Fisher Funds stocks

[Red Baron]

NAV is $1.41 and exercise price of the warrants is probably going to be $1.25 so a real quick and easy calculation suggests the difference at 16 cents = warrant price.  Gosh this is easy eh, primary school stuff.

It can't be that easy I thought so I dusted off and polished up my trusty Black and Schoals option pricing model and played around with that almost endlessly with all sorts of different adjustments for different estimated volatility ratings of the market, anything from the current VIX on the US market of 14 to a more common recent average of 19.  Risk free rate varying from 5% down to possibly as low as 4%, 8% of dividends over the next 12 2/3rd's months, tried plugging in the current share price, then using the NTA, then adjusting the NTA for the dilutionary effect of the exercise of approx 80% of warrant holders and one or two other things and got answers varying from 12.3 cps to 14.5 cps.  I then decided that none of these answers are probably right because the fundamental weakness of this model is it's based on the random walk theory that nobody can predict the future direction of the market.  I reckon BP would have stopped right there and called it a day and said fair value is 12.3 - 14.5 cents and I am sure some professionals will get results like this and be happy with that answer.  But not this wily old Dog who picks up the distinct smell of this answer anywhere in that range being B.S..   Beagles always trust their nose because most of the time its right. So after about 2 hours of doing what I proudly thought was a pretty good professional job of looking and analyzing this I realized that the random walk theory probably doesn't hold water when you are at the top of the interest rate cycle.

So after doing all that I got to thinking the Black and Shoals model with its random walk theory probably needs to be "Beagalised" for the top of the interest rate cycle factor and what effect coming down off the peak has on the market over the next ~ 13 months.

But how much net present value does this add to the warrant ?  Gosh that's a really tough question.  Too hard really.  There must be a shortcut answer.  Not having a Beagle any more I decided to check how many claws Tony the Pony has on his four paws...maybe the answer to this mystery lies in there I mused after having probably consumed one too many beers and pondering how to Beagalise the Black and Shoals model for probably far too long LOL.

What do you know, he has 16 claws in total so at this point I have concluded the answer is that no matter if you take a really quick and dirty look at valuing this, as per my opening paragraph of this somewhat mindless rant of 16 cents, or you Beaglise the Black and Shoals pricing model for how many claws my dog Tony has to account for the top of the interest rate cycle, the answer is the same, 16.  This cannot be a coincidence, surely ?

We'll see how silly this all is tomorrow. or maybe it's right on the money and Beagalising the Black and Shoals model no matter how ridiculous it sounds, is actually a very cunning methodology....but then again I could have used the first quick and easy method, saved myself hours of musings and calculations and got exactly the same answer LOL

Basil, my learned beagle vriend.  Your accountobabble is above ze level an old pilot can process.  Zo I resort to 'Google translate' to understand you.

VIX:  "The VIX measures S&P 500 options, which are options contracts that take their prices from Standard & Poor's 500 – a capitalisation weighted index of 500 stocks in the US. They give the trader the right, but not the obligation, to trade the S&P 500 at a set price, before a set date of expiry."

"It judges the expectations of the stock market over the following 30-day period.   It represents the markets expectations of volatility over the coming 30 days."

"Is it better if the VIX is high or low?"
"In general, VIX values of greater than 30 are considered to signal heightened volatility from increased uncertainty, risk and investor fear. VIX values below 20 generally correspond to more stable, less stressful periods in the markets"

"What is the current value of VIX today?"
15.44, but on the rise.

The VIX model is based on a forward looking view that the path of a market going forwards is random.  However, with your knowledge Basil, of the interest rate cycle, while you can't predict which way interest rates will go tomorrow, you do have a good idea that interest rates will be lower in a years time (something that the model cannot incorporate).  This means the market has an unseen future tailwind that will cause the Black-Scholes model to underestimate (in this case  the upside of) share price volatility.

Therefore your solution is to take the Black-Scholes model rezult and add a 'vudge vactor' on the upside?

I theenk zhat is vhat you are zaying, but no doubt you will "zhoot me down" eef I have eet vrong.

One more thing.  Although I admire your accounting prowess, I call you out on your racism.  Black or white, we are all really different shades of pink when it comes down to it.  So I call on you to cease your 'Black-Scholes' racist talk.  I have done a word frequency analysis on your posts, and the most frequent colour mentioned is pink - which ties in nicely, in a kind of spooky way.

So in honour of your learned modification to 'Black-Scholes' modelling, I hereby coin ze phrase the 'Pink-Scholes' method to reflect your thinking.  I hope you will accept this more neutral naming of your thought processes with good grace, and use 'Pink-Scholes'  from hereon into ze vuture.

RB

   

[Basil]

Good work there Basil

Pricing mechanisms bit too sophisticated for most so punters will do the easy sums and buy/sell what they think is fair

But as you pointed out previously these warrants are a vehicle to leverage returns over the next 12 months from KFL ......whether one is intending to take the 125 cent shares or capture what could be 100% to 200% returns if you time  exit right.

