avoided the carnage of other financials today - perhaps some...

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hankreardon

1,158 Posts.

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18/03/20

20:39

Post #: 43568404
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Originally posted by mal85: ↑

Just to add a bit of depth to my reasoning for perhaps my own learning.
My assumption here is a two-stage Kelly bet. This is the appropriate model for optimising position sizing when probabilities are largely determined.
The appropiate method for assessing value when multiples etc are unknown is using long-run averages- ie, on average what would this sort of business trade at over time.
Using EXTREMELY conservative assumptions of normalised EV/EBITDA of 10x for the Australian business (growing at about 100% yoy) and normalised EV/EBITDA of 8x for the combined business growing at >30% yoy (with a known, proven profitable business model and large unaddressed market, with first-mover/superior model in a market with favourable tailwinds) I get:

Probability of divestment going through: 80% (IMO >90% if you use historical rates + the precedent of Ingenico/paymark)
If divestment goes through short term (ie 2 week) upside of 15%
If divestment fails, short-term (2 week) downside of 12%.

Using a half-Kelly in that situation suggests a 35% portfolio allocation (I am at 32% having bought steadily from cash holdings as this has dropped a lot more than APT and XRO).
A full Kelly suggests a whopping 70% portfolio allocation.
The CRAZY thing is, the downside is not 0 if it doesn't fall in your favour. IMO there is >95% certainty that the shareprice will be materially higher with a 2 year investment horizon (I don't think we will ever see a great depression again, due to the lessons learnt (proven, by way of monetary policy in the GFC)).

Anyway, as I said earlier this pricing makes absolutely no sense. Could get unlucky here, but the decision is still a good one.

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avoided the carnage of other financials today - perhaps some sense coming back into pockets of the market?

SMP Price at posting: 33.5¢ Sentiment: Buy Disclosure: Held
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Last 58.0¢		Change 0.010(1.75%)		Mkt cap ! $140.3M

Open	High	Low	Value	Volume
57.0¢	61.5¢	57.0¢	$24.78K	41.87K

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No.	Vol.	Price($)
2	11298	58.0¢

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Price($)	Vol.	No.
62.0¢	20146	4

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No.	Vol.	Price($)
2	11298	0.580
3	6540	0.570
1	5310	0.565
1	300	0.560
2	46400	0.550

Price($)	Vol.	No.
0.620	20146	4
0.635	1043	1
0.660	3095	1
0.670	3100	1
0.690	15485	2

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avoided the carnage of other financials today - perhaps some...

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avoided the carnage of other financials today - perhaps some...

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