May 2018: Exits behaving like buses

May was a pretty extraordinary month for my finances.

In the wider world, the most obvious newsflow appeared to be about Italy’s attempts to form a populist government, and the tariffs/trade war begun by Trump in the previous month. This led to the European currencies falling against the ‘Pacific’ currencies (USD and AUD is what I care about).

The FTSE-100 rose almost completely to compensate for the drop in the pound, as it often does. Eurozone stocks however fall slightly, in what was a marked shift versus UK stocks.  And US equities rose slightly, which I think was a mixture of higher oil prices, further tech boom, and generally a sense that Trump is making some progress.  Bonds barely moved.

2018 05 FvL market returns

But in my little bubble there was a lot more news than this.

The most dramatic news for me was in one of my illiquid holdings, where an offer to buy it has just come through unexpectedly, at a significant price premium to what I had valued it at.  This is a significant holding for me, so the price premium is worth six figures. However, it is in a pot which includes my legacy private banking holdings, and I don’t include in my ‘invested portfolio’ tracking, so you won’t see this significant uptick in my monthly returns tracking.

Secondly I have had confirmation that I can expect the second of two windfalls I wrote about a couple of months ago to arrive later this month. This will add a useful sum to the invested portfolio. Between them, all these bits of good news increase my returns, or increase my portfolio, or both.

Overall I have had three unanticipated ‘exits’ within about one month.  This will significantly reshape my portfolio. When exits are as rare as hen’s teeth, I feel blessed.

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How a tech billionaire invests

I met a billionaire recently.  I say billionaire, but I don’t know for sure.  He was definitely a paper billionaire at one point before the dot com crash – whether he still is I’m not sure, but it seems like a fair bet. He is a serial entrepreneur who made his money by selling his tech business for >>$1bn (in an all-stock deal), a long time ago.   He is now a Euro-elite type, being based on the continent and travelling frequently around Europe.

As it happens, I got into a brief conversation with this chap about how he manages his money.  I found it quite interesting.  Here are a few snippets as I remember them. Let’s call him David.

David has set up a Family Office which is where the money is managed from. He doesn’t have a ‘day job’ any more, but is clearly a busy guy.

Image result for three pots of money

Are these three pots all equivalent?

David thinks of his investments in three pots, and takes a specific approach for each:

  1. Public equities. While David is well aware of the ‘textbook’ investing approach (low fees, diversified assets, don’t try to beat the market, rebalance regularly) he doesn’t directly follow this; he employs some investment professionals to manage the money.  I believe he diversifies widely, taking in commodities, hedge funds et al.
  2. Private equities. David specialises in ‘value-added’ angel investing, mostly (or possibly exclusively) in the tech sector.  His investments vary in size from $500k to €10m+.  He has 30+ such investments and is reasonably hands-on with several.  My impression is he is looking for visionary, ambitious businesses based in Europe, where he can put some serious money to work – and he is not afraid of being the biggest shareholder.
  3. Real estate.  He looks for real estate to ‘double or triple’.  I asked ‘so, IRRs of 5-7%?’ and was firmly put in my place – “no; 5% would take 14 years to double; I am talking doubling in 1-2 years”.  He is prepared to put in a bit of development/planning / etc effort to create value.  He owns at least one large (100+ unit) residential block.  Interestingly, he said “if I was simply trying to maximise net worth for least effort/risk, I would invest 100% in real estate”.  He doesn’t appear to consider his c.£10m primary residence part of his investment portfolio.

    Image result for €12m mansion

    Not David’s actual mansion, but you get the idea

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All the money in the world

I’m reflecting on 24 hours in my life, last Sunday.

Mrs FvL was away for the weekend, no kids are around, and I’m home alone. While I’d organised a couple of things on the Sunday, I had nothing planned on the Saturday night.

