A&W Capital CAPITAL HOLDING COMPANY
Frequently Asked Questions
1. Why don’t we invest in bitcoin?
Short answer: Our mission is to own good businesses at good prices. Bitcoin is outside of our playground.
Long answer: Any investment premise includes the ability to price the subject. This allows you identify where to draw the line in the sand for buying and selling. Although many try to put a value on bitcoin if you read the underlying detail there is a lot of guess work around the percentage it could become of global money supply (size divided by available bitcoin gives you a basic value). A high level of guess work leads to a higher probability of being wrong and losing money. We only play when we can win. Therefore we stay out of this game and concentrate on others where our probability of winning is higher.
2. What happens to our dividends?
Short answer: The company reinvests the dividends it receives to maximise the compounding annual growth rate of A&W Capital shares.
Long answer: Our retained earnings are made of the dividends the company receives from its investments less the expenses to keep the company running (ASIC fees, accountant fees etc).
The ability for the company to retain earnings, and then reinvest those earnings to earn high rates of return year after year is the prime directive for growing earnings per share for the company shareholders. It is the mathematical basis for how we grow the business organically.
Therefore the retained earnings at the end of the financial year will be reinvested the following year into good businesses at good prices with the goal of increasing your earnings per share and subsequent share price of A&W Capital year after year.
3. What if I need to withdraw money due to an unforeseen situation?
Life happens. If you need to withdraw money you can sell your shares to other A&W Capital shareholders, to the company itself, or to a new shareholder (with shareholder approval).
4. What is your estimate % of returns?
In terms of return on invested assets we expect to grow average annual earnings at 10-15%. This is not some number we pulled out of the air. Generally our dividend returns operate at 5-10% of invested assets. The market value of invested assets provides another 5-10% in yearly returns. The market value is always going to be bumpy given the vicissitudes of market prices, so yearly returns will deviate around this central average.
Our return on invested assets should always just outperform the benchmark S&P ASX 200 index, or a tradeable proxy for that index such as an index tracking fund. (ETF’s like STW etc.) In years with raging bull markets we may match or just fall under the index benchmark. We only need to outperform the index by a few points on average to greatly increase our returns over many years.
5. Would I know what businesses my money is invested in?
Generally the director(s) will not disclose individual business investments. This is to discourage ‘coat tail riding’ which can cause individuals to lose money given they will not be aware of positions being exited, or even worse fall to the fear and greed emotion that permeates at times in the market place.
The director(s) may disclose individual business positions during the half year and full year letter to shareholders to illustrate concepts for shareholders to improve their understanding of a process being outlined.
6. How and what information do I have to see how my money is doing?
The director(s) will report to shareholders not more than 4 months after the close of the financial year.
The information includes but is not limited to:
• Letter to the shareholders
• Cash flow statement
• Balance Sheet
• Profit and Loss statement
The director(s) will also publish a half yearly letter to shareholders and have an open phone line for our shareholders 365 days a year.
7. What is the minimum terms I will need to be committed to? What happens at the end of the term?
There is no minimum term and no maximum term for shareholders. This is a business the founding shareholders intend to continue until the end of their mortal life. And even after that if they can find a way. The only requirement is to make sensible decisions during their time. There is no need to go every day to the office or factory to manage people or machinery. As a result there is no retirement date. In fact we expect at the government retirement age to just be warming up.
For our members who begin to retire from their jobs it is perfectly plausible that they may wish to peel back some shareholdings to supplement retirement income each year.
8. My super (now in pension mode, because I’m retired) is now tax free. So when I look for investments, I’m looking for those with high returns, and I’m not worried about tax implications. Whereas A&W Capital would probably choose different investments, because taxation needs to be considered?
Tax payable to the Australian Tax Office by A&W Capital is incurred primarily through:
1. Dividends received from shares in businesses
2. Capital gain incurred by selling shares in businesses
Dividends received from our shares in businesses are taxed at the corporate entity tax rate. These dividends in most instances will flow into A&W Capital with franking credits which represents the tax already paid on profit by the originating business. Therefore our tax payable on these revenue streams will be low to nil. A&W Capital reinvests earnings instead of paying them out as dividends on which our shareholders would otherwise have to pay tax on at their personal tax rate (refer to question 2). This reinvestment makes sense to us as we can minimise shareholders personal tax payable while being able to redeploy earnings at good rates of return year after year.
If we sell some or all of our shares in a business this triggers a capital gain tax event in which A&W Capital will have to pay capital gain tax on that gain. However, our acquisition and compounding focus means we like to hold for very long periods earning good rates of return on assets. This means that in most years our capital gain tax amount is low to nil. Periodically if we do sell positions our capital gain tax payable will increase in those years.
