Early in my working life, I decided to save and invest much of my income. I was fortunate to have been exposed to the ideas of compound interest and dollar cost-averaging into stock mutual funds while I was working in the Korean stock market servicing some of the fund managers who managed these very mutual funds.
I worked out that by playing my cards right, I should be able to retire at 35.
I had envisioned “retiring” on my 35th birthday, in 2008. Unfortunately, that coincided with the Global Financial Crisis (GFC), and I didn’t quite feel I “had enough.”
However, coming out of the 2008 crash I made a bunch of money in a couple of stocks I bought in size during the collapse (ARB Corporation and Blackmores, both listed in Australia).
Blackmores, a health supplements and vitamin manufacturer, subsequently 10-bagged, going to hundreds of dollars per share. ARB Corporation, which makes parts and equipment for 4-wheel-drive and all-terrain vehicles, at least 5-bagged during the bull run that ended in March this year.
Thankfully, I also made a killing on a couple of takeover arbitrage trades in 2009, where the bidder ended up having to raise its takeover offer substantially to secure the acquisition. One I remember was a minerals analysis and assaying laboratory company based in Brisbane, Australia.
A global industry giant decided it would make a superb “bolt-on” acquisition. What few people realized was that the target company also had some listed “company options,” or warrants, as they are usually called in other markets around the world.
After the takeover bid, the warrants had gone deep into the money. I don’t recall the exact numbers, but say the takeover bid was pitched at $1 per share. The stock had rocketed from $0.60 to $0.95. The warrants, which allowed you to pay $0.50 to buy a share, were now worth $0.50 if the takeover bid closed. But they were still trading for well under that. So, you could buy them and make a killing.
With the generous takeover bid on the table, the 50-cent warrants should have gone from trading at $0.15 ($0.10 of intrinsic value plus $0.05 of “time value”), when the shares were at A$0.60, to be trading for at least $0.45 now that the shares were at $0.95.
Of course, you had to have the capital available to convert your warrants first, before accepting the takeover bid. As this was a small cap stock, mostly owned by retail investors, apparently not everyone had the capital to convert their warrants. So, they were selling them on market – for way less than the $0.45 intrinsic value that they were worth. They never got near the $0.45 I thought they were worth. They instead got to $0.30.
It’s funny how some people do this. They seem to take leave of their senses and sell stuff that has doubled in short order (from 15c to 30c), even though the reason for the price rise may well make perfect sense and justify even higher prices.
Long story short, I picked up several hundred thousand warrants at about $0.25, converted them for another $0.50 ($0.75 in total), and then sold into the takeover bid, which by that point had been raised by the bidder to $1.25. So, I made 50c per warrant profit on several hundred thousand warrants, or a couple years’ salary on one trade.
At that point I decided I could afford to say “Sayonara!” to employed life, and “retire.”
It was June 30, 2009, just under a month shy of my 36th birthday. I’d done it. I fulfilled my goal and “retired” at 35!
Big celebration all round, you’d think.
Actually not. What happened then was extraordinary. I suddenly felt completely empty.
I didn’t feel I had any purpose or anchor in life. I’d reached my destination. The journey was over.
I came to realize in the months that followed, that…
From that point on, I set some other guiding principles for living my life. I resolved to focus less on distant goals, and more on being present, enjoying each day, and living in the moment.
I travelled… to places I hadn’t been before. I went to the Maldives in late 2009, to South Africa for the World Cup in 2010, which I’ve written about before.
I went to New York City for the first time in my life, and to Panama for a marlin fishing trip with the Atlas 400 Club, which I had joined.
I also went to New Zealand for the Rugby World Cup in 2011. From there I went to Africa again on an epic safari in Botswana, and island hopping in Mozambique.
But all the while, I continued to monitor the markets and invest. Having no regular salary, I had to be careful with my capital.
I mostly stuck to two low-risk trading systems I had developed over the years
1. I bought into announced takeover deals for less than the offered price and pocketed the “spread” when the deal closed.
I had done over a hundred trades like this over many years. My data showed that, on average, 17 or 18 times out of 20 I made money. On the two unfortunate occasions the deal fell over, I usually lost big – as the shares collapsed, falling by 30% to 40% to the pre-bid price, or below.
But all the wins more than offset those losses. Plus, three or four times out of 20, on average, the acquiring company would increase its initial bid price due to a bidding war erupting, and I made even more money than planned. (Like with the laboratory company warrant trade described above).