On the Saturday evening, having had a decent lunch in central London with an old friend, I decided, on a whim, to go to the cinema by myself to see a movie – an inane movie Mrs FvL would have no interest in anyway. I have a choice of four cinemas within walking distance, including two of the upmarket Everyman chain, so I took my pick of location, time and movie and booked a ticket. My favourite is a particular local Everyman, who don’t do popcorn and do do far nicer sweet and savoury goodies plus a range of wines – served to your comfy sofa/seat with waiter service. What’s not to like? It comes with a £20 ticket price, naturellement, but as with many things I chalk that one up as the price of quality.

The following Sunday morning I had two errands scheduled. One was to do with some minor remedial work that my Dream Home needs. Minor work this may be, but it is in a conservation area and is of quite a technical nature which is controlled by the local council. If I don’t abide by the council’s protections, the maximum penalty is a jail term. So I’m abiding. This too is the price of quality. Thankfully I’ve managed to arrange two builder/ planning experts to meet me on a Sunday morning to discuss.

Next up, I take my builder on a five minute drive across the local park, to the Previous House. Traffic is light and, as usual, I can park <10m from the house even though I no longer have residents’ parking. I’ve decided this is the day to repair/replace the Previous House’s garden fence, which is quite a specialist job due to the stipulations of Mrs FvL. It’s becoming a nice sunny day, and the Previous House abutts the local green space, so it’s a nice place to hang out. Soon after we arrive my tenant emerges from the Previous House; she is a lovely character and offers us tea/coffees/etc. All smiles.

My builder and I assess the work and agree what raw materials we will need for the fence. I leave him to start the heavy lifting and I head off to the nearest B&Q/similar. I have a choice of three B&Qs within 15 minutes’ drive and opt for one about 10 minutes’ drive away. I find what I need, which barely fits in the car, and have it back at the Previous House – along with some refreshments for my builder – forty minutes later.

In my absence, my builder has had a discusssion with the neighbour whose house borders one of my fences. Soon enough, the neighbour reappears, offers us both a drink, and we have a bit of a chat about the work I’m doing as well as some other work on the road he and I have been discussing. He asks me to make sure that the fence looks better from his side than my side; this is North London after all. He disappears.

I leave my builder to crack on and I return to the Dream Home for some lunch. The neighbourhood has woken up and is grinning in the sunlight on my brief drive through. I bump into some of the neighbours of the Dream Home who have lived there for longer than I’ve been alive. They have been in poor health so I haven’t seen much of them and we have a bit of a catch up.

After my own lunch I return to the Previous House, and find my builder has made good progress. Another neighbour waves a greeting and we exchange a few words.

My builder then asks for some garden wire, which we don’t have to hand. So I go a few doors along where I disturb one of my favourite former neighbours who is getting ready for a long haul holiday he starts this evening. He takes the trouble to scour his garage for some garden wire and gives me something roughly suitable, which I scurry off with.

The bordering neighbour reappears. He points out that the fence by this point looks a lot better on my side and, erm, much less good on his side. He’s right. We spend half an hour tarting up the fence on his side. The neighbour, very much mollified by now, offers us another drink.

As we are starting to pack up, a ‘distant’ neighbour appears who I hardly see. We get into quite a deep-and-meaningful conversation. Time passes. Eventually she moves on.

Finally we wrap up on the fence building project. I drop my builder at the nearby station (<5 mins drive) and then head home (<5 mins further).

I finish the day by strolling back across the park to the pub, where I enjoy a couple of drinks with the locals, who I know quite well by now.

It’s been a good day to be alive, and it’s one of those days to appreciate how lucky I am.

I have, literally, world class facilities all around me within walking distance or a few minutes travel. I have access to professional services pretty much 24/7. I live firmly within arguably the greatest metropolis on Earth. I didn’t grow up in London, and we didn’t have the sort of facilities and convenience I simply take for granted these days.

And yet, I have beautiful countryside around me – between me and my local pub, for instance. I live in a community, in which I have formed strong bonds. My local neighbours provide friendships, support, security and the occasional pint. I do the same for them.

We didn’t have the same quality of community in the local village where I grew up. Which is ironic because my local ‘hood has the type of community commonly associated with villages, and not commonly associated with large cities like London.

I wouldn’t leave London for all the money in the world.