Your trusty Black-Scholes thingie will be useful when punters try to understand the warrants price in 3 or so months time .....so don't put it away

Thanks mate, will keep that Black and Shoals model handy...seems not too shabby at picking the right price.

LOL Red Barron.  Luv urrr werk.

[winner (n)]

Thanks mate, will keep that Black and Shoals model handy...seems not too shabby at picking the right price.

LOL Red Barron.  Luv urrr werk.

Surprised that some haven't asked what the heck does the VIX have to do with KFLWH

At least the Baron knows what the VIX is now

[Untamed]

KFL Annual Report out and Annual Meeting 4th August. Who is voting "yes" to increasing the directors fee pool? (purely out of curiosity)

[Basil]

Inflation.  $157,500 to $185,500 five years later.  Fair and reasonable ?
I put the directors' fees last approved at $157,500 in 2018 into the Reserve Bank inflation calculator and asked what is that worth today and the answer is $189,747.77.

Aside from that, with warrant issues and DRP the size of the company has expanded and the pool seems pretty modest in the first place.  In addition I noted in my 5 year performance review of the group all funds had significantly exceeded their benchmarks over that timeframe.
Happy to tick the approve box as it seems fair and reasonable to me.

The Fisher funds group always put on a good lunch after the meeting so I might wander along to the annual meeting this year if time allows.

Managed to get some extra warrants at well below what my dog or my fancy Black and Shoals option pricing model thinks they're worth so it's a happy day.

[Left Field]

It's been interesting reading all the excitement on various forums re the issuing of KFLWH's.

Bought to mind a distant memory of IFT warrants which caused similar excitement way back in 2007 when issued, so I did a search back in time to see what happened back then.

Interestingly, by exercise date in 2012. The IFT warrants were worthless. http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/IFT/223427/158114.pdf

Just goes to show that Warrant issues/speculation aren't always a path to riches.

But of course this won't happen in the KFLWH case. Interesting though.

[Basil]

Just goes to show that Warrant issues/speculation aren't always a path to riches.
But of course this won't happen in the KFLWH case. Interesting though.

I can't recall anyone saying they're a certain pathway to riches.
I think we all understand that for a very modest outlay you take a position, (possible purchase of more shares in late July 2024 at $1.25) on a company with current NTA, (that's last reported at $1.41).  If those assets go up a lot the warrants can be very valuable, (the 2021 series traded in a range of 3 to 45 cents, ask me how I know this ), but if the underlying assets like their stake in IFT fall heaps, the NTA as at late July 2024 might be under $1.25 rendering the warrants worthless.

If there was a certain pathway to riches, we'd all be Billionaires.
For what it's worth I bought more today at 7 cents knowing they could be worth anything from nothing, to possibly as much as 45 cents in July 2024.
One thing I really like about warrants is that they have a lot of potential upside, whereas at 7 cents, or better still if you get them allocated free, if the world goes to Hell in a handbasket, the most you can lose is not very much.

Not advice, but what I do to avoid ever getting in over my head in terms of numbers held is to only buy any number of warrants I am fully prepared and comfortably resourced to exercise at $1.25.   Where people get into a situation where they are holding so many of them they cannot afford to exercise them, they become forced sellers late in the warrant's lifespan.  You never really want to be in a situation where you are a forced seller of anything.

[Left Field]

I wasn't referring to you Basil, nor quoting you. Nor did I use the word 'certain.'

However I think you will agree some of the speculation (primarily on the other channel,) was getting a tab over-enthusiastic at times.

[snapiti]

some astute investors on here turning into straight out gamblers by investing in KFL warrents.......KFL fully invested in NZ.... much of the OCR tightening yet to hit the broader economy and we are heading into an election that could see muppets and ideology rule the day.
Think I would have more fun at the casino, probably better odds of winning as well   

[Basil]

Always a bit of excitement that should be expected with any new financial instrument that comes along that offers the prospect of outsized gains.  Human nature being what it is mate.

Well, after a few drinks one night I started counting my dog's claws and thinking that was somehow relevant LOL so I'm probably just as guilty as any of some speculation but to be fair I did put up a valuation range under a range of scenario's using the well-respected Black and Shoals option valuation model.

Its fair enough that you cautioned they could be worthless.  I'm happy to acknowledge I experienced this in May 2023 with my 200,000 Barrmundi warrants and flushed just over $9K down the toilet.  Other times with other warrant issues I have done extremely well.

[snapiti]

Always a bit of excitement that should be expected with any new financial instrument that comes along that offers the prospect of outsized gains.  Human nature being what it is mate.

Well, after a few drinks one night I started counting my dog's claws and thinking that was somehow relevant LOL so I'm probably just as guilty as any of some speculation but to be fair I did put up a valuation range under a range of scenario's using the well-respected Black and Shoals option valuation model.