2. I would buy shares trading for less than their net cash backing.
Or, for the more technically minded, buying stocks with negative enterprise value (EV).
For any company, EV = Market capitalization + Debt – Cash on hand. (So, if the company has no debt, and more cash than its market capitalization, EV is negative.)
In 2010 I had been buying up tons of shares in a small Australian mining exploration company called Midwinter Resources. Again, I don’t recall the exact details, but it had something like 17 cents per share in cash, and no debt. And I was buying all the shares I could in the 11c to 14c range.
The company even contacted me to see what I was up to, buying so many shares in a tiny stock with no current business, and an on-going dispute with a Russian businessman who had past dealings with the company.
I told them the truth; that I was a deep value investor who often bought into these types of “less than net cash” situations, which I saw as a low-risk way to make money in the stock market, which had the added benefit of not generally being correlated with the market indices.
Upon landing in Johannesburg in June 2010, when I flew out to attend the World Cup, I found out I’d had another big stock market win. Midwinter shares had opened that morning in Australia above its cash backing, at 18c or 19c.
With my price target hit, I took profits.
Feeling in a celebratory mood, I told our host – whose house we were renting (this was back in the days before AirBnB, but I had arranged a similar rental online with him) – to go out and stock the wine cellar with a selection of South Africa’s finest wines.
Those were the days!
During the second half of 2009, I had begun writing up my trades in an email newsletter to family and friends, which I called “Tim’s Trading Tips.”
In 2010, it somehow began landing on the desk of Simon Black, who had started the Sovereignman.com “Notes from the Field” blog around the same time I had initially “retired.”
He reached out to me. I had a conversation on the phone with him from my home in Manila, where I was living at the time. We seemed to “click.” We are quite like-minded.
We met up in Hong Kong. We went fishing in Panama. We met in Bangkok. And sometime in early 2011, at the invitation of him and his co-founder, I bought a small stake the Sovereign Man business.
I agreed to write The 4th Pillar newsletter, applying my takeover arbitrage and “less-than net-cash stocks” trading systems for the benefit of Sovereign Man’s readers.
It’s a partnership that prevails to this day.
We’ve done conferences and events in Santiago, Singapore, and Cancun, and we’ve met up with our readers all over the world. It’s been a lot of fun, and led to many valuable experiences.
Simon has been to all seven continents. I have spent time with him on every continent except Antarctica, where I haven’t yet been.
The only other person I’ve spent time with on six continents is my other business partner, Peter Tan.
He and I started work the same day at Lehman Brothers, Hong Kong, in 2001. We’re both Australian. His parents and my parents all migrated there. We both spent time studying at ANU in Canberra, me for my undergraduate degrees, Peter for his Chartered Accounting pre-requisite Finance units. Other than that, we’re quite different.
Around the time I first retired, Peter also reached out to me and we re-connected. He said that of all the people he’d worked with in equity research over the years, I was one of the few that made sense to him and seemed to actually have some stock-picking ability. He came to visit me in Manila, and we rekindled our friendship. We haven’t looked back since.
I split from my first wife in 2012 and got divorced in 2013.
But I remarried about 18 months later, and today have a young family that gives me (and many others) much joy.
As I state on my Globalvaluehunter.com website, quoting Rita Mae Brown:
“The secret to happiness is having something to do, someone to love, and something to look forward to.”
These are good rules to live by. Today, I am grateful to have all three.
When I “retired” at 35, after working intensely for 15 or so years, I suddenly had nothing to do.
When I got divorced, and not having had any kids, I had no one to love (other than my parents and siblings, who live far away from me, in Australia).
And having achieved my goals, and gone traveling to see the world, there was not a huge amount to look forward to.
Thankfully, I turned all those things around.
I realize you may tune in here more for my investment ideas and commentary, but I bring up all these experiences for a good reason.
I believe that your mental health, or “state of mind” is very important to your investment results.
Only when you are in a good place mentally do I believe you can be at your peak performance as an investor.
Even setting investing totally aside, there is little that is more important to us as humans to be in a good place mentally.
I urge you to reflect on that today, even if just for a moment. I’d love to hear your thoughts about it, too.
P.S. Here’s what I advise everyone. Save, hustle, invest, or do whatever you can to have two years of expenses set aside. Then, quit. Do your own thing. If you can make it work before the two years are up, you are FREE! If not, you can always go back to what you were doing. Then try again when you next have two years of expenses saved up. You might not make it the first time. But, I bet you will eventually — if you are diligent and dedicated to the task.