Thread by @marcgayle

I would like to underline the shift that is happening before our eyes because I don’t think people fully appreciate it.

I keep preaching to people about what’s happening in the economy and I usually get a “meh” or a “I haven’t seen my paycheck increase”.

//Thread

https://twitter.com/marcgayle/status/1149874776778956800

That’s the wrong barometer to use.

So let me preface this by saying that this thread is an analysis of what one set of wealthy businessmen are doing, what opportunities they are acting on, and what it means for us.

How can we leverage this for our own benefit and why care?

The way economic turnarounds happen, is that the owners of capital benefit first. Why? Because they can move quicker and invest/acquire assets that have been depressed significantly due to macroeconomic conditions.

Not reasons of inherent economic value to the asset.

In other words, there are businesses that have been undervalued because the stock market has been starved of capital because GOJ borrowed and paid too high interest for too long.

That’s it. Not because they have been run poorly, or mgmt made mistakes. Just macro environment.

So, once the macroeconomic environment has been fixed, and confidence returns that the “bad day won’t return, there is a race to gobble up these undervalued assets (or exploit market opportunities that didn’t exist before).

Anybody that understands this, joins the race.

The wealthy that have assets have a head start because they have capital to buy equities or buy good businesses, but there are so many other opportunities available for everyone else.

Sure, you may not be able to get wealthy in one-fell swoop but you can increase your net worth

So the key is you need to look at the people that understand what’s going on and study their moves. Are they deploying their own time and capital? If so, how? Are they skittish and staying on the sidelines.

Now this doesn’t mean you must listen to everything any wealthy person says, but it does mean you should look at the entire landscape and just see if you can find any trends.

There have been quite a few companies that listed in the last few years, pursuing investment deals.

Sygnus raised money and listed, just to provide credit and flexible capital to growing mid-size companies.

Their results are just beginning to bear fruit, but that was a genius move (and still is).

Another brilliant move was Cornerstone Holdings bought Barita. In July 2018, Barita was trading at $9!!!!

At the time, it was the oldest brokerage house (which means they had relationships with wealthy ppl, and they had a brokerage license).

However, what used to be Barita’s strength (the fact that it would invest in bonds) became its weakness when GOJ cut borrowing and interest rates dropped.

Cornerstone knew that they were undervalued, and knew that the economy was ripe for significant investments.

So they bought 70+% in August 2018 at $9.20 for $3B JMD, giving Barita a valuation at the time of approximately of $4.28B.

In January, 2019 (5 months later), they successfully launched a ‘rights issue’ to raise $4B. The stock price was $50.99 on Jan 18 (announcement date).

At $50.99, Barita (BIL) had a valuation of approximately $23B.

So in 5 months, the price increased about 5X, and they leveraged that price rise to raise cash equal to the full value of the company they bought just 5 months prior.

To illustrate the impact of this, when they bought their stake, most of it came from Mrs. Rita Humphries-Lewin (the founder). $2.5B of the $3B went directly to her.

As at Dec 31, 2018 (b4 the rights issue closed), Rita still owned 62.7M shares worth $3.3B.

In other words, even though she sold 81% of her holdings in August for a call $2.5B, 5 months later the 19% she still owned were worth $800M more than she sold the entire 81% for.

That’s wealth creation at its finest.

That was a crazy tangent, but I found that fascinating.

So BIL raised $4B in January 2019 (which closed in March 2019 I believe), they used those funds to both invest in an equities portfolio and invest in BIL itself.

There was a pref shares disclosure in May 2019, but not sure if that meant they raised another $1B. 🤷🏽‍♂️

On July 8, they posted great results. Their profits increased from $0.30 per share to $2.26 per share (6.5X improvement) even after accounting for more shares in circulation after the rights issue.

The markets responded correctly, the price shot up from $45 to $82 on July 12.

So what do they do? On July 11, they announce yet another rights issue is coming.

So their positive performance is increasing the value of their stock price which allows them to raise more money to reinvest to keep taking advantage of the opportunities they see.

A big chunk of their increase in profitability has been their equities portfolio. Aka their “proprietary trading portfolio”.

Ie they are leveraging the bull market in equities to boost their own performance to allow them to raise money to continue the cycle.

So that brings me back to the first tweet in this series, not only are they raising more equity capital but per Proven, they are now also trying to raise debt.

That’s how significant they see the opportunities ahead of them.

They literally can’t get their hands on enough cash

So how do we benefit? In my humble opinion, now is the time to follow their example. We should be bold. We should take risk. Don’t wait until you feel it in your paycheck. By that time, it is too late and most of the easiest opportunities for large gains would be gone.

Learn about the stock market, learn about companies, invest aggressively.

Increase your risk appetite and be willing to lose. With all things, risk is directly tied to reward. So if you go for big reward, you could lose big time.

Naturally be responsible.

Don’t go and mortgage your house and put all of it on a specualitive IPO play trying to “double in the pop”.

That may work for some, but puss and dog don’t have the same luck.

I am saying though that there are a lot of opportunities out there, just don’t be afraid to try.

Be responsible, but be bold. Do your homework and take measured risk.

I am preaching to myself too.

But I do find myself looking at things differently and trying new things.

If anyone is interested, I may talk about the $1B trade I tried to do and failed.

My key message here is, by the time you “feel the prosperity”, a lot of the great opportunities could be gone.

So be bold now.

Hope that helped someone.

P.S. If you lose $$, don’t blame me.