Author Topic: A grounding exercise  (Read 576 times)

InTheSeam

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A grounding exercise
« on: April 04, 2020, 05:52:00 AM »
After weeks of being caught in the turbulence of checking account balances, tracking individual stock prices daily, and devising a new radical investment plan that would surely be superior to staying the course, I stumbled back upon the simple concept of treating your family's finances as a business, where you are the acting CEO. Imagine you had to present a quarterly operating update to your investors. Would your plan cause them to take their money and run, or would it instill confidence in your operations? I can tell you that, personally, my ego brained back-of-the-napkin active trader impulse plan (that this market stokes in all of us) produces a wildly different communication to my investors, versus the following plan I've ended up committing to. Maybe this simple exercise will help others as well:

"InTheSeam LLC Quarterly Operating Update

InTheSeam LLC is taking steps to strengthen financial position in this current market environment, and seeks opportunities that may arise due to market pricing volatility.

Cash reserves, kept in a FDIC insured money market account, have been increased 50% to $15,000, accounting for a full 6 months of lean operating expenses. These funds will be kept on hand in the event of unexpected, extreme revenue losses.

Revenue streams remain strong despite the global market environment, and sources are widely diversified. In the event of a partial loss of revenue, InTheSeam LLC will have no concerns to remain solvent. Capital investments and growth opportunities would be evaluated and placed on temporary hold in an incremental fashion, if necessary.

At this time, we see an opportunity for aggressive capital investment in a diversified mix of growth and income producing assets deemed to be selling at a discount in comparison to years of previously determined market value. InTheSeam LLC has shifted focus away from cash accumulation and prepayment on property notes to address this rare opportunity. We are currently front-loading tax advantaged purchases of diversified shares, while ensuring compliance is maintained to continue receiving employer gifted purchases signed over to our company.

Upon reaching the maturity of this accelerated purchase schedule expected in July, we will deploy excess cash positions to continued purchases of these diversified capital shares in taxable accounts.

As this market environment may produce rare opportunities to purchase shares of quality, individual companies that are deemed to be discounted considerably further than the broad market, InTheSeam LLC may assume the high risk of purchasing shares using no more than 10% of 2020 total capital deployment at predetermined purchase intervals. Evaluation of returns on these purchases will be tracked against broad market returns to direct future strategy."
« Last Edit: April 04, 2020, 05:59:12 AM by InTheSeam »

mrmoonymartian

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Re: A grounding exercise
« Reply #1 on: April 05, 2020, 04:08:14 AM »
Yep, I would definitely take my money and run.

InTheSeam

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Re: A grounding exercise
« Reply #2 on: April 05, 2020, 04:22:28 AM »
Yep, I would definitely take my money and run.

Thanks for the feedback - hope you found the exercise helpful. Care to provide any insight behind your response, or share your current strategy that contradicts what I've written?

mrmoonymartian

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Re: A grounding exercise
« Reply #3 on: April 05, 2020, 05:20:22 AM »
My response is because you are using marketing language instead of communicating clearly. If you really want to persuade your family that you're doing the right thing, give them the simple logic behind your proposed actions so that they can easily assess the validity of your arguments and the soundness of your conclusions.

Taran Wanderer

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Re: A grounding exercise
« Reply #4 on: April 05, 2020, 01:00:11 PM »
I love this.  Once the other half of TW Enterprises reviews and approves, I will post ours.

Taran Wanderer

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Re: A grounding exercise
« Reply #5 on: April 05, 2020, 01:31:19 PM »
To the point of those who posted earlier, when I shared this with DW, she struggled with the language. Still, it was entertaining and constructive to put together.  I plagiarized a lot of InTheSeam's original post, so this is only about half original content:

TW Family Enterprises Quarterly Operating Update
April 5, 2020

The first quarter of 2020 brought significant challenges to TW Family Enterprises due to the onset of the worldwide Covid-19 pandemic.  Working arrangements and schedules have been disrupted.  Education and training efforts have required redesign on the fly.  At the time of these writing, the new working and living arrangements have been in place for three weeks, and the team is adjusting to a new normal.

Cash holdings as of March 31, 2020, kept in a combination of FDIC insured savings accounts and highly liquid money market account, totaled $78,824.  Current liabilities totaled $1,449.  Net funds will be kept on hand in the event of unexpected, extreme revenue losses.
Revenue streams remain strong despite the global market environment.  Revenue sources are over-dependent on the T-side of the enterprise, but W-side revenue continues its recent growth trend, and free cash-flow of $1,470 monthly from real estate holdings provides an increasingly balanced revenue model.  The solid financial position and work industries of our tenants provides confidence that real estate revenues will continue uninterrupted.  In the event of a partial loss of revenue, capital investments and growth opportunities would be evaluated and placed on temporary hold in an incremental fashion.

The past three weeks have brought significant disruption of the day-to-day operations of TW Family Enterprises.  The W-side of the team has brought significant innovation and expertise to bear to lead the team through the initial challenges.  Longer term training approaches for junior associates remain a work in process, but the team is adjusting to the new norms.  An upside of the situation is that with reduced corporate travel, there is significantly more time for building culture and close internal relationships and cleaning up longstanding loose ends around the facilities.

Operating expenses were controlled in March to their lowest level in three years.  Certain one-time medical expenses from February came due, and refunds of certain pre-purchased entertainment expenses were received during the month, offsetting the medical expenses.  Charitable giving of $1,500 during the month was processed to important local agencies.
Prior to the 25 to 30% downturn in the stock market, 27% of T-side long term investments were converted to cash.  This new cash plus $48,000 of W-side cash held for the past 12 months, provides TW Family Enterprises with $372,531 for future long-term investment.  This amount is increasing monthly by approximately $5,000 from ongoing operating revenue.

At this time, we see an opportunity for aggressive capital investment in a diversified mix of growth and income producing assets deemed to be selling at a discount in comparison to years of previously determined market value.  TW Family Enterprises has therefore shifted away from prepayment on property notes to address this rare opportunity.  We are currently maximizing contributions to tax advantaged purchases of diversified shares, while ensuring compliance is maintained to continue receiving match funds from our key customers.  Anticipating further broad market declines, front-loaded purchasing has been curtailed.  Steady investment of current long-term cash holdings over the balance of the year is anticipated.  Current equity holdings will be maintained.

As this market environment may produce rare opportunities to purchase shares of quality, individual companies that are deemed to be discounted considerably further than the broad market, TW Family Enterprises may assume the high risk of purchasing shares using no more than 10% of 2020 total capital deployment at predetermined purchase intervals. Evaluation of returns on these purchases will be tracked against broad market returns to direct future strategy.  Consistent with this strategy, the annual capital contribution to the PP joint venture will be increase to $5,000 instead of the $1,000 contractual minimum.