All investors makes their investment decisions based upon a multitude of variables. Current cash position, appetite for risk, need for liquidity, as well as their opinions on future market conditions all must be considered before opening up the checkbook.
The Wildcatters Network divides its investment deals into three basic categories:
- Wildcatter Arbitrage
- Development Projects
- Legacy Assets
Ideally, Wildcatters love to have a good mix of all three types of investments. The proportions of each investment should be very fluid, based upon the current results of the active deals in portfolio. The specifics of each investment category will vary, however the distinguishing characteristic is “holding period”. How long is the investor comfortable having this investment relatively illiquid?
The following is a breakdown of each category:
1. Wildcatter Arbitrage (holding period: less than three months, although simultaneous closings are preferred)
The market is a wonderful thing: millions of buyers with billions of dollars in search of commerce. This is the perfect storm for arbitrage. Simply put, arbitrage is the purchase of a product that is immediately resold for a profit. We all know the oft-cited answer to the age old question of “what is it worth?” It is “worth” what someone will pay for it. Therefore, it is paramount that an investor has a keen insight on “worth”. Successful arbitrage requires not only intel on willing sellers, it also demands connections to ready buyers. These two requirements are the reason Wildcatters spend so much of their time networking. Hmmm…a Wildcatters Network…what a great idea!!
2. Development Projects (holding period: one to three years)
Currently, the tax rate is lower on the sale of assets held more than one year (long term capital gains) than the tax rate for ordinary income or short term capital gains. Development Projects focus on a dual benefit system:
- A strong conviction that a particular asset will appreciate in value in the near future, possibly even by the actions of the investor (i.e. drill an oil well on unproven acreage)
- The decreased tax consequences for the sale of your asset if held longer than one year.
Development Projects are a Wildcatter’s favorite business endeavor. It has the biggest bang for the buck in a short time period, plus, when correct, it is a confirmation of a Wildcatter’s analytic and predictive skills. The perfect reward: cash and affirmation!
3. Legacy Assets (holding period: decades or more)
The classic example of a Legacy Asset is blue-chip stocks. Billionaire stock market guru Warren Buffet is often quoted as saying “Our favorite holding period is forever.” While fabulous fortunes have been made employing a buy-and-hold strategy with the right stock, Wildcatters prefer a bit more romance in their investment portfolio. Oil and gas mineral rights, real estate, gold, art, jewelry, collectibles…much more interesting! These assets provide that unquantifiable “pride of ownership” feeling that Wildcatters crave, as well as the joy of passing these treasures on to the next generation. The main requirement of a legacy investment is patience. Ironically, patience is the one “asset” that most Wildcatters do not possess.
If you have an investment idea that you would like the Wildcatters Network to consider, please contact us here.