Investment risk
Each property company owns multiple
buildings and usually these buildings are funded by multiple loans so
even with 8 businesses, risks of business failure are greatly reduced.
Each property company has multiple tenants instead of one like the
traditional local residential investment. Infrastructure companies are similarly diversified.
Larger investments by clients in excess of my minimum will have
more businesses in their portfolios but it is not envisaged to have much
more than 15 businesses.
Too much diversification with traditional unit
trust portfolios diversifies return away and this is not what we are aiming to do.
Underlying assumptions of our investments
The financial crisis pushed
the world economy into a deflationary period where hard assets got
cheaper. Due to the central banks printing money and increasing the
money supply to bail out the big commercial banking institutions that
failed we believe INFLATION is now inevitable longer term.
We are assuming that we will be entering an INFLATIONARY period and hard assets like gold,silver, all commodities, infrastructure and real estate do well in this type of period. Of all the aforementioned hard assets only real estate and infrastructure have contractual arrangements with counter parties which ensures that their incomes are stable and ensuing dividend income streams to investors are very reliable.
Rental contracts incorporate fixed, market related or inflation adjusted rental escalations. Our investments should provide increasing income streams in the form of increasing dividends over time.
As a result of the above assumptions we believe real estate and infrastructure shares are the best way to invest.
We have two ways to make capital gains:
1) The market price closing the gap to current fair value
2) The market price closing the gap to the new future fair
value when asset write ups occur and the shares fair value increases !!
Investment not for everyone
This investment is for the intelligent more
affluent investor not the average retail investor who pays a monthly
debit order to buy unit trusts. The intelligent investor will understand that market
prices are at any time not necessary reflective of TRUE VALUE.
This is a focused property/infrastructure investment with exposure to fewer businesses than any traditional unit trust and as a result it will be more volatile from a daily market pricing perspective. Investors must be prepared to be "down on paper" as it is impossible to time the market correctly.
This highlights the difference between the market price and the value of a business.
Share prices will oscillate wildly but over the
longer
term the value we have bought should be reflected in the market prices.
It is not uncommon for a share price to drop over 5% in a day and go back up the next.
An intelligent investor will see that there is no way a solid property/infrastructure business can be worth more or less on a daily basis !!
It is my job as portfolio manager to ensure the property/infrastructure businesses we buy are undervalued and have strong balance sheets and NEVER SELL THE MAJORITY OF THEIR ASSETS AT A FIRE SALE PRICE IN A FORCED SALE.
