Interview For How I Grow My Wealth

Interview For How I Grow My Wealth

Earlier this year John from How I Grow My Wealth asked me a question about P/E and EPS on my post: Why The P/E Ratio is Useless And How To Calculate EV.  And then we talked further about this and other value investing and business topics on Twitter and through a couple of phone calls.

Shortly after this, John asked me if I’d like to do an interview for his site and of course I said yes after our fantastic chats.

Below is a brief excerpt of the in-depth interview I did with him for his site

To view the entire interview please go to this link which will take you to it.

The interview includes talk about value investing, self-improvement, the $8 million acquisition I attempted last year, inspiration from Bruce Lee and Grant Cardone, and more.

I hope you enjoy it.

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I’m very excited to be sharing this interview with Jason Rivera, a man who in his first five years achieved better returns than Warren Buffet did in his first five years. Who is Jason Rivera? Let’s get into the interview and you’ll find out!

John: Can you provide some background on yourself and Rivera Holdings for those who aren’t familiar with you or your company?

Jason: Yes. I’m a self taught value investor who focuses on small and obscure public companies to buy for my investors. And I’m now also looking for private businesses and cash flow producing real estate to buy as well.

I’m the author of the acclaimed value investing education book How To Value Invest. Have run the blog Value Investing Journey for more than five years now. Wrote a 60-page booklet detailing the immense power of investment float that I released for free to readers of my blog and followers – on Twitter and Facebook – titled All About Float. Have written for several publications and investment newsletters including: Seeking Alpha, Guru Focus, Insider Monkey, and Palm Beach Research Group among others.

I mentor others on how to become great value investors, consult on projects requiring business analysis and valuation skills, and run my investment holding company Rivera Holdings LLC. out of the Tampa Florida area.

John: When you were a kid did you know you wanted to grow up to be a value investor?

Jason: Ha 🙂 no. I don’t have any stories like Warren Buffett where he was buying things at wholesale prices – gum if I remember right – and then selling them at a higher price to his classmates as a kid.

Unfortunately, I was far more interested in playing sports, chasing girls, and playing video games than investing when I was a kid.

I always knew I wanted to make money, start businesses, and help people but the value investing part and putting effort into making those things happen only began happening in my late teens and early twenties…

Thanks a lot John for asking me to do the interview.  I hope our readers gain something from this.

2016 Performance Review – Five Full Years Beating Buffett and Crushing The Market

2016 Performance Review – Five Full Years Beating Buffett and Crushing The Market

The above quote from Benjamin Graham is one of my favorites.

It means in the short-term emotion and psychology drive the market.  But in the long-term the market – and individual stocks – get judged on how well they’ve operated and grown over time.

This is great news for us as long-term oriented value investors.

If we can find a few great companies at cheap to fair prices and hold them for the long-term, we’ll have great returns over time.  Why?  Because…

“Time is the friend of the wonderful company, the enemy of the mediocre.”  Warren Buffett

With this as a backdrop, below is the 2016 performance review.

For links to 20122013, 2013 updated numbers, and 2014 and 2015 performance reviews go to the previous links…

Also, as noted above I made multiple mistakes in 2013 when calculating my returns.  The numbers below – which show the five full years between 2012 and 2016 – are correct.

2016 Performance Review

The hard work, extreme patience, discipline, and low returns from 2014 and 2015 paid off in 2016.

I only bought and recommended three new companies all year for the portfolios I manage and for Press On Research subscribers.

But the companies I still own from 2014 and 2015, combined with the three new recommendations in 2016, produced a fantastic 32.8% return on average in 2016.

Here are the highlights…

  • One of the companies I recommended while working at the investment newsletter got bought in 2016.
  • Another company I recommended to Press On Research subscribers merged with its parent in 2016.
  • Another two Press On Research picks from 2015 more than doubled in 2016.
  • None of the 12 total picks I’ve made for Press On Research were down in 2016.
  • At the time of their recommendations, all companies were well below $1 billion in market cap.
  • I now own two companies – the two that more than doubled – that are worth more than $1 billion in terms of market cap.
  • The average market cap at the time of my 12 recommendations was $246.4 million.
  • The average market cap of the 11 companies I still own – not including company that got bought – is now $413.3 million.

Below is the full spreadsheet…

2016 VIJ and POR Performance Review

If you’d like to know what the companies are you need to subscribe to Press On Research.  And remember Value Investing Journey free subscribers get a 50% discount on a Press On Research subscription.  If you’re a Press On Research subscriber I’m sending an unedited version of the spreadsheet your way.

What does this mean for cumulative full five-year returns now?

Five Full Years Beating Buffett…

I don’t compare myself to Buffett because I want to be the next Buffett.  But because everyone knows who he is as he’s regarded by most at the best investor ever.

I want to be known as the first Jason Rivera when my career is over.  At the end I want to be known as a better investor and capital allocator than Buffett and to produce better returns over time than he has.

At least for now – five full years into my career – I am achieving this lofty goal by beating Buffett when compared to the first five years of his career.

In the first five years of my career I’ve now produced average – non-compounded – returns of 29.7% each year.  Or a total cumulative return of 148.3% over that period.

In the first five years of his career Buffett produced average – non-compounded – returns of 25.4% each year.  Or a total cumulative return of 126.9% over that period.

This means in the first five years of our careers I’ve produced returns 4.3 percentage points better each year than Buffett did in the first five years of his career.

But what does this 4.3 percentage point excess return per year mean in dollar terms over this period?

Assuming we both started with an asset base of $10 million at the beginning of the five-year period I would have grown that $10 million into $36.7 million after five years.  Buffett would have turned his investors $10 million into $31 million in that time.

This is why every point of excess returns is so important.  And why you need to be aware of any fees charged to your account by your money managers.

Over a long period – or in this case five years – “only” an excess 4.3 percentage points each year would have made investors $5.7 million extra.

Not only am I achieving my lofty goal of beating Buffett through this time, but I’m also crushing the market as well.

And Crushing The Market

From 2012 through 2016 the Dow Jones Index produced a total cumulative return of 37.4% for the five years or 7.5% per year on average.

The S&P 500 produced a 43.2% total return for the five years or 8.6% per year on average.

