We all know the problem, and if not, just follow the latest developments at CAPX about RDX and RVI. Those two companies came into problems and in both cases the main question which came up is - how many assets will remain for the shareholders if a liquidation would follow.
In the case of RDX we talk about real estate which vanished over night... and in RVI plenty of goodwill and "pixeled material" which suddenly couldn't be found any more ...
How do you evaluate the value of a share in your portfolio for such companies? Either you are a very faithful person or you see things in a dimmer light... ;-).
To make the story short, we would like to apply for LEM the following new scheme to make our assets trustworthier for our shareholders, me included...lol:
- Shares of listed titles in our portfolio are valued with max. 20% of the underlying purchase prices (before it was purchase prices), unless rule 2) or a similar guarantee is existing.
- We expect from the companies in which we invest to have a locked cash position which equals 50% of the nominative captial of all outstanding shares. In the case of LEM that means 2'000'000 shares with a nominative value of 0.5 $L = 1'000'000 CHF, the cash position would be 500'000 $L.
- Goodwill will not be considered to be an asset as long as no independent evaluation exist or an agreement which clarifies the conditions.
To explain:
- 20% permits to simulate the actual situation of liquidity at CAPX. if we have to sell the shares in a title, that value comes close to what we will probably get.
- Those 500'000 $L in our example for LEM will stay at CAPX as a locked amount. We will not touch that money. As a consequence we will not have a return on this money, however, it will be conterbalanced with more security for the shareholders of LEM. You can ask CAPX at any time whether the money is still there. Unfortunately the CAPX system doesn't offer such a locking option in the actual system, but we will ask CAPX to freeze this sum manually. It will take 3-4 months to build this sum up for us. In our title selection we will favor companies which fulfill or come close to this rule, also we know that such will be difficult to apply.
- As long as no real evaluation is possible, we see more risks in Goodwill creation for the shareholders as advantages. In cases where an evaluation is possible (agreements) an exception can be made.
LEM thinks that as in RL, the owner has to show at least some basic commitment to his company. The idea behind is in fact that we have a 50:50 risk sharing between owner and shareholders. We think that such is rather fair. Hypothetic assets cannot replace a "real" cash position. We will generate a little bit less profit but with the advantage of gaining more security.
So, dear shareholders, please vote in the Poll to the right side --- let's try to make virtual stock exchanges slightly safer places ...;-)
If you have questions then don't hesitate to ask me.
Happy trading, greetz
Casper Trebuchet
LEM, chairman
