PaulIsaacFortHoosacManagement:Usesandabusesofliquidity

GrantsInterestRateObserverFall2013ConferenceOctober22,2013
Liquidityistheabilitytoconverttocash
Twokindsofliquidity
o Naturalliquiditywhereproceedsfromtheinvestmentaredistributedtotheowner
o Transactionalliquiditywheretheissueishowquicklytheassetcanbesold
Adequateliquidityisalwaysnecessarytoaccountforunknownunknowns
Managementneedstoadjusttheliquidityofafundbaseduponclientele
o Smallermanagerscanstayfullyinvested
Doesntbelieveinmarketefficiencies
o Believessomeopportunitiesarebettersuitedforcertaininvestortypes
UsedtheexampleofLennarAsharesandLennarBshareswithequaleconomicinterests
butverydifferentpricesbecauseofliquidity
Hisadvantages:
o Internalcapitalnodrawdownrisk
o Longertimehorizon
o Acceptilliquidsecurities
LargecapstradingatattractiveFCFyields
o Exxon
Diversificationisanotherprotectionagainstunknownunknowns
Hasmuchgreatercautionintechnologyastechnicalchangeisrapid
Whenratesrise,certaintypesofrealestateandutilitieswillsuffer
Currentlyfindingalotofgoodshorts