Update No. 75 – 31/08/12

We had about half of our holdings report this week.  Unusually, given we are mostly working in the thinly traded end of the market, there was minimal reaction to the reports. 

This is despite some very good results contained within, perhaps recognition will come over the next few weeks, although we will not be upset if it doesn’t as we expect to have a good quantity of cash (relative to the small size of our fund) available in early November after the completion of a corporate action involving our second (or 3^rd, depending on the day) largest holding. Our shares dropped more than the indices this week.

Around this time, reporting season last year, I reviewed the Slater & Gordon result, I thought it instructive to look again at the factors I reviewed to see if any had improved.  They have this year only converted 11.5% of revenue into NPAT (versus over 15% last 2 years), although revenue grew by 19.4%, salaries (and some other notable costs) grew much faster, salaries up 25.1%.  EPS actually shrank by 15.2%, in short, the result was abominable I couldn’t even find a redeeming feature, debt is up, operating cash-flow is awful, even at only about 11.5x FY2012 earnings, one could not describe SGH as cheap, the one redeeming feature I found last year was that rental cost growth slower than NPAT growth, this year it grew faster than even revenues! The listed law-firm concept is lining the pockets of someone, but it is not shareholders.

I think a lot about retirement, I suspect much, much more than any other average 35 year old male.  I hope to still be managing money in 30 or 40 (or even 50 or more) years, with luck I will never need to retire, but for most people, retirement at about 65 years of age is the goal.  An article I found recently “Planning for retirement? Plan to live to 100” indicated there are a growing number of financial planners using a ‘triple-figure’ terminal age as part of their planning.  This makes absolute sense to me, it staggers me how little people think about their retirement, a blog I wrote back in March 2011 dealt with this.  Given that the average life-expectancy in Australia is in the early 80’s, planning out until around 100 years make very good sense to me, provided I can maintain reasonable health and my faculties, I would love to think I could get that far. If 85 was average, I couldn’t plan to that anyway, who wants to be average?

For the person who has approximately the right amount of funds to see them to 100 years, I think the theory of (100 – age) to represent a fair ‘risk assets’ exposure makes a lot of sense, that is if you’re 50 years old, a 50/50 split between cash holdings (bond term deposits and the like) and riskier assets (equities/property etc).  For someone with a greater buffer, I would lean more heavily on equities, but unless there was a long history of fairly short life-spans in your family, I reckon targeting 100 years makes good sense – Tony Hansen 31/08/12.

*Link to External Audit

EGP Fund No. 1 Pty Ltd. Up by 9.86%, leading the benchmark by 2.75% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 13.14%, leading the benchmark by 17.77% all-time (April 1^st 2011).