Rule #1: Reduction of Basis Andrew Bargerstock

Ways to Reduce Cost Basis Tranching Selling ROPs Stock Buybacks Dividends Selling ROCs Selling some shares after doubling

#1: Tranching Dividing total long investing for each company into 4 slices Tranches # shares Cost/sh Amount 1 250 $40 $10,000 2 260 $39 $10,140 3 270 $38 $10,260 4 $36 $9,000 Total 1030 Avg. cost $38.25 $39,400

#2: Selling ROPs Assume over a 10-year period you sold ROPs only 8 times with premium collected as shown # ROPs Avg Prem Sh/cont. Avg # Contracts Totals 8 $1.50 100 3 $3,600

#3: Stock Buybacks Assume company announces 10% buyback over three year period. Theoretically, the effect should be to boost stock price 10% because there will be 10% fewer shares outstanding. Benefit > 10%. This benefit will be realized when we sell shares.

#4: Selling ROCs Assume that after the stock price rose above sticker price, you twice sold 5 ROC contracts earning a premium of $1.50 per share (5 contracts x 100 shares x $1.50) x 2 times = $1,500 … and that contracts were not assigned

#5: Selling Shares Cost (200 sh. X $38.25) = (7,650) Assume at end of year 3, you sold 200 shares to take risk off the table Proceeds (200 sh. X $85) = $17,000 Cost (200 sh. X $38.25) = (7,650) Gain on Sale of shares $ 9,350

#6: Dividends Collected Assume starting dividend yield (3%) and dividend growth of 8% Year Div/sh 1 $1.20 2 $1.30 Return of 3 $1.40 # shares capital Cum. Div. $3.90 x 1030 = $4,013 4 $1.51 5 $1.63 6 $1.76 7 $1.90 8 $2.06 9 $2.22 10 $2.40 $13.49 830 $11,195 Return of capital >>>>>>> $15,208

SUMMARY of Reduction of Basis   Avg cost # shares Basis effect Cost of remaining sh $38.25 830 $31,750 ROPs effect ($3,600) Stock buybacks effect ROCs effect ($1,500) Dividends received effect ($15,208) Gain on selling shares returning principal ($9,350) Adjusted basis at end of Year 10 $2,092

Year 11 Dividends Return on Basis In Year 11 dividends would grow to $2.59/sh. Dividend collected on 830 shares = $2150 Annual return of 103% on the adjusted basis ($2092) for the 830 shares owned. Average adjusted basis = $2.52/sh.

Ways to Reduce Cost Basis Tranching Selling ROPs Stock Buybacks Dividends Selling ROCs Selling some shares after doubling

Scenario leading to ATW buy: Stock price slide nearly 90% over 3 years while setting records for profits and cash flow Industry deep recession and hard times coming for ATW Before slide PE = 10, in Jan ‘16 at 1 times earnings Concerns about debt at 4.5 times earnings. After digging into debt, decided to invest. HERE is my adjusted basis spreadsheet on ATW.

Case of Atwood Oceanics Risky Business investment in Jan. 2016 resulted in reduction of cost basis to $(17.00) within 11 months through Tranches Selling Puts Selling Calls Selling some shares