On November 1st, 2019, the DYME3Y Investment Club will officially launch. The full name of the Investment Club is “Double Your Money Every 3 Years” – and this is the mandate of the club. Investors will contribute their hard-earned money and the minimum goal will be to double your money. And this is whether markets are up, down, or go sideways: This is about achieving pure alpha.
To achieve this return, annual returns must be slightly north of 25%. And to achieve 25%, it will be necessary to have concentrated portfolios that employ leverage which means that these projected above-average returns will require above-average risk. We want anyone who goes into this to have their eyes wide open about the potential downside.
Moreover, there will be zero liquidity until the end of the three-years. Assuming that everything works out and the returns are achieved, there will be a new Investment Club that will launch November 1st, 2022. It should not be considered a tax-efficient investment vehicle: There will no cash distributions until October 31st, 2022 while if everything works out, there should be significant realized capital gains each year.
We anticipate that the Investment Club will have at any one time a maximum of 10 positions and perhaps as few as 5. The Investment Club will take both long and short positions and employ (at times) sophisticated option strategies.
DYME3Y’s decisions will ultimately by based on discounted cash flow. That being said, however, we will be also consider technical factors (for proper entry points) and look at any one company’s past historical ratios such as price/book and price/sales.
The investment process will go as follows: There are a number of financial services professionals who have indicated interest to serve as analysts. They will submit reports in a standardized format to the seven person Investment Committee (more on that in a moment) and the Investment Committee will discuss the merits of the particular idea. Then the matter will go to a vote with respect to initiating a position, and if a minimum of 5/7 Committee members agree, then the position will be initiated. I will head the Committee and have the unilateral ability to over-ride that decision. Quite simply: I will be able to block any action; however I will NOT be able to force action unless 4/6 other Committee Members are on-board.
Once there is agreement to initiate a position, I will be given the authority to formulate the most appropriate strategy to maximum returns while minimizing risk. Let me use a specific example: We have agreed that ABC is over-valued at $100 per share and our target price over the next 12 months is $60. We could short-sell. Or we could buy an in-the-money put or out-of-the-money put, or sell an in-the-money call. Or perhaps execute a calendar spread. Various options will be discussed by the Investment Committee, but logistically it will be impossible to meet and consult prior to every single decision.
Once a trade is executed, all investors will receive notification by e-mail. The rationale for the position (long or short) will be explained and the strategy will be discussed briefly. At the end of each month, a summary of the current state of the portfolio will be sent out by e-mail to all investors and it will also be posted to my website: www.michaelhlinka.com.