The Best Investment Opportunities
Despite the Trump Bull Market and current ‘animal spirits’ no lessor can be knowledgeable about all industries and equipment types. It pays to specialize as to both newly originated transactions and transactions bought from others. Manage your portfolio as an investor who seeks to maximize returns on the risks taken. Ensure you get paid for the risk you take!
Clarity about your investment appetite allows you to focus efforts and initiate transactions that will be booked, not rejected. If equipment is essential to end user operations and produces revenue for your lessee, it will likely be properly maintained and may even be upgraded. Should your lessee face financial problems, rents will generally continue if the equipment generates positive and ongoing cash flows in the lessee’s service.
What is ‘essential’? You may think rail and air equipment are essential to carrier operations, but both can be idled if traffic levels change. The result? Experienced investors recognize a ‘margin of safety’ is needed, both in timing their investment, and in their choice of investment alternatives. Relying on your judgment of future earnings and residual values requires projecting the unknown. Since we can’t see the future many of us are reluctant to project future market improvements and assume current market conditions will continue. The solution is to acquire transactions at relatively attractive prices (recognize your chief risk may be investing in times of favorable business conditions!).
Your ‘margin of safety’ is dependent on the price you pay getting in. An attractive acquisition price creates a large enough ‘margin’ which allows you to be comfortable future earnings and valuations will be acceptable (it also renders your assessment of future performance less critical).
That is why the best investment opportunities commonly present themselves during market troughs. Some believe current markets are closer to annualized trough earnings than many would otherwise think. The objective is to minimize downside risk while maintaining the upside opportunity for higher income and equipment value appreciation. Investments added under such circumstances supply an ideal (though infrequent) combination of safety and profit opportunity.
Will Rogers once said: “I’m not so much concerned about the return on my money, but the return of my money.” The higher the price you pay to get in, the lower your margin of safety. The lower your price the better you are able to maintain enough margin to absorb future unsatisfactory developments.
A first principle is to ‘know what you are doing’. Know as much about the markets and value of the equipment you propose to invest in. Keep away from investment where you have much to lose and little to gain. Base your investment on arithmetic, not optimism. If you have formed conclusions from facts, and you know your judgment is sound, have the courage of your knowledge and experience to act, even though others may hesitate. Refuse to pay too much. Search for those profit possibilities that are combined with appropriate capital risk.
Looking for that special degree of foresight and judgment needed to overcome investment hazards in today’s markets? Turn to the Air and Rail transportation specialists. Call RESIDCO.
 An example, Sumitomo Mitsui is set to purchase ARL’s lease fleet for an enterprise value of roughly $96,000 per unit, Railway Gazette, December 22, 2016, on the expectation of Trump improving market conditions.
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