And the Russell 3000 index – closest thing to a small cap index – produced a 43.5% total return or 8.7% per year on average.

I’ve produced returns in excess of these indexes by 21%, 21.1%, and 22.2% points each year over these five years.

Assuming a $10 million asset base I would have produced $21.5 million more for investors over this five-year period than the Russell 3000 index would have.

  • $36.7 million minus $15.2 million the Russell 3000 would have produced.

I started posting my results publicly in 2012 because this is when I began doing “real”, in-depth, investment research and analysis instead of speculating.

Results have been great thus far…  Better than I expected… But there’s still a lot of work and improvement necessary to continue this.

Other Highlights From 2016

Thanks to sales of How To Value Invest and Press On Research subscribers we continued helping Mhicaella and her family in the Philippines.

The last letter we received from her mother told us that Mhicaella is now in kindergarten.  She loves P.E., singing, and drawing, and is learning to read and write so she can begin writing letters to us soon.

Here is a recent picture of Mhicaella…

Mhicaella Picture

With your help, some of the things we’ve been able to help provide for her and her family over the last year are school supplies, medical and dental care, and Christmas gifts for her entire family.

A percentage of all sales of my books, services, and products sold will continue going towards charities like these well into the future.  And I plan to expand and sponsor more kids and families in 2017 now that Rivera Holdings is up and running.

Thank you so much for helping with this.

***

Other highlights from 2016 are:

  • Started Rivera Holdings LLC.
  • Began raising capital.
  • Grew personal connections by an exponential amount due to capital raising efforts.
  • Grew from 320 subscribers between Value Investing Journey and Press On Research to now 455 total subscribers between those two services and now also the Rivera Holdings Mailing List.
  • Read between 50 and 75 books this year.
  • Grew from 720 followers on Twitter as of the beginning of 2016 to 1,008 now.
  • Grew from 790 connections on LinkedIn as of the beginning of 2016 to 896 now.
  • As mentioned above we continued helping Mhicaella and her family in the Philippines survive and thrive.
  • For the first time in three years expanded my circle of competence in terms of industries.  I now understand and feel comfortable evaluating three new industries – marinas, hotels, and multifamily real estate.
  • Also expanded knowledge and experience into the private equity/investment arena as well.

Conclusion Thoughts

As mentioned above the patience of the last two years paid off this year in a big way.  Going forward I wouldn’t expect results to continue this trend.

Due to the still ever rising market and valuations it’s become harder to find great cheap companies to buy.  I only recommended three companies in 2016 and all those were in the beginning of the year before the market took off again.

Barring a major sell off I expect to add few to no companies again in 2017.

As I’ve mentioned already mentioned to Press On Research subscribers I will only buy something that meets my ultra-strict criteria.  Under no circumstances will I buy something because I haven’t bought in a while.

This helps keep us only in great companies and should help us continue producing exceptional returns over time.

No matter what the market continues to do though over time I’m confident we’ll continue to beat the market by a wide margin.  And continue to compound our wealth over time.

I’m still raising capital for my new investment holding company so if you’d like more information about how you can invest with me and the market-crushing returns I’ve produced thus far email me at JasonRivera@valueinvestingjourney.com, call me at 605-390-3157, or sign up for the Rivera Holdings mailing list.

As always 2016 wasn’t all great news…

Up next will be a post detailing my major failures in 2016.

***

Here’s looking forward to an even bigger and better 2017.

Thanks so much for everyone who’s been a part of this journey so far.  And please let me know how I can continue to improve things going forward in the comments below.

Jason Rivera

Chairman, CEO, and Founder of Rivera Holdings LLC

Rivera Holdings Valuation Cut By 1/3rd

Rivera Holdings Valuation Cut By 1/3rd

When I’m wrong about something – or in this case lack knowledge – I admit my mistakes, correct them, and continue moving forward.

I have no issues doing this because I’m an honest person and because it also helps me learn faster.  Especially in cases where I have little to no experience in an industry like the case here.

Today I’m writing to correct the valuation I’ve put on Rivera Holdings and the acquisition talked about in the post – Rivera Holdings First Acquisition and How You Can Invest.

In our – value investment analysts – line of work putting a multiple of 10 on either free cash flow or operating profit is considered a conservative multiple.

Well in going through this process in the private equity – private business acquisitions – world I’ve learned this multiple is reserved for only high-flying tech companies with name recognition.

After talking with many people more experienced than I in private equity I’ve lowered the Rivera Holdings and target acquisition valuation by 1/3rd.

This of course not only drops the valuation of the proposed acquisition – shown below – but also cuts the valuation of the Rivera Holdings equity sale from $24 million to $18 million.This means you can now buy into

This means you can now buy into Rivera Holdings at an even better price with higher upside potential.

Rivera Holdings First Acquisition And How You Can Invest With Updated Valuation

Rivera Holdings has agreed to an $8 million acquisition REMOVED and both us as buyers and the sellers have agreed to a Letter of Intent on terms.  This letter also gives us exclusive rights to work on acquiring the business for 60 days from when it was signed by both parties.

We still have 10 days to close or extend this deal as long as we’re making significant progress towards raising the $8 million.

  • It’s growing.

It’s on track to produce $930,000 in revenue this year.  And since the current owner took over in 2014 it’s increased revenues from $500,000 per year to current level in less than three full years later.

  • It’s profitable.

On that almost $1 million in revenue it’s on track to produce an approximate $605,000 in net profit this year.  In other words, its net profit margin is on track for an incredible 60% this year.

  • There is huge room to cut expenses immediately

After meeting with the owner several times so far and doing my own due diligence I’ve found $115,000 worth of expenses that will get cut immediately without hurting sales or profitability.

This would drop to profitability margins and metrics and increase the net profit margin by 16%.  Or an increase from the $605,000 projected for full year 2016 to $720,000.  This is counting no further cuts we’re likely to find after taking over operations.

  • It’s got valuable property and equipment on its balance sheet.

As I said above the purchase price for the entire business – land, equipment, operations, etc. – is $8 million.  The total value of just the land and equipment by recent appraisal and equipment purchases is $8 to $10 million.

The most recent appraisal done in August 2016 valued the property and business as worth $6 million.  Since then the current owner has finished many upgrades and the appraiser told him the value of the property is now around $7 million.

