DGI Adventure 07-03-16 Sold Cash Secured Put +Investment Thesis – Westwood Holdings Group Inc (WHG) – $50.00 strike – Aug 19 Expiration

This trade was actually executed on Monday 06/27/16. I didn’t get a chance to write about it until today.

Please visit the core philosophies article on my investment thesis process for a deeper explanation of the components of this article.

Dividend Cycle

WHG will go ex-dividend sometime in early September. It should pay $0.57/share one more time this year. Then I would expect them to raise the dividend in December. The company is a dividend contender with 14 consecutive years of dividend increases. This trade will expire before the ex-dividend date.

Investment

The QC (Quantitative Case)

SPL (Strike Price Logic)

I already own 30.276 shares with a cost basis of $50.76/share in my ROTH account. WHG is a small cap company, that doesn’t typically trade with a lot of volume. I’ve noticed that it seems highly correlated to overall market, but with amplified swings because of the limited volume. When there’s a lot of volatility, you can get megadeals on WHG shares. I think it’s part of some ETF maybe? Who knows?

I bought my original shares on Aug 24, 2015, which was almost as crazy as brexit. Maybe more so.

$50.00/share is a great price for this company. Take a look at this chart:

WHG – 2 year Chart – Courtesy Yahoo Finance

My confidence in taking on a trade with such a small amount (actually zero) of downside protection, has a lot to do with watching this stock over the last year. $50 is a major support level. I’ll take a 37% annualized return to commit to that strike price any day of the week.

QWaF (Qualitative Warm and Fuzzy)

Okay, I know I said I can’t tell the difference between asset management companies. But WHG is different. For one thing…they’re probably more of a “wealth management” company…and they’re pretty “boutique”. They aren’t global. They’re a Texas company, and they serve Texas clientele. How many retarded millionaires do you think there are in Texas? I’m going to guess a lot. However many there are a lot of them pay WHG preemo dollar to manage their wealth.

And you know what…WHG might not actually be crooks like the rest of the industry. They’re heavily involved in their community, and their core investment strategies are centered around dividend growth investing. I dig it. Also 17+% insider ownership is always good.

Finally their retention rates are phenomenal. While the rest of the asset management industry is experiencing massive outflows, WHG…just…isn’t. That’s probably due to a combination of factors. For one thing, retarded Texas millionaires are loyal to their folksy, down-to-earth financial advisor. It helps if that folksy, down-to-earth financial advisor is actually good.

CPR (Cold and Prickly Risks)

It’s all about AUM (assets under management). Bad market conditions, mean funds lose value, means AUM goes down. Outflows would also contribute to this problem, except customers don’t leave WHG. As I discussed above, their retention rates are amazing. If those were to falter for some reason, this small company would be in trouble.

You could be worried about the oil bust creating a paucity of retarded texas millionaires, management isn’t:

Anyone in the drilling business, if you have a lot of debt has a lot of challenges, but most of the clients that we have at our Houston-based trust company have already exited the oil industry. They may have been involved at one time, but they’ve taken their savings and are having it professionally managed by our trust companies.

So it hasn’t affected our asset gathering at all, in fact, it was positive for the fourth quarter

-Bryan Casey WHG President and CEO

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