The art of investing is all about minimizing losses and maximizing returns.

Many knows it, but only a few can really grasp and identify it. So I would like to give a brief example based on my previous posts on Nylex and Ancom Logistics.

Nylex

Nylex is especially attractive is because of its lopsided payout profile.

It is a fact that its ethanol product is hot in demand. Hexza (ethanol producer) has publicly confirmed the trend in its own quarterly report, and Nylex will be announcing its own report in the coming weeks.

Furthermore, potential return is enhanced by its well-timed expansion. The enlarge capacity coincides with the coronavirus and will be put into good use. It was completed back in mid-2019.

By now the plant is on its way out from starting towards ramp-up stage, which means higher production and margin rates.

Additionally, the current low oil price environment will only bring down its raw material cost and widens its profit margin.

Typical fundamental investors would be alarmed by its recent lackluster performance. The weaker result is merely because of a planned shut-down to allow for the installation of the abovementioned new capacity. The weaker earnings in recent months is an extraordinary event.

The uglier figures have affected market perception. It is fair to note that market expectation is low – which allows for our higher potential return.

To summarize,

• Ethanol demand as a catalyst allows Nylex as a high conviction idea.
• Recently weaker result is irregular to give way for larger production  
• Operation resumes to norm plus the capacity enhancement allows for huge potential return
• Low oil price to widen its profit margin
• Market expectation at the low limits downside risk

Voila, now you have a high return low risk investment idea!