Short answer: Our mission is to own good businesses at good prices. Bitcoin is outside of our playground.
Long answer: Any investment premise includes the ability to price the subject. This allows you identify where to draw the line in the sand for buying and selling. Although many try to put a value on bitcoin if you read the underlying detail there is a lot of guess work around the percentage it could become of global money supply (size divided by available bitcoin gives you a basic value). A high level of guess work leads to a higher probability of being wrong and losing money. We only play when we can win. Therefore we stay out of this game and concentrate on others where our probability of winning is higher.
2. What happens to our dividends?
Short answer: The company reinvests the dividends it receives to maximise the compounding annual growth rate of A&W Capital shares.
Long answer: Our retained earnings are made of the dividends the company receives from its investments less the expenses to keep the company running (ASIC fees, accountant fees etc).
The ability for the company to retain earnings, and then reinvest those earnings to earn high rates of return year after year is the prime directive for growing earnings per share for the company shareholders. It is the mathematical basis for how we grow the business organically.
Therefore the retained earnings at the end of the financial year will be reinvested the following year into good businesses at good prices with the goal of increasing your earnings per share and subsequent share price of A&W Capital year after year.
3. What if I need to withdraw money due to an unforeseen situation?
Life happens. If you need to withdraw money you can sell your shares to other A&W Capital shareholders, to the company itself, or to a new shareholder (with shareholder approval).
4. What is your estimate % of returns?
In terms of return on invested assets we expect to grow average annual earnings at 10-15%. This is not some number we pulled out of the air. Generally our dividend returns operate at 5-10% of invested assets. The market value of invested assets provides another 5-10% in yearly returns. The market value is always going to be bumpy given the vicissitudes of market prices, so yearly returns will deviate around this central average.
Our return on invested assets should always just outperform the benchmark S&P ASX 200 index, or a tradeable proxy for that index such as an index tracking fund. (ETF’s like STW etc.) In years with raging bull markets we may match or just fall under the index benchmark. We only need to outperform the index by a few points on average to greatly increase our returns over many years.
5. Would I know what businesses my money is invested in?
Generally the director(s) will not disclose individual business investments. This is to discourage ‘coat tail riding’ which can cause individuals to lose money given they will not be aware of positions being exited, or even worse fall to the fear and greed emotion that permeates at times in the market place.
The director(s) may disclose individual business positions during the half year and full year letter to shareholders to illustrate concepts for shareholders to improve their understanding of a process being outlined.
6. How and what information do I have to see how my money is doing?
The director(s) will report to shareholders not more than 4 months after the close of the financial year.
The information includes but is not limited to:
• Letter to the shareholders
• Cash flow statement
• Balance Sheet
• Profit and Loss statement
The director(s) will also publish a half yearly letter to shareholders and have an open phone line for our shareholders 365 days a year.
7. What is the minimum terms I will need to be committed to? What happens at the end of the term?
There is no minimum term and no maximum term for shareholders. This is a business the founding shareholders intend to continue until the end of their mortal life. And even after that if they can find a way. The only requirement is to make sensible decisions during their time. There is no need to go every day to the office or factory to manage people or machinery. As a result there is no retirement date. In fact we expect at the government retirement age to just be warming up.
For our members who begin to retire from their jobs it is perfectly plausible that they may wish to peel back some shareholdings to supplement retirement income each year.
8. My super (now in pension mode, because I’m retired) is now tax free. So when I look for investments, I’m looking for those with high returns, and I’m not worried about tax implications. Whereas A&W Capital would probably choose different investments, because taxation needs to be considered?
Tax payable to the Australian Tax Office by A&W Capital is incurred primarily through:
1. Dividends received from shares in businesses
2. Capital gain incurred by selling shares in businesses
Dividends received from our shares in businesses are taxed at the corporate entity tax rate. These dividends in most instances will flow into A&W Capital with franking credits which represents the tax already paid on profit by the originating business. Therefore our tax payable on these revenue streams will be low to nil. A&W Capital reinvests earnings instead of paying them out as dividends on which our shareholders would otherwise have to pay tax on at their personal tax rate (refer to question 2). This reinvestment makes sense to us as we can minimise shareholders personal tax payable while being able to redeploy earnings at good rates of return year after year.
If we sell some or all of our shares in a business this triggers a capital gain tax event in which A&W Capital will have to pay capital gain tax on that gain. However, our acquisition and compounding focus means we like to hold for very long periods earning good rates of return on assets. This means that in most years our capital gain tax amount is low to nil. Periodically if we do sell positions our capital gain tax payable will increase in those years.