Astonishing Role of Capitalism in Passive Wealth Building

Capitalism has astonishingly imposed and facilitated our preferred, ideal setup—Chemrez’s management doing its job of running the company, taking care of the technical burden for us, while we, being investors, duly reaping the economic rewards, expecting and passively enjoying fundamentally-grounded returns for as long as we would like.

This is Part 7 of a Series. Go to Part 6: Acquisition Moves and Exploitation of Market Misalignments

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

Rare are situations where you have excellent firms posting double-digit returns for a good run of years yet are selling inexpensively; we paid attention, decided, and took action. Relative to equity value, we have effectively become part-owners of Chemrez for free, being able to strike a great discount around 14%. As such, we have the luxury of watching our fortune in book value terms, taking comfort in each increase as an enhancement of wealth, conservatively subscribing to the idea that our rate of return approximates the underlying company’s return on equity regardless of the market’s schizophrenic mood. Capitalism has astonishingly imposed and facilitated our preferred, ideal setup—Chemrez’s management doing its job of running the company, taking care of the technical burden for us, while we, being investors, duly reaping the economic rewards, expecting and passively enjoying fundamentally-grounded returns for as long as we would like.

Acquisition Moves and Exploitation of Market Misalignments

One of the chief reasons which have prompted our purchase of Chemrez shares was due to a market anomaly which I often exploit—particularly, companies selling below their equity or book value. 

This is Part 6 of a Series. Go to Part 5: Reporting Hedge Fund Performance

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.


Our first move has been the acquisition of some shares in a corporation called Chemrez Technologies, Inc. (ticker symbol: COAT), a business which has positioned for growth by branching out from powder-coating operations to the lucrative business of biodiesel, oleochemicals, resins, and other specialty chemicals. We are generally confident on how well this business shall achieve considering the economic potential and long-term sustainability of biodiesel.

Reporting Hedge Fund Performance

Great investment operations endure the test of time, spanning decades of consistently compounding money. Along these lines, we strongly maintain and attempt to be the same and consistently reach double digits growth on an annual-basis. 

This is Part 5 of a Series. Go to Part 4: Accounting as the Language of Business

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

Noting performance, our aggregate partners’ equity increased 2.82% from its inception on November 22, 2010—the date of approval of our proposed Articles of Partnership and registration with the Securities and Exchange Commission (SEC)—up to 2010’s yearend. This translates to an effective annual rate of return of 26.42% (computed as 2.82% multiplied by 365/39 days).

Accounting as the Language of Business

We, as passive investors should be shrewd businessmen, having the technical operations of the business delegated but still mindful and prudently watchful of the state of our assets. 

This is Part 4 of a Series. Go to Part 3: Conservative Expectation on Rate of Return

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

I’m sure none of us are strangers to the basic dynamics of how a business works financially. Generally, we are faced to lay out some cash, depending on the industry, to allot for initial working capital (e.g. inventory, revolving fund, etc.) or to spend on capital expenditures (e.g. fixtures, equipments, etc.) hoping the venture would payback these outlays later on; transactions are inevitable when conducting the affairs of a business.

Conservative Expectation on Rate of Return

We shall have a more conservative expectation on our rate of return, limiting it and not being excessively optimistic in our prospect than what our underlying held companies, in their operational and financial capacities as real businesses, can realistically achieve.

This is Part 3 of a Series. Go to Part 2: Business Perspective Attitude and Owner Mentality

Note: The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

Consequently, we shall have a more conservative expectation on our rate of return, limiting it and not being excessively optimistic in our prospect than what our underlying held companies, in their operational and financial capacities as real businesses, can realistically achieve.

Business Perspective Attitude and Owner Mentality

Stocks, by their very nature, are long-term; evaluating them, as true businessmen do, takes into consideration the years it commonly takes to recoup initial outlay, conservatively vouching on the cash-generating economics of the venture.

This is Part 2 of a Series. Go to Part 1: A Filipino Hedge Fund

Note: The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

With this business-perspective attitude and owner mentality towards our partnership’s investments—treating them as real businesses with operating realities and not merely paper assets whose value wiggles daily—we naturally take the position of being long-term investors, buying firms and holding them indefinitely. It is only intuitive that we follow this long-term approach if we really want to take advantage of their true compounding power.

A Filipino Hedge Fund

Legally, our fund is a private investment firm organized as a limited partnership (wherein you are the limited capitalist partners, and I am, while also being a contributing capitalist partner, the designated general industrial partner) whose primary purpose is to invest in various investment instruments, particularly shares of corporate stocks, without acting as a dealer in securities.

This is Part 1 of a Series.

When I started that hedge fund which I first mentioned here, I wrote my partners a preliminary letter trying to state and address the operating principles behind the private investment partnership. Below is that letter which I would like to share to everyone. I come back reading it from time to time just to remind psyching myself into that rational business paradigm behind the stock market.

January 6, 2011

DEAR FELLOW PARTNERS:

While it is too early to talk about fund returns and performance, I write and send this letter (along attached financial reports) to ground-break our partnership’s investing operations—to start this capitalist tradition of wealth-consciousness, transparency, and passion for business-perspective investing.

The Uncertainty of Bottom-Fishing Versus the Certainty of Striking the Bargain Deal Now

Bargain! What are you waiting for? You can never be so sure when the bottom is coming.  That's the uncertainty. You can, however, assess the bargain deal now, and strike it now. That's the certainty.

This is Part 2 of a Series. Go to Part 1: The Uncertainty of Price Movement Versus the Certainty of Underlying Value in Bear Markets

The following was my response to an online forum inquiry regarding bottom-fishing and timing the exact, opportune moment of getting into the bear market.

Timing (or rather, precision timing) isn't really so everything...

Once a bargain price is established, we won't necessarily have to fish for the bottom—because what matters is that the purchase has already been done and executed at a bargain price regardless whether the price further dives or not.

The Uncertainty of Price Movement Versus the Certainty of Underlying Value in Bear Markets

The Age of the Bear. There's no guarantee the stock will stop falling despite buying it at a bargain. But never mind that, because the intent anyway is to capture gains not necessarily through stock price appreciation but through consistent, predictable underlying value.

This is Part 1 of a Series.

The following was my response to an online forum inquiry regarding bottom-fishing and timing the exact, opportune moment of getting into the bear market.

While bargains even during a bull market are possible, a bear market, such as what we're experiencing now, offers the best opportunity for fire sale stocks. You can never be so certain when the stock price will stop falling. You can only be certain, nonetheless, that the stock is already a bargain relative to some underlying value.