In this newsletter we go over:
The fear of not having enough money
Our investment thesis on coal is working
Our fertilizer play is down 20% but we are not worried
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The Fear Of Running Out OF Money
I grew up in a middle class family that saved money, lived in a big house and never had any financial worries. We took vacations. Lived on the land of golden acres, white tail deer and babbling brooks. Every year my father would sit me and my brother down to look at my parents net worth. A fully paid off house with cash in the bank.
When I moved out of my parents nest I experienced the life of poverty and living paycheck to paycheck for five years. That experience of living in the worst section of town on $200 bucks per week gave me incredible motivation. The motivation to get as much money as quickly as possible. To never live in poverty ever again. Living in poverty became my greatest fear and biggest motivator.
This fear and motivation of poverty gave me incredible drive. Everything I did educationally and professionally went right into thought bucket of: make as much fucking money as I could. My brain waves went something like this:
Graduate college with a high demanding degree so I wouldn’t be forced to work a menial, minimum wage job my entire life like my peers.
Get a job in high finance where I could make an incredible amount of money in a short period of time.
Save and invest as much money as possible and put 100% of every bonus back into the market while living like a normal American.
Drop out of the corporate rat race and do whatever I want on my own time.
I am quickly approaching bullet point four. I graduated college with a degree in economics. I landed a job in the hedge fund industry where I am paid a large salary and even larger bonus if we do well. And I saved and invested every penny that I could. But even now with a nest egg in the seven figure range the fear of living in poverty still haunts me.
Right now I am mentally burnt out. The demanding hours in finance have burnt me to a crisp. Five years of hard work, dedication and an extremely volatile market have done me in. I’m at the point where if I don’t quit my job over the next six months my level of happiness will incrementally get worse along with all of my personal relationships outside of work. I need a big change and reset.
But here is the problem. Sure, I have saved up enough money to “probably” live indefinitely off my investments. I am a decent investor who is focused on contrarian value ideas that will probably do north of 10% annually. And my side hustles are spinning off enough cash flow to cover my fixed costs. My problem is the fear of running out of money and abandoning a high paying job early in my career.
I’m only 30 so dropping out of the rat race this early has all kinds of issues.
I am giving up a significant amount of earning power: If I stayed at my current job I would make high six figures over the next five years. Another five years of dropping hundreds of thousands into the market would have a long-term net positive on future investment earnings.
I may have to touch my principal: My goal is to live off my side hustles and let my current nest egg compound. However, if anything happens to my current earnings stream I may be required to tap into my net worth which would decrease the compounding nature of my investment portfolio.
I may not be able to start a successful business: Long-term I want to start an operating business that spits off cash flow that I can live comfortably on and invest the difference. The risk is if I fail and forced to go back to the rat race with bosses and managers. The last thing I want to do is return to a boss. At this point in my life I’d rather live on the streets than have my time governed by a 9-5.
There is a saying on Wall Street that everyone has their “number”. The number is the amount of money you would need to leave Wall Street and never return. Your number could be as low as $1 million or as high as $25 million. But the thing is, no one on Wall Street ever hits this number.
My plan is to drop out of the rat race at the end of the year. Take a long-term indefinite vacation from the 9-5. Focus on myself and starting my own business. And having a large pile of cash in the bank and side hustles that spit cash will definitely help. In fact, I could probably just live off my investments for the rest of my life and not run out. I’ve run the math and different scenarios. Unless I blow up my account on a stupid “all in” concentrated bet, I should be fine.
But no matter how many times I run the scenario in my head or in my models the fear of going back into poverty is still haunting. It is something I have to work on. Because no matter how much money I have, I think this fear will always be there.
I am close to hitting my “number” and leaving the street for good. But I don’t want to be like my peers and colleagues where their number becomes and ever moving target that you never hit. Because once that happens you never leave the high stress high demanding job. You just learn to live the life and deal with it.
Our number one coal investment is working out just like we laid out in our recent research note. The stock is up over 15% today and over 30% since our original investment write up in early June. Congrats to all of the buyers.
Everything seems to be working out just like I laid out in my research note. There will be higher production, higher pricing and now an ultra clean balance sheet. In addition, the management team talked about starting up a dividend in the back-half of 2021 which should incrementally improve the investor base.
A more formal research note will be going out to subscribers later this week so keep a look out. Overall, I am extremely pleased and glad to have made some money on this one. I’m guessing the stock continues to re-rate as it is still cheap.
Down 20% but not worried
Our fertilizer investment we have been touting since May is down close to 20% today. Why? The distribution of only $1.72/unit and lower EBITDA than what most were thinking.
Despite the lower distribution and EBITDA, it was a tremendous quarter. Pricing seems to be holding and there will continue to be significant (if not more) operating leverage in future quarters as pricing will get better. In addition we get a $1.72/unit distribution that could increase from here.
Over the short-term the shares are down a significant amount as investors were thinking we were going to get a $5-7/distribution this quarter. In addition it seems like investors are disappointed that $12 million per quarter will be used to pay down debt. Overall, I am fine with a portion of the cash flow generate to pay down debt as I am generally a fan of de-leveraging.
And I’ll take a $1.72/unit distribution. Sure, $5/unit would have been greater, but $1.72/unit is still great and I think it grows from here. Long and holding.