Basic Asset Valuation

  • REMOVED ALL INFO

Total = $8,115,000 million to $9,870,000 million.

In essence, this means we’re buying the land and equipment and getting a valuable 60% + net profit and excess cash producing business for free.

  • We’re buying the business at a huge discount to its true value.

As stated above, just the land and equipment is valued between $8 and $10 million.  I value current operations around $4 million

This means we’re buying a profitable business, operations, and valuable land and equipment that are worth around $12 million for only $8 million.

In other words we can buy this great business for 2/3rds of what I value the company at now.  With none of the expansion or growth outlined below.

  • There is massive room for sales/profit expansion at little cost to the business.

A part of current business operations REMOVED and will increase revenues by ~$100,000 to $200,000 per year once completed.  Expansion is slated to finish within the next couple weeks, or around when I can take over the company depending on closing.

Further expansions to REMOVED can and will be done within five years, we can further increase the number of space by REMOVED over time.  And prices can raise within this main line of operations 26.7% in this time frame as well.  This is talked about more below.

Another part of business operations REMOVED are being expanded as we speak, will begin generating revenue within next two weeks, and will increase this business sections revenue by 33% to 38%.  Or from $96,000 per year to $144,000 to $156,000 per year.

And on top of this, according to the most recent appraisal of the business and property done in August 2016

“The REMOVED has a FAR (Floor Area Ratio) of 25% indicating the area that could be improved/used for more sales opportunities is 38,600 sq feet.”

The above means ~25% of current business property – total property acreage is just under 3.5 acres – isn’t being properly used by the owner.

ALL INFO IN THIS SECTION REMOVED

By utilizing this square footage – the removed plans – better it means we could produce an extra $386,000 to $772,000 on $10 to $20 per square foot estimates on commercial lease rates.

Adding all the improvement numbers above together would add $630,000 to $1,128,00 to revenues.  Most of which would drop to profitability – operating and net margins and cash flow – due to low costs to add these new sales opportunities.

Adding and expanding the above business lines would increase sales from ~$930,000 projected for full year 2016 to between $1,560,000 and $2,058,000 million.

Assuming the same net profit margin of 60% and the cost cut mentioned above we would earn $1,051,000 to $1,349,800 in net profit in 2017 and 2018.  Or increases in net profit of 42.4% and 55.1% respectively within two years of our take over.

At these levels I would value operations between  $7.5 and $9.5 million by themselves.  Plus the $8 to $10 million in property and equipment would take us to $15.5 and $19.5 million for the entire business in one to two years time.

REMOVED

All for an original purchase price of $8 million for the entire business.

  • Plus there’s hidden pricing power within the business.

Local and REMOVED INFO.  And we as new owners will be able to raise prices slowly over several years to reach competitive levels.

One price rise of 8.3% in the REMOVED in the first year will increase monthly revenue by ~$6,000 per month, or $~$72,000 per year.  Again, almost all this will drop to profitability.

In the second year, we’d look to raise prices another 4% and in the third year by another 4%.  Doing this would further increase revenue on the company’s major product another ~$ 6,000 per month or $72,000 over the two-year period in revenue and profitability.

Using the amounts talked about in the previous section this would increase revenue to $1,632,000 to $2,130,000 million and produce net profits of $1,091,200 to $1,393,000 million in the first year.

In the second year revenues would rise to $1,668,000 to $2,166,000 million and produce net profits of $1,115,800 to $1,414,600.

And in the third year revenues would rise to $1,704,000 to $2,202,000 million and produce net profits of $1,163,200 to $1,4650,000 million.

This is with no further cost reductions, further price increases REMOVED or adding any other sales opportunities than the ones mentioned above.

At the end of 2019, the end of the above projections, I would value the company’s operations between $8.1 and $10.3 million.

After three years the property and equipment should be worth $10 to $15 million after better utilizing the property and equipment and through land appreciation value.

Adding this value to the value of operations would make the business worth between $18.1 and $25.3 million.

At the end of three years the business should be worth between $18.1 and $25.3 million all for an original $8 million purchase price, with few added costs over the three-year period, little in the way of major new expenses, and still opportunities to grow the company’s operations and profitability further.

PARAGRAPH REMOVED

And these are ultra conservative estimates because I hate projecting numbers forward like this but have to for business planning purposes.

Barring a major hurricane in the area that would hamper growth, there is no reason the business and land shouldn’t be worth at least $30 million within five years and at least $50 million within 10 years.

All the while producing a ton of excess cash we can use to further enhance REMOVED and buy other businesses.  And of course, compound the value REMOVED and Rivera Holdings private shares for the long-term.

But this isn’t all…  The next six things protect our investment even further.

  • The revenue model for the business is long-term renewing contracts.

Customers are only allowed to sign year-long recurring contracts for the company’s REMOVED operations.  And commercial leasing opportunities – REMOVED – are also on long-term year plus contracts as well.

  • There’s huge demand for this business in my area.

This business is a 15-minute drive from my house and there’s massive demand REMOVED.  Demand is only growing too as more people move to the Tampa Bay South Shore area where I live and REMOVED is located and more people in the area buy houses.

PARAGRAPHS REMOVED

  • The business has a government/regulatory moat protecting us from competition.

PARAGRAPHS REMOVED

  • Even if a major hurricane destroys the entire REMOVED current insurance covers everything…

And when I say everything I mean everything; the full value of all property, improvements, equipment, and even revenue protection for a 12 to 24 month period as we rebuild.

  • The REMOVED requires regular expensive maintenance/upkeep/upgrades but…

PARAGRAPHS REMOVED

  • We have a huge margin of safety not only in valuation we are buying at but also in a worst case scenario analysis.

In a worst case scenario analysis assuming a drop in sales of 30% – which is what sales dropped in the last recession – combined with an increase in expenses of 25% – which there’s no precedent for – and the REMOVED still produces net income of $197,000 for the full year 2016.

While this huge cut in sales and increase in expenses combine to drop net profits by 65% the company is still profitable in this dire situation.

This worst case scenario analysis also assumes not adding or doing any of the positive things mentioned above: no new ancillary sales opportunities, no upgrading of companies boat storage operations, no cost cuts, no price rises, etc.

