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.

I may have already mentioned this to some of you: I might move a motion to revise our Articles to be more flexible in facilitating frequent capital infusions into the partnership—although admittedly not internally-generated growth, these additional external infusions shall still stimulate our fund’s size which in turn would give way to better economies of scales in our operations (i.e. further spreading fixed costs, particularly maintenance expenses, to produce better returns). This would allow existing partners, should they wish, to add into their equity in more frequent intervals, and also accommodate potential investors in a timelier manner. I am well aware this may bring up certain issues such as to how profit-sharing will be arranged; rest assured I’m anticipating these and shall come up with a proposal for everyone’s approval.

With this being the first issued letter to partners, I’d like to take this opportunity to welcome and thank you for starting this journey with me towards wealth and financial independence. Should you have any questions, comments, or suggestions, feel free to contact me.