FEBRUARY MONTH END PERFORMANCE SUMMARY AND LOOKING AHEAD TO MARCH
*This is a copy of my letter to investors summarizing the month of February. January monthly report can be found here. 2012 Return: +58.61% 2013 Return: +2.57% Portfolio February Performance: -3.79% S&P 500 February Performance: +1.11% Portfolio YTD Performance: +2.57% S&P 500 YTD Performance: +6.20% Total Return Since Inception (1/1/12): +63.64% Portfolio Highlights For February - During the second half of the month, the portfolios took on a much more defensive stance versus the allocation over the past couple of months. The defensive measures were taken via reducing net long exposure and initiating a hedge in an inverse ETF (TZA). These defensive measures led to an extremely tight range of movements for the portfolios into the second half of month. Essentially fluctuating in a 100 basis point range while the markets took on a much more volatile disposition. Why is this a highlight? First, there weren't many highlights this month so the bar has been lowered a bit for classification as a highlight. Secondly and more importantly, it is early proof that the structure of the portfolio is well crafted for what I see as unpredictable and generally bearish conditions in the months ahead. - MITL was the only position that experienced gains in the portfolios during the month of February. Being that it is a small position, it wasn't able to negate the negative effects of generally listless performance throughout the portfolios in February. The position in MITL was taken in mid-January. MITL was up 10% in February and is now up 11% since being initiated. I do believe that the company is a bit more correlated to the general market than most of the other holdings in the portfolios. For that reason, it is not something I am comfortable adding to at current market levels. - IWSY is a new position in the portfolios taken just this past week. The research report for IWSY is available to view here. After looking into the company extensively during February, this has become one of my more favored new positions taken over the past 12 months. What creates favoritism in my book is an extremely well-defined risk profile paired with substantial upside. The risk profile in IWSY is one that has been cushioned greatly as a result of the transitions the company has made in their revenue model from a lumpy stream based on governmental and municipal contracts to one that will be more consistent dealing with the consumer and enterprise markets. Validation of their strategy has come early as a result of a partnership with Fujitsu, along with management stating that several other high profile partnerships are in the works. Should the company even...
IWSY: A TRANSITIONED BUSINESS MODEL THAT SHOULD BE EMBRACED BY INVESTORS
*IWSY position taken the week of February 25th in the .93-.95 range The Background On May 8th of 2012, a research report was posted to Zenpenny detailing the opportunity in a biometric security company that specialized in the mobile space. The report was titled, "AUTH Presents A Substantial Opportunity In The Wireless Sector." When the report was posted to the site AUTH was trading in the $3 range. A little more than two months later AAPL bought AUTH in the $8 range, making AUTH one of the big portfolio winners from last year. I was drawn to AUTH as an investment for two reasons: 1. It was flying completely under the radar, while dramatically improving fundamental aspects of the company that had caused the stock to fall from a post- IPO (spinoff from Harris) high of near $20 per share. 2. They were making great strides in an area of mobile security that is going to become standard in the wireless space over the next several years - biometric user identification. AAPL, seeing the light, decided to seize the opportunity while it was still undervalued, gobbling the company up at bargain prices. AUTH deserved a valuation in the teens. AAPL got it cheap. This article citing data from Goode Intelligence, a British market research firm, describes the opportunity in the biometric market: http://www.securityweek.com/analyst-biometrics-will-become-must-have-all-mobile-devices A British market research firm, Goode Intelligence, says that biometrics for mobile devices will be an essential feature before the decade is out. Their claims come from previous forecasts that point to a market growth of nearly 39 million users by 2015. Smart Mobile Devices (SMDs) are now the personal device of choice, Goode notes, with sales outpacing PCs. The BYOD trend is accelerating the need for enhanced security as SMDs are being used more often for consumer and business-sensitive activities. “Last year, we forecasted that the mobile biometric security market would grow to 39 million users by 2015” said Alan Goode, founder and Managing Director of Goode Intelligence. “This was based on the expectation that initial growth would come from two biometric modalities; embedded fingerprint sensors and voice biometrics. The news that Apple is buying fingerprint sensor specialist AuthenTec further supports the evidence for this exciting trend.” Apple did make a move to acquire the biometric security company last week, and will pay roughly $356 million for the firm which creates embedded fingerprint scanners and other IDM software. Moreover, AuthenTec also creates DRM software. The fact that IDM and DRM are both coming form the company makes them a decent buy for Apple. While the speculation is that iDevices (iPhones, iPads, etc.) will get biometrics,...