With this gigantic margin of safety there is almost no way to lose money owning this business over the long-term.

The Short and Medium Term Plan

So why am I reaching out to you?

  1. Because I want you involved in building Rivera Holdings by becoming an early equity holder with super voting rights at a heavily discounted rate while we grow and build it into a billion dollar plus company.
  2. I’m accomplishing this by raising equity in the parent company of target acquisition Rivera Holdings.

I’m selling a 50% equity stake in Rivera Holdings at an $18 million valuation to raise $9 million to close this transaction.

This means I’m now valuing Rivera Holdings at only 2.25 times book value after acquisition.  There is even more room for upside now because I still expect  – barring a major hurricane – the acquired business to be worth more than $30 million within five years.

This assumes no income or appreciation from other stock market investments or businesses over this time either.

Over a one to five-year period the plan is to continue to grow the REMOVED and build as much value as possible.  Invest the cash left from acquisition and excess cash flow production.  Continue to grow and produce a ton of excess cash flow at the REMOVED.  And continue to compound value of all investments and assets owned.

I wouldn’t look to do another full acquisition within the first two years after we close on the REMOVED unless something ultra cheap and attractive falls into our laps.

There are two ways you can make money owning shares in Rivera Holdings over the long-term:

  1. The first is holding Rivera Holdings private shares while they compound value until the company goes public at some point in the future and your shares become worth a lot more.
  2. The second is holding your Rivera Holdings private shares for a few years and then reselling them to Rivera Holdings after they’ve appreciated in value and/or you’ve earned your initial investment back plus a return you’re comfortable with.

What’s In It For You?

This is a fantastic opportunity for us all to buy a massively undervalued business for 2/3rds of its true value.

This is a fantastic opportunity for us to buy at an even cheaper price now that gives you even bigger upside potential.

This is a fantastic opportunity to buy into a 60%+ net profit margin REMOVED that already produces a ton of excess cash we can use to buy other valuable assets.  That also has huge room for growth in sales and profitability.

This is a fantastic opportunity to buy into a business that has a gigantic government/regulatory moat built around it.

This is a fantastic opportunity to buy into a business with a huge margin of safety and huge protections around it that give us an even bigger margin of safety.

This is a fantastic opportunity to get in at the early stages towards building a billion dollar plus company.

And I want you to become part of this fantastic opportunity for long-term wealth creation and appreciation as we build something great.

If you want to invest in Rivera Holdings please contact me at either 605-390-3157 or JasonRivera@valueinvestingjourney.com

Sincerely yours,

Jason M. Rivera

Chairman, CEO, and Founder of Rivera Holdings

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P.S. If you’re interested in investing in Rivera Holdings regardless of acquiring the first acquisition target above please let me know.  Whether we close the deal on the above acquisition or not I’m going to continue working, continue raising money, continue investing, and I’m going to continue looking for other businesses to acquire.

P.P.S.  If you’d like to see the full detailed business information with nothing removed sign and return the below NDA to JasonRivera@valueinvestingjourney.com

rivera-holdings-nda

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As mentioned above – and I want to emphasize this – if you’re interested in investing in Rivera Holdings at this point you’re investing in me, my vision, and my ability to continue to invest like I have in the last five years.

In the first five years of my career I’ve produced 31.1% returns on average – not compounded – which is better than the 29.7% average returns Buffett produced in the first five years of his career.

Whether we acquire the first business mentioned above or not If you’re interested in investing in me and Rivera Holdings please let me know.

I don’t take this lightly and I wouldn’t be offering this if I didn’t believe in my ability to compound you and your family’s wealth over the long-term.

If the above acquisition fails we’ll keep moving forward.

No matter what happens this is just the beginning, not an ending and I will continue investing and compounding all investors capital into the future.

Rivera Holdings First Acquisition And How You Can Invest

Rivera Holdings First Acquisition And How You Can Invest

You may have noticed I’ve gone silent in the last month plus.  I haven’t posted much on Twitter of Facebook, and haven’t released a new post on the blog since September 29th.  This silence is for a great reason though…

Behind the scenes I’ve worked on setting up the legal structure of Rivera Holdings, figured out who can and can’t invest which I’ll talk more about in the coming days, and found two companies to become its first acquisition.

I sent through snail mail and email an activist style letter to a public company stating I was looking to buy them for $20 million, or a 30% premium to its then market value.  I’ve still not heard from them at this point.  And they will remain a target down the road to acquire because for now I’ve switched gears and found another business to buy that’s even better.

The second company I found by accident as I was readying a Letter of Intent to send to the first company above.

Ever since I found them I’ve done a ton of due diligence on the company and its industry, talked in person with the current owner five times so far, The Seller and Rivera Holdings have agreed to a Letter of Intent on an $8 million purchase for the business, and Rivera Holdings is prequalified for the full $8 million amount in a loan to cover the purchase price.

Below I detail the business target more, detail the loan, and tell how you can invest in Rivera Holdings to become part of this deal.

***

Rivera Holdings is now officially and legally open for business.

Rivera Holdings has signed a letter of intent and agreed to an $8 million purchase price with a business owner looking to sell.

Rivera Holdings is prequalified for the full $8 million purchase price through debt financing – minus closing costs and what I have to bring to the table.

And Rivera Holdings is now seeking equity investors to finish closing the deal and begin building wealth for us all.

Below I’ll run these developments down one by one and explain how you can make money.

Rivera Holdings is now set up as a Delaware LLC and is ready for business.

Rivera Holdings has agreed to an $8 million acquisition and both us as buyers and the sellers have agreed to a Letter of Intent on terms.  This letter also gives us exclusive rights to work on acquiring the business for 60 days from when it was signed by both parties.

Both I and the Sellers agree the deal can be extended as long as we as buyers are showing movement towards getting the deal done.

The one problem with the Letter of Intent is it keeps me from stating exactly which business it is and which industry the company is in.  But below I still tell you some great things about the business Rivera Holdings is acquiring.

If you’re willing to sign the NDA further below the current owner of the business agrees I can then share what the business is, what industry it’s in, and our – Rivera Holdings – specific plans for the business upon closing of acquisition.

For now, let’s get to some things about this great business I can share.

