Adelaide Managed Funds Assets Backed Yield Trust (AYT)

Disclaimer:

This valuation is NOT advice and provided as educational only (usually mine), it does not take into account your specific investment objectives, financial situation or financial needs. Before acting on the information you should consider if the analysis is accurate (it probably isn’t) and if the investment is appropriate for your investment needs. You need to also consider your financial situation and <strong>you should seek advice from a financial adviser and/or stockbroker.

I can give no guarantee of the accuracy of the information used, omitted, provided or considered in this analysis.

Or to put the information simply:

You should expect my analysis to contain mistakes and omissions, I’m not a professional stock picker nor do I hold an Australian Financial Services License. My work is merely for self education and should not be acted on by any persons (sane or insane) in any location so please don’t sue me.

From: Lepp, Travis
Sent: Thu 15/04/2010 9:08 AM
Subject: Adelaide Managed Funds Assets Backed Yield Trust

Hi All,

As some of you may be aware I have had some spare time on my hands recently and have managed to look at a few stocks. Yesterday I had a look at AYT and liked it so much I purchased 4000 units. Basically AYT has taken money from investors to invest in high yield investments secured by pools of loans and leases (provided by Adelaide Bank – now Bendigo and Adelaide Bank). Normally this would be a high risk vs high reward situation, however with the units trading significantly below the NTA (1.47 vs 1.77 ), no material debt and continuing to pay a yield of around 8% (BBSW + 4% to BBSW + 4.5%); I believe there is enough ‘margin of safety’ to limit the downside. In an effort to close this NTA difference management embarked on a unit buyback with excess cash (without significant impact on the unit price).

AYT has recently found it harder to purchase high yield loans (Bendigo Bank is more risk adverse than Adelaide) and management have proposed to wind up the fund and return capital to unit holders as the various loans mature (majority within 6 to 18 months). As a result of the windup AYT is ceased to buyback units and will not reinvest any additional funds.

The biggest risk to investing in AYT is the nature of the loans made and their repayment. The Trust has exposure to Bendigo’s MIS problems to the tune of $21.1 Million (provisions have been raised to $16 Million, however I’d suggest they should be written them off completely – this should cover the low defaults on the other loans).

AYT isn’t for the ‘widows and orphans’ fund but might be an interesting investment (similar to RHG without as much upside though). I’ve attached my analysis and the latest analyst briefing.

Cheers,

Trav

Analyst Report 2010

AYT Valuation

How to Evaluate a Job offer – The 12 commandments

Here is a brief summary of an article from http://www.cpacareercoach.com/job-interview-follow-up-evaluating-an-offer/.

What I’ve found is that people focus so much on getting a job they never step back and think about the following twelve points (I know I’ve been guilty of this):

1. Does this opportunity allow me to build upon my previous work experience? Yes or No

2. Do I like the actual day to day work that I will be performing in the role? Yes or No

3. Can I perform the day to day functions of this job successfully? Yes or No

4. Is there a good balance between what I have done and what I need to still learn? yes or No

5. As best as I can, am I aware of the stability of the company or position? Yes or No

6. Does there appear to be an opportunity for growth? Yes or No

7. Does the opportunity align with my personal goals that I want to accomplish? Yes or No

8. Is there an evidence of chemistry and cooperation with the people of the company? Yes or No

9. Is the compensation fair and reasonable for the role that needs to be performed? Yes or No

10. Is my personal values and philosophy in alignment with the company’s values and philosophy? Yes or No

11. Can this experience easily carry over to meet with my future goals? yes or No

12. Is the physical location of the company (commute) acceptable? Yes or No

Now, most accounting & finance people I know will have a tendency to over-analyze this list and of course that is a strength of yours and you should use it. However, don’t let one “no” keep you from accepting a good offer.

Here is a general guidline for you to follow:

Yes on 8-12: If you can get a yes to at least 8 or 9 questions, that is about as good as you are going to get.

Yes on 5-7: May still be a very viable opportunity for you, but you may have to be willing to make some compromises along the way.

Yes on 1-5: You probably need to pass up on this opportunity or run these questions by someone close to you and get their perspective. Lastly, you could possibly negotiate with the potential company to change one of these no’s to a yes.

There is no perfect formula and I will be the first to agree that sometimes accepting an offer is a gut feeling, but for the logical one out there (or the super emotional) this can be a guideline for you.

What makes Intelligent people make bad investment decisions?

Everyone knows someone who buys lots and lots of shares, and talks up their performance when the market is rising and money is easy (this includes Investment banks and managed funds).

Remember back a few years every graduate wanted to work for an investment bank, it was exciting; you could earn lots of cash for admittedly some long hours.  Banks  got to employ the ‘cream of the crop’ in graduates and experienced professionals, so where did it all go wrong?  Why did these highly skilled individuals make some of the worst decisions in historycausing the credit crisis and then not comprehending the full the impact.

Banks as you are aware are in the business of lending and as such should probably have a good idea what security they have loaned against.  How did they lose so much?  I can think of four key items that explain why people (including banks) make poor investment decisions:

1. Previous Experience – Most people in the investment industry have lived through a market fall (for example the dot com bubble).  One of the biggest mistakes people make is they believe the current situation is similar to a previous one.  For example thinking experience gained during the bursting of the dot com bubble is similar to the current credit crisis.   The dot com bubble was caused by hype and hope causing a massive overpricing in technology stocks, where as the credit crisis is related to a lack of funding, something much more fundamental.

2. Self Interest – The people writing the bad loans were no doubt getting rather large commissions and as such had a vested interest in selling as many as possible, hence the rise in NINJA loans.  Self interest is everywhere…. don’t think it doesn’t impact your personal decisions (nor those of your advisors).

3. Prejudgments – Creating a view before all the facts are on the table or only paying attention to data supporting your arguments and disregarding other information.  Who hasn’t heard the sayings “Safe as houses” and “To big to fail”, quite clearly property in the US is anything but “safe” in some areas and some of the “To big to fail” companies have gone bankrupt or been brought out.  What are yours?  Pick an investment, value it, have someone independently look at your work… do they agree?  There are two sides of every coin.

4. Attachments – My favorite (It’s my biggest weakness, apart from stop losses).  How many people have valued a company, purchased shares and then held on for grim life, never revisiting their original assumptions? What about evaluating management performance?  What happened to last years plans?

In conclusion admitting you have a problem is the first step (thank you AA).  Think about your investment style, analyse your performance what works and what didn’t and review your assumptions.  Happy investing – Travis

I can be found on twiter: travislepp or my company: www.ourwedding-registry.com