Its fair enough that you cautioned they could be worthless.  I'm happy to acknowledge I experienced this in May 2023 with my 200,000 Barrmundi warrants and flushed just over $9K down the toilet.  Other times with other warrant issues I have done extremely well.

nothing wrong with warrents, I just think your timing on these one's are not the best, such is my outlook for the NZ economy.
I to enjoy a wee tipple, one session ended in me taken out a share in several different race horses, although I did say to my self at the time that I was flushing money down the toilet and the return was fun only

[Basil]

some astute investors on here turning into straight out gamblers by investing in KFL warrents.......KFL fully invested in NZ.... much of the OCR tightening yet to hit the broader economy and we are heading into an election that could see muppets and ideology rule the day.
Think I would have more fun at the casino, probably better odds of winning as well   

There's a number of ways to deal with the warrants and they can be a risk management tool as well as pure speculation.
For example, if someone bought 100,000 warrants at 7 cents they enjoy all the upside in the underlying asset, they have in effect an option on the upside of $141,000 of assets and then sold $134,000 of either Kingfish shares or other N.Z. shares and effectively take $134,000 off the table in terms of risk.  Doing that means the most they can lose on that $141,000 of assets is now $7,000.  If as you suggest, the Muppets and ideologists get another term they might be very pleased they partially mitigated their portfolio risk.
On the other hand if National and Act form the next Government and the market goes up they still capture all the gains they might have otherwise made.

Speculation - Some people might buy say 1,000,000 warrants at say 7 cents for $70,000 without the resources to exercise them in due course ($1.25m) speculating they can sell them for more down the track.  They might win big or blow the lot.

Punters paradise or risk management tool, it's all about how you go about things.

[Crackity]

Always a bit of excitement that should be expected with any new financial instrument that comes along that offers the prospect of outsized gains.  Human nature being what it is mate.

Well, after a few drinks one night I started counting my dog's claws and thinking that was somehow relevant LOL so I'm probably just as guilty as any of some speculation but to be fair I did put up a valuation range under a range of scenario's using the well-respected Black and Shoals option valuation model.

Its fair enough that you cautioned they could be worthless.  I'm happy to acknowledge I experienced this in May 2023 with my 200,000 Barrmundi warrants and flushed just over $9K down the toilet.  Other times with other warrant issues I have done extremely well.

Hey Bazza

Love your wine valuation with extra dew claws 😂

This is your mate Shoals  - overall he is pretty discredited in my eyes -  he believed his models / doubled down / doubled down again and then blew up 🤭


LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron Scholes and Robert C. Merton, who three years later in 1997 shared the Nobel Prize in Economics for having developed the Black–Scholes model of financial dynamics.[2][3]

LTCM was initially successful, with annualized returns (after fees) of around 21% in its first year, 43% in its second year and 41% in its third year. However, in 1998 it lost $4.6 billion in less than four months due to a combination of high leverage and exposure to the 1997 Asian financial crisis and 1998 Russian financial crisis.[4] The master hedge fund, Long-Term Capital Portfolio L.P., collapsed soon thereafter, leading to an agreement on September 23, 1998, among 14 financial institutions for a $3.65 billion recapitalization under the supervision of the Federal Reserve.[1] The fund was liquidated and dissolved in early 2000.


More money than sense? and most of it not his 🤭

[Basil]

Tony is really miffed that they're not trading at 18 claws, opps sorry, cents LOL.
Greed does funny things to all sorts of people mate.
Black and Shoals option pricing model still in widespread use by professional valuers today.
The model's a good one in my opinion....best we have but it can't solve the age old human nature issues of fear and greed and it's not predicative as to overall market performance.
The underlying hypothesis is of a random walk theory with the market.
When you drink too much and start thinking your dog has special answers or that you can pick the market direction for sure, is probably how people get into trouble LOL
https://www.investopedia.com/terms/b/blackscholes.asp

[snapiti]

There's a number of ways to deal with the warrants and they can be a risk management tool as well as pure speculation.
For example, if someone bought 100,000 warrants at 7 cents they enjoy all the upside in the underlying asset, they have in effect an option on the upside of $141,000 of assets and then sold $134,000 of either Kingfish shares or other N.Z. shares and effectively take $134,000 off the table in terms of risk.  Doing that means the most they can lose on that $141,000 of assets is now $7,000.  If as you suggest, the Muppets and ideologists get another term they might be very pleased they partially mitigated their portfolio risk.
On the other hand if National and Act form the next Government and the market goes up they still capture all the gains they might have otherwise made.

Speculation - Some people might buy say 1,000,000 warrants at say 7 cents for $70,000 without the resources to exercise them in due course ($1.25m) speculating they can sell them for more down the track.  They might win big or blow the lot.

Punters paradise or risk management tool, it's all about how you go about things.

At first I thought you were gaslighting me Beagle, but thats not your style so I gave your post some more thoughts......I suppose one could look at it as a risk management tool.....huge upside potential with a lessor downside risk........although in this case me thinks there is a lot more downside risk than you maybe inputting