  • It’s growing.

It’s on track to produce a little less than $1 million in revenue this year.  And since the current owner took over in 2014 it’s increased revenues from $500,000 per year to current level in less than three full years later.

  • It’s profitable.

On that almost $1 million in revenue it’s on track to produce an approximate $605,000 in net profit this year.  In other words, its net profit margin is on track for an incredible 60% this year.

  • There is huge room to cut expenses immediately

After meeting with the owner several times so far and doing my own due diligence I’ve found $115,000 worth of expenses that will get cut immediately without hurting sales or profitability.

This would drop to profitability margins and metrics and increase the net profit margin by 16%.  Or an increase from the $605,000 projected for full year 2016 to $720,000.  This is counting no further cuts we’re likely to find after taking over operations.

  • It’s got valuable property and equipment on its balance sheet.

As I said above the purchase price for the entire business – land, equipment, operations, etc. – is $8 million.  The total value of just the land and equipment by recent appraisal and equipment purchases is $8 to $9 million.

In essence, this means we’re buying the land and equipment and getting a valuable 60% + net profit and excess cash producing business for free.

  • We’re buying the business at a huge discount to its true value.

As stated above, just the land and equipment is valued between $8 and $9 million.  I value current operations between $6 million and $7 million.

This means we’re buying a profitable business, operations, and valuable land and equipment that are worth $15 to $16 million for only $8 million.

  • There is massive room for sales/profit expansion at little cost to the business.

A part of current business operations are being expanded and will increase revenues by ~$100,000 to $200,000 per year once completed.  Expansion is slated to finish within the next 60 days, or around when I can take over the company depending on closing.

Further expansions to this line of business can and will be done within five years.  And prices can raise within the businesses main line of operations 26.7% in this time frame as well.  This is talked about more below.

Another part of business operations are being expanded as we speak, will begin generating revenue within next two weeks, and will increase this business sections revenue by 33% to 38%.  Or from $96,000 per year to $144,000 to $156,000 per year.

And on top of this, according to the most recent appraisal of the business and property done in August 2016

“The REMOVED has a FAR (Floor Area Ratio) of 25% indicating the area that could be improved/used for more sales opportunities is 38,600 sq feet.”

The above means ~25% of current business property – total property acreage is just under 3.5 acres – isn’t being properly used by the owner.

By utilizing this square footage better it means we could produce an extra $386,000 to $772,000 on $10 to $20 per square foot estimates on commercial lease rates.

Adding all the improvement numbers above together would add another $630,000 to $1,128,00 to revenues.  Most of which would drop to profitability – operating and net margins and cash flow – due to low costs to add these new sales opportunities.

Adding and expanding the above business lines would increase sales from ~$930,000 projected for full year 2016 to between $1,560,000 and $2,058,000 million.

Assuming the same net profit margin of 60% and the cost cut mentioned above we would earn $1,051,000 to $1,349,800 in net profit in 2017 and 2018.  Or increases in net profit of 42.4% and 55.1% respectively within two years of our take over.

At these levels I would value operations at $10.5 and $13.5 million by themselves.  Plus the ~$8 million in property and equipment would take us to $18.5 and $21.5 million for the entire business in one to two years time.

All for an original purchase price of $8 million for the entire business.

  • Plus there’s hidden pricing power within the business.

Local and regional businesses selling similar products and services have 26.7% higher prices than current business.  And we as new owners will be able to raise prices slowly over several years to reach competitive levels.

One price rise of 8.3% on the company’s major product in the first year will increase monthly revenue by ~$6,000 per month, or $~$72,000 per year.  Again, almost all this will drop to profitability.

In the second year, we’d look to raise prices another 4% and in the third year by another 4%.  Doing this would further increase revenue on the company’s major product another ~$ 6,000 per month or $72,000 over the two-year period in revenue and profitability.

Using the amounts talked about in the previous section this would increase revenue to $1,632,000 to $2,130,000 million and produce net profits of $1,091,200 to $1,393,000 million in the first year.

In the second year revenues would rise to $1,668,000 to $2,166,000 million and produce net profits of $1,115,800 to $1,414,600.

And in the third year revenues would rise to $1,704,000 to $2,202,000 million and produce net profits of $1,163,200 to $1,465,000 million.

This is with no further cost reductions, further price increases, further marketing – all of which are planned – or adding any other sales opportunities than the ones mentioned above.

At the end of 2019, the end of the above projections, I would value the company’s operations between $11.6 and $14.7 million.

After three years the property and equipment should be worth $10 to $15 million after better utilizing the property and equipment and through land appreciation value.

Adding this value to the value of operations would make the company worth between $21.6 and $29.7 million.  In other words, our original $8 million investment will earn us conservative returns between 39.3% and 54.8% each year for three years. Or a cumulative – non-compounded – return after three years of between 117.9% and 164.4%.

At the end of three years we should own a business worth between $21.6 and $29.7 million all for an original $8 million purchase price, with few added costs over the three-year period, little in the way of major new expenses, and still opportunities to grow the company’s operations and profitability further.

And these are ultra conservative estimates because I hate projecting numbers forward like this but have to for business planning purposes.

Barring a major hurricane in the area that would hamper growth, there is no reason the business and land shouldn’t be worth at least $30 million within five years and at least $50 million within 10 years.

All the while producing a ton of excess cash we can use to further enhance this business and buy other businesses.  And of course, compound the value of the business and Rivera Holdings private shares for the long-term.

But this isn’t all…  The next six things protect our investment even further.

  • The revenue model for the business is long-term renewing contracts.

Customers are only allowed to sign yearlong recurring contracts for the company’s main operations.  And commercial leasing opportunities are also on long-term – year plus – contracts.

  • There’s huge demand for this business in my area.

This business is a 15-minute drive from my house and there’s massive demand for this company’s products in this area.  Demand is only growing too as more people move to the Tampa area and more people in the area buy houses.

  • The business has a government/regulatory moat protecting us from competition.

There is little competition for this business within a 30-minute drive of where the business is.  And due to heavy government/regulatory issues within this companies industry, local and federal governments are likely to never let another type of this business be built or started in this area.

