each, individually) are below what you would assess as a fair price. Cool.

Appreciate the clarification.

 

[ducati916]

Dividend = $152.80

Buy 31

New Total = 1941

jog on
duc

 

[ducati916]

Dividend paid $155.28

Buy 34 shares @ 4.52

New Total = 1975

jog on
duc

 

[ducati916]

Dividend paid $158
Buy 39 shares @ $4.04

New total = 2014

jog on
duc

 

[ducati916]

So just a bit of an update (as the ETF has gone relentlessly down since purchase) of the current situation.

Initial capital at risk = $10K
Current value = $8136.56
Cash = $1087

Total value = $9223.56

Loss of $766.44 or 8% +/-

jog on
duc

 

[barney]

Thanks for the updates Duc. What is the ticker code for the ETF?

 

[qldfrog]

From memory amza

 

[ducati916]

Thanks for the updates Duc. What is the ticker code for the ETF?

AMZA

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duc