Put Yourself in the Hot Seat


Editor's note:What follows is a ridiculously nerdy investing and personal finance joke. Point is, sometimes it's good to look at your life and finances with the skepticism and intensity of an analyst on a company's quarterly conference call -- it can help you plan, make budgeting decisions, and hold yourself accountable down the road.

Operator: Good day, everyone, and welcome to the Lewis Enterprises 2016 fourth quarter and fiscal year conference call. Today's call is being recorded. At this time, I'll turn the call over to Dylan Lewis, CEO of Lewis Enterprises.

Lewis: Welcome folks. With our 26th fiscal year in the books, we really couldn't be happier with our performance. In this past year, we enjoyed some solid growth, but more importantly, we bolstered our balance sheet and strengthened our financial position, setting us up for success for years to come.

With that I'll open things up to questions from the analysts.

Analyst: Hi, yes -- can you talk a little bit about your cash position? We saw it climb consistently in the first half of the year, then more or less plateau. Is that a sign you feel you're at a comfortable level there?

Lewis: Yeah if you look back over the past few years, that cash position has fluctuated a bit. So one of our main priorities for fiscal 2015 into fiscal 2016 was to build up that cash hoard, make sure we were in a position to handle any business downturns. That "rainy day fund" has been built out to cover about four to six months of operating expenses without anything coming in. We're pretty comfortable with that, so I think that cash figure may rise a little moving forward, but you'll definitely see a larger percentage of new cash coming in being invested in growth opportunities.

Analyst: Looking at your balance sheet, most assets on the books are cash, securities and tax-deferred portfolios... and there's that line item about a baseball card collection. Moving forward, should we expect things to stay fairly liquid, or are there plans to eventually take on some major fixed assets?

Lewis: We've given some thought to a property purchase, and it's definitely tempting. Ultimately, we decided against it -- at least for any time soon -- for a couple of reasons. Looking around our local Washington D.C. area we saw a very rich market. Getting together 20% for a down payment (and avoiding private mortgage insurance) would likely mean socking away $100,000 to $150,000. Building to that total would take three to four more years and we'd have to keep those funds in cash or low-risk investments to preserve capital in the meantime.

We'll continue to rent with other tenants for the forseeable future, as it's relatively cheap, and it allows us to put capital to work through some attractive investments we'd identified.

Analyst: Any chance we can get an update on some of the major initiatives prioritized in early 2016? You discussed focusing on allocating more to your employer-sponsored 401(k) plan, making a Roth IRA contribution, and rolling some existing funds into lower fee funds. What's the status with those plans?

Lewis: I'm glad you brought that up. I think one of the things that truly made 2016 a banner year was that we actually delivered on our guidance and followed through on all our New Year's resolutions.

It's important to realize we were able to meet many of those goals because we'd slowly positioned ourselves to reach them.

Building up a solid cash position gave us the luxury to have some flexibility with our capital allocation, and deciding against any near-term property purchases freed incoming funds up for long-term investments. Increasing the percentage of each paycheck that was going toward our 401(k) rather than our checking accounts would've "hurt" a lot more for short-term budgeting had we not already laid that groundwork.

The choice to make a Roth IRA contribution isn't one everyone would necessarily make. But with uncertainty around what tax bracket our future earnings might put us in, and what the changes the tax code might undergo, we decided it made sense to take some after-tax dollars and put them in an account that enjoy tax-free withdrawals down the road. So long as we're eligible, I think we'll continue to make Roth contributions each year.

With the funds we ultimately rolled over from a 401(k) with a previous employer, this was admittedly an underperforming asset we'd left unattended for far too long. The "set and forget" style of 401(k) investing is great, so long as you set things correctly from the get-go. Unfortunately, we knew a lot less than we do now about fund fee structures when we were making those capital allocation decisions a few years ago. The process was a humbling reminder that it's good to read the fine print and far better to admit you messed up early on than to let a mistake fester.

It's worth mentioning that simply having those priorities down on paper was huge in terms of holding ourselves accountable and making sure they didn't get de-prioritized as the year wore on.

Analyst: When are you getting married?

Lewis: We will continue to pursue mergers and partnerships opportunistically as we identify other parties that offer strategic value.

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