  • Even in the event of a major hurricane destroying the entire business current insurance coverage covers everything…

And when I say everything I mean everything; the full value of all property, improvements, equipment, and even revenue protection for a 12 to 24 month period as we rebuild.

  • The business requires regular expensive maintenance/upkeep/upgrades.

But all major equipment, maintenance, and necessary expenses and upgrades were completed within the last two years.  And most of this equipment has 20 to 40 year expected life cycles.

While the business requires regular upkeep and maintenance, the current owner states there are no major planned expenses or upgrades for the next 10 years.  While the two businesses that do compete with us in the area – the only competitors within a 30-minute drive in any direction – both have major multimillion projects planned within the next two years.

  • We have a huge margin of safety not only in valuation we are buying at but also in a worst case scenario analysis.

In a worst case scenario analysis assuming a drop in sales of 30% – which is what sales dropped in the last recession – combined with an increase in expenses of 25% – which there’s no precedent for – and the company still produces net income of $197,000 for the full year 2016.

While this huge cut in sales and increase in expenses combine to drop net profits by 65% the company is still profitable in this dire situation.

This worst case scenario analysis also assumes not adding or doing any of the positive things mentioned above: no new ancillary sales opportunities, no upgrading of companies main sales operations, no cost cuts, no price rises, etc.

With this gigantic margin of safety there is almost no way to lose money owning this business over the long-term.

The Short and Medium Term Plan

I’ve already found the $8 million to buy the business – more on this below – so why am I reaching out to you?

  1. Because I want you involved in building the company by becoming an early equity holder with super voting rights at a heavily discounted rate while we grow and build Rivera Holdings into a billion dollar plus company.
  2. I’m accomplishing this by raising equity in the parent company of target acquisition Rivera Holdings.

At this point, Rivera Holdings is prequalified for the full $8 million purchase price. The loan will be for $6.8 million and I have to bring $1.5 million to the table including fees, closing costs, and me as the owner having “20% skin in the game on the transaction.”

Having said this I’m selling a 50% equity stake in Rivera Holdings at a $24 million valuation to raise another $12 million as part of this transaction for several reasons.

  1. To allow you and a few others who have helped me along the way to buy equity in Rivera Holdings at a heavily discounted rate to pay you back for your kindness, wisdom, and friendship. Early investors will also have super voting rights.  This means nothing until the company goes public, but early investors in Rivera Holdings private shares will have super voting powers shares upon the company going public.  Depending on how this is structured down the road – likely five to ten years down the road – Rivera Holdings private shares will have 2 to 10 times the voting power of Rivera Holdings public shares after IPO.  Super-voting shares are always more valuable than regular shares so this is another way early investors in Rivera Holdings will have an advantage over later investors.
  2. To help you earn safe returns on your investment capital to compound value well into the future. The end goal being building Rivera Holdings into a billion dollar plus company in time.
  3. Unless a great business falls into our laps at a cheap price I plan to never do another equity sale until we IPO Rivera Holdings.  This means you won’t be diluted except in an extremely rare circumstance that’s favorable for us all.
  4. To ensure a huge margin of safety. As a long-term oriented value investor I hate debt in most cases and I plan to use some of the proceeds of the equity sale to pay off in full, or most of, the $6.8 million loan immediately.
  5. Under current plans paying off debt in full or partly would leave $3.7 to $6 million left in cash on Rivera Holdings balance sheet compared to $0 to $2.3 million in debt. And Rivera Holdings would own a subsidiary worth $15 to $16 million immediately upon acquisition.  Even though it would show up as $8 million in book value on the balance sheet.
    1. Rivera Holdings balance sheet after acquisition would look something like this: Assets – cash, subsidiary value, etc – worth between $11.7 and $14 million at book value.  Again, remember accounting rules don’t care that we value the business a lot higher than the IRS does.  With $0 to $2.3 million in liabilities meaning shareholders equity would be between $9.4 and $14 million.
  6. At this point, I would look to get a $5 to $10 million line of credit at the acquired business – subsidiary – in case of emergencies or necessary upgrades to further increase our margin of safety.
  7. With the remaining $3.7 to $6 million at Rivera Holdings I plan to send $1 to $2 million to the bank underneath this acquisition to take advantage of business opportunities as they arise, enter into new sales opportunities mentioned above, for advertising and marketing, and for emergencies/repairs of property and equipment as they arise. With current level of expenditures this money should last more than five years.  And this doesn’t include any profits or cash produced by the acquisition in those five years.
  8. The remaining $2 to $4 million will be left at Rivera Holdings and I’m going to invest this money in safe, undervalued, profitable public company stocks as I’ve done over the past five years producing returns of 31.1% on average – not compounded – each year over the last five. Better returns than Buffett produced in the first five years of his career.
  9. I’d continue working this process to compound our value for the long-term.

Over a one to five-year period the plan is to continue to grow the acquisition and build as much value as possible, pay off debt, invest the stock market funds at Rivera Holdings, continue to produce a ton of excess cash flow at the subsidiary acquisition, and compound value of all investments and assets owned.

I wouldn’t look to do another full acquisition within the first two years after the first acquisition closes unless something ultra cheap and attractive falls into our laps.

The plan within the next five to ten years is to either take Rivera Holdings public through an IPO or to buy enough of a public company to do a reverse merger onto the stock market.

There are two ways you can make money owning shares in Rivera Holdings over the long-term:

  1. The first is holding Rivera Holdings private shares while they compound value over the next five to ten years until the company goes public and your shares become worth a lot more.
  2. The second is holding your Rivera Holdings private shares for a few years and then reselling them to Rivera Holdings after they’ve appreciated in value and/or you’ve earned your initial investment back plus a return you’re comfortable with.

Conclusion

This is a fantastic opportunity for us all to buy a massively undervalued business for half of its true worth.

This is a fantastic opportunity to buy into a 60%+ net profit margin business that already produces a ton of excess cash we can use to buy other valuable assets that also has huge room for growth in sales and profitability.

This is a fantastic opportunity to buy into a business that has a gigantic government/regulatory moat built around it.

This is a fantastic opportunity to buy into a business with a huge margin of safety and huge protections around it that give us an even bigger margin of safety.

This is a fantastic opportunity to buy into a business that will grow in value between 39.3% and 54.8% each year for the next three years.  Or produce a cumulative – non-compounded – return after three years of between 117.9% and 164.4% over three years.

