Did a bit of thinking about how I want to handle strategic asset allocation going forward. On the simplest level, I’ll allocate according to the waterfall below.
- First, allocate as much as possible into retirement accounts. I think I can beat the returns possible in a retirement account, but it’s also nice not to have to worry about a chunk of money.
- Then, allocate as much as possible into my P2P lending strategies. At the moment, this appears to be no more than $10k.
- Next, push as much capital as possible into high ROI, low liquidity situations (share class arbitrage, spinoffs, distressed situations, small merger arb). Sources of ideas include the distressed debt investing blog and arbideas.com
- The remainder should be allocated according to classic portfolio theory investing via ETFs in bonds, commodities, forex, foreign equities, small cap, large cap, merger arb and other strategies. Perhaps I’ll follow the % allocation published by the Harvard endowment.
As you can tell, there’s a bit of tension in the amount that gets pushed to 3 or 4. Because the amount I can put into 3 is really dependent on the time I have to research such positions. Maybe a 50-50 split is the way to go.
New ideas (still pondering):
- Long Harvard Bioscience. An upcoming spinoff of an underperforming organ production unit could unlock 80% upside (35% from the spinoff itself, assuming it gets out at >$50M and the remaining 45% from an undervalued tools business at 12.5x P/E where competitors are at 19x).
- Interesting share class arbitrage in RUSH A and B shares. A trades for $25 whereas B trades for like $21 even though it has more voting rights…
- PRIS seems more and more like pure arb. I dunno where I saw downside before but thinking about structuring that trade differently now (i.e., adding in greater short on the A shares). I guess I worried about a massive rally, but the dividend gets paid out in A shares anyway…(Actually yeah.. I feared a massive rally to $10 where the shares wouldn’t convert at all. But if that were the case, I’d be getting huge cash dividends from the B shares.)