This is a fantastic opportunity to get in at the early stages towards building a billion dollar plus company.

Below is a chart illustrating this.  At a 20% rate of return – far below the 31.1% I’ve produced each year for the last five years not compounded – and with no new capital contributions, it will take us only 22 years to compound a capital base of $20 million into more than $1 billion.

cagr-calculation

And I want you to become part of this fantastic opportunity for long-term wealth creation and appreciation as we build something great.

If you’re interested in learning more about the great business we’re acquiring please sign and return to the below email address the short two page NDA to receive more information about the target acquisition.

Or if you already want to invest in Rivera Holdings please contact me at either 605-390-3157 or JasonRivera@valueinvestingjourney.com

Sincerely yours,

Jason M. Rivera

Chairman, CEO, and Founder of Rivera Holdings

dsc_1182_lzn

NDA below here.

By signing the below agreement The Seller of acquisition target has agreed to let me tell potential Rivera Holdings investors more information about the target acquisition.  This includes what the business is, what industry it operates in, more specifics about its operations, and our – Rivera Holdings – plans after acquisition of target business closes.

For convenience the NDA can also be downloaded and printed off by clicking the following link.

rivera-holdings-nda

***

THIS AGREEMENT is made and entered into as Nov 7, 2016 (“Effective Date”), remains effective until the close of acquisition and/or Rivera Holdings and The Sellers agree to not do sale, by and between Rivera Holdings, (“the Disclosing Party”) and _____________________________ Your Name In Space, (“the Recipient”) (collectively, “the Parties”).

Purpose for Disclosure (“Business Purpose”):  The purpose of this agreement is to protect both The Seller, Rivera Holdings, and yourself (potential investor) from breaching any legal, competitive, or fiduciary agreements made between the parties prior to acquisition of target company.

The Parties hereby agree as follows:

  1. For purposes of this Agreement, “Confidential Information” shall mean any and all non-public information, including, without limitation, technical, developmental, marketing, sales, operating, performance, cost, know-how, business plans, business methods, and process information, disclosed to the Recipient.  For convenience, the Disclosing Party may, but is not required to, mark written Confidential Information with the legend “Confidential” or an equivalent designation.
  2. All Confidential Information disclosed to the Recipient will be used solely for the Business Purpose and for no other purpose whatsoever. The Recipient agrees to keep the Disclosing Party’s Confidential Information confidential and to protect the confidentiality of such Confidential Information with the same degree of care with which it protects the confidentiality of its own confidential information, but in no event with less than a reasonable degree of care. Recipient may disclose Confidential Information only to its employees, agents, consultants and contractors on a need-to-know basis, and only if such employees, agents, consultants and contractors have executed appropriate written agreements with Recipient sufficient to enable Recipient to enforce all the provisions of this Agreement. Recipient shall not make any copies of Disclosing Party’s Confidential Information except as needed for the Business Purpose. At the request of Disclosing Party, Recipient shall return to Disclosing Party all Confidential Information of Disclosing Party (including any copies thereof) or certify the destruction thereof.
  3. All right title and interest in and to the Confidential Information shall remain with Disclosing Party or its licensors. Nothing in this Agreement is intended to grant any rights to Recipient under any patents, copyrights, trademarks, or trade secrets of Disclosing Party. ALL CONFIDENTIAL INFORMATION IS PROVIDED “AS IS”. THE DISCLOSING PARTY MAKES NO WARRANTIES, EXPRESS, IMPLIED OR OTHERWISE, REGARDING NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR ITS ACCURACY, COMPLETENESS OR PERFORMANCE.
  4. The obligations and limitations set forth herein regarding Confidential Information shall not apply to information which is: (a) at any time in the public domain, other than by a breach on the part of the Recipient; or (b) at any time rightfully received from a third party which had the right to and transmits it to the Recipient without any obligation of confidentiality.
  5. In the event that the Recipient shall breach this Agreement, or in the event that a breach appears to be imminent, the Disclosing Party shall be entitled to all legal and equitable remedies afforded it by law, and in addition may recover all reasonable costs and attorneys’ fees incurred in seeking such remedies.  If the Confidential Information is sought by any third party, including by way of subpoena or other court process, the Recipient shall inform the Disclosing Party of the request in sufficient time to permit the Disclosing Party to object to and, if necessary, seek court intervention to prevent the disclosure.
  6. The validity, construction and enforceability of this Agreement shall be governed in all respects by the law of the Delaware. This Agreement may not be amended except in writing signed by a duly authorized representative of the respective Parties. This Agreement shall control in the event of a conflict with any other agreement between the Parties with respect to the subject matter hereof.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

___________________________________________________

Your Signature

___________________________________________________

Your Printed Name

***

Remember to sign and return the above NDA to JasonRivera@valueinvestingjourney.com to receive more information about the target acquisition.

15 Questions With Jason Rivera – An interview I did with P.j. Pahygiannis of GuruFocus

15 Questions With Jason Rivera – An interview I did with P.j. Pahygiannis of GuruFocus

Below is a brief excerpt to the 15 question interview I did with P.J. Pahygiannis of GuruFocus.  The questions range from how I began as a value investor, to books I recommend, my investment focus and style, my investment icons, and more.

To view the full transcript please go here or also to the link further below.

Today, I had the pleasure of having a conversation with Jason Rivera. Jason tells us his favorite books, the investors he looks up to, the books he recommends, as well as his findings in the OTC market.

How did you get started investing? What is your background?

I started learning about investing out of necessity. About 10 years ago I was dealing with severe dizziness issues, so I could not do much. But when my wife told me she was pregnant with our first daughter, I knew I had to do something that would allow me to provide for my family at some point when I got healthy.

At the time I thought about going into three different lines of work.

One was to become a politician but I figured the world didn’t need any more scum bag politicians.

The second was becoming a writer but I remember being told in high school by one teacher, “I hope you never want to become a writer because this paper is terrible.” And it was the truth then.

And third was that I remembered learning some basics about investing my senior year in high school and I remember being interested in it.

So almost by default I chose the path of learning about investing because it was the only path I was even a bit interested in.

To view the full 15 question interview go to the following link.

Link to Full Interview Here.

Thanks a lot for the opportunity P.J.

On Float The 60 Page Book Released

On Float The 60 Page Book Released

Over the last seven months I’ve detailed investment float a lot here.  All the nuances, and both the positives and negatives of float.

The hope being we’ll have a huge advantage over other investors by knowing the immense power float holds.  How to evaluate it.  And how it affects a company’s value among many other things.

Over the last seven months, seven parts, 12,000 words, and 60 pages of content I explain all the following in detail.

  • What float is.
  • Why it’s important.
  • How companies can use float as positive leverage.
  • How Buffett got so rich using float.
  • How to find float on a balance sheet.
  • How to evaluate float.
  • How float affects a company and its margins.
  • Maybe the most important thing why float affects a company and its margins.
  • How float affects a company’s value.
  • And answered the question is float ever bad?

I released the last part of the On Float series on the blog last week so why am I writing this post?

Because I’ve compiled all the information above and put the content into a 60 page PDF book that’s releasing free today.

And by free I mean free.

You don’t have to pay me a cent.  Don’t have to pass this along on Twitter or Facebook.  And don’t even have to give me your email address to gain access to this book.

All you have to do to download this book is click on the link below.  That’s it.

On Float The 60 Page Book

Feel free to share this with anyone you’d like and as many people as you’d like.  No restrictions and no hassles.

The only things changed from the blog posts to the transition into book were I deleted some redundancy from the blog posts and changed/fixed some formatting issues that popped up in the transition.

All other content to my knowledge is the same.

I hope you enjoy and learn as much from this information as I have.

Is Float Ever Bad? On Float Part 6

Is Float Ever Bad? On Float Part 6

The goal of this blog is to help us all improve as investors and thinkers so we’re a little wiser every day.  The hope being that our knowledge will compound over time so we’ll have huge advantages over other investors in the future.

The aim of today’s post is to continue this process by talking about a topic few investors know about.  And even fewer understand.

Most people overlook float when evaluating companies because they either don’t know what it is.  Don’t know the power it can have within a business.  Or don’t know how to evaluate it.

This won’t be an issue here.

Press On Research subscribers already know this as I talk a lot about float in many of the issues I’ve written.  But I want to begin talking about it more here because float is one of the most powerful and least understood concepts of business analysis.

Today’s post is a continuation of the earlier posts:

Today we’re going to answer the question “Is Float Ever Bad?

Is Float Ever Bad?

I’m a guy who likes to live by the above quote.  If I can make things simpler I always do.  Not only does this make things easier to understand but it also can save a ton of time.

When analyzing investments and dealing with complex topics like investment float this isn’t always possible.

Understanding the good things about investment float is definitely one of those things you can make only so simple.  The concept is simple to understand but the there are a ton of different nuances to understand which leads to complexity.  You can likely tell since it’s taken me 51 pages thus far in the five earlier posts to explain the good things about investment float.

Luckily the answer to the titled question is a simple one.  And also involves simple and easy to understand concepts as well.

Yes, certain investment float is bad.  And no, not all float is equal.

The heuristic or mental model I use when evaluating float is that if the company isn’t profitable – or near profitability – its float is useless.  And can even be a negative burden for a company.

Why?

Remember, float are liabilities that can become positive leverage if used well by management and the company is profitable.  But always remember leverage can go both ways as well.

If a company isn’t profitable and hasn’t produced profits in several years float turns into negative leverage.  This is because in the long run float are liabilities the company will have to pay at some point.

The longer a company goes without earning profits the longer it will take a company to pay its liabilities because it’s not earning enough money.  This also makes it harder to fund operations and grow in a healthy way without taking on a ton of debt or even more liabilities.

Let’s go through a quick example to show this.

Let’s say we have two insurance companies.  Company A has an average combined ratio of 90% over the last five years and Company B has an average combined ratio of 110% over the last five years.

Not only does this mean Company A’s profits are 20 percentage points better on average than Company B.  But it also likely means that Company B has continued racking up liabilities it can’t afford to pay when due or when a catastrophe strikes.

This is because Company B hasn’t earned a profit on average over the last five years.  And of course all else remaining equal a company earning 20 percentage points better profit’s on average is the higher quality company.

The same general rule goes for non insurance companies as well.  If they aren’t, haven’t been, and show no signs of becoming profitable float should be viewed as negative leverage for a company.

I use the following rules when evaluating all companies float…

  • To view float as a giant positive for any company I like to see consistent profitability in the last five years.  And/or seven of the last 10 years.
  • If a company has off and on profitability I view float as neutral.
  • And if the company is consistently unprofitable I view float as a huge negative for the company.

I consider profitability of operating margin, ROIC, ROCE, and FCF/Sales.  The company doesn’t have to produce huge excess profitability in each category.  I look for consistency and trend of profits more than anything when evaluating float.

This idea is a lot simpler to understand than the concept of what float is and makes it potentially great for companies and investors.

One last thing to remember when evaluating float is that whether the company has positive or negative acting float doesn’t matter if the company doesn’t allocate capital well.  And the management doesn’t know what float is or how to use it.

To evaluate these potentials see the previous five posts on this topic.

Summary

If I’ve explained everything well enough in the series so far we should understand –

  • What float is.
  • Why it’s important.
  • How companies can use float as positive leverage.
  • How Buffett got so rich using float.
  • How to find float on a balance sheet.
  • How to evaluate float.
  • How float affects a company and its margins.
  • Maybe the most important thing why float affects a company and its margins.
  • How float affects a company’s value.
  • And answered the question is float ever bad?

In the next and final seventh chapter of this series I’ll share the best resources I’ve learned from about float with you.

Knowing what we know now we should have a gigantic advantage over other investors who either don’t know about float.  Or aren’t willing to put in the time to learn what it is and what it can do for a company and investment.

If you have any questions, concerns, or comments on float up to this point please let me know in the comments section below.

***

Remember if you want access to my exclusive notes and preliminary analysis you need to subscribe for free to Value Investing Journey.  And this isn’t all you’ll get when you subscribe either.

You also gain access to three gifts.  And a 50% discount on a year-long Press On Research subscription.  Where my exclusive stock picks are evaluated and have crushed the market over the last four years.