PORTFOLIO UPDATE: DASH
During the trading day Monday, I tweeted the following: My love for the regional bank names is well documented. I have been harping about their upside paired with relatively minimal risk for the entirety of 2013. While I believe that both SBCF and HMPR continue to possess minimal downside, I have found greater upside opportunities that demand capital. Sitting and waiting for the sludge through the dilution that SBCF faces is not an option in a 4th quarter where fireworks are occurring all around me. I have companies like KCG that are up 20% in two weeks since making the initial purchase. SBCF was essentially breakeven as a holding over the months it was held. While I appreciate patience and diligence in an investment, I also appreciate the fact that the S&P has turned into Usain Bolt with my job being to run faster than the fastest man of Earth. SBCF isn't allowing that to happen, despite how I feel about the long-term performance of regional bank shares. We are nearing the end of the month, meaning that the performance summary detailing each holding will be posted shortly. In the meantime, the portfolios are now basically 100% invested in the following: WMIH, CIDM, EVOL, KCG and BFCF. A concentrated portfolio of best...
NEWEST RESEARCH REPORT: 22 PAGES ON KCG
As noted here, KCG was highlighted last week as an investment idea briefly via Twitter. I went over it further this weekend in this post. Now the details in a 22 page research report on the company. The research is available below: Download (PDF, Unknown)...
4 CHARTS THAT WILL HAVE YOU TOSSING ROSE PETALS AT HONEY WALLS DURING THE WEEK AHEAD
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PORTFOLIO UPDATE: THE JUMP OFF
During the trading day Wednesday, I tweeted the following: I'll have the research report for KCG up before the end of the month. As I mentioned on Twitter, this is a bit out of my normal market cap range. In fact, KCG represents only the fourth name I have profiled that has a market cap over $500 million. The 16 other reports I have written have all been sub-$500 million market cap companies. The average gain of the three $500 million+ market cap companies (PRGS, YELP, BWC) I have profiled over the past 2 years is 77% to date. With KCG I expect the pace of gains to continue. If I could sum up the investment thesis in one sentence it would be that the global financial markets are facing a liquidity driven surge that will naturally benefit one of the leading liquidity providers in the world. It really is as simple as that. Of course, I could have gone the route of a company like ICE (now owns NYX) or CME. Too mature, however. These are both companies with market caps in excess of $10 billion. KCG has a market cap only slightly above $1 billion due to the fact it came to an inch of its corporate life due to a software upgrade error that started spitting out erroneous orders last year. It has since been restructured, recapitalized, merged and all the better for it. I'll bottom line it one more time with this: Any global liquidity provider with a dominant position in the marketplace that is selling at less than 1/10th the value of its competition is a low-risk, high reward proposition. An asymmetric bet that will be carried by the markets as trading volumes increase and the surge in equities we are seeing continues. I expect tremendous upside here over the next several years. To give an idea of what I am expecting with KCG just remember that I don't consider positions that have upside of less than 300% over the long-term. With that said, the portfolios are pretty much fully invested at 100% of capital. I'll have an update on each position as I usually do at the beginning of the month in my monthly report. If you would like to be added to the mailing list for the report, email me at mail@t11capital.com and I will be happy to add you. ...
IS DAVID TEPPER THE ONLY GUY ON WALL STREET WHO GETS IT?
Wall Street is filled with articulate incompetents. Those who are wonderful on television or in front of a crowded audience of return hungry investors, but when it comes to actual performance they are no better than an 85 year old man that is on his honeymoon without the Viagra. They fall flat consistently. That is the only type of consistency they know, actually. The consistent mediocrity of the Wall Street crowd, from the hedge fund managers on down to the junior analysts who are led astray from day one will never change. It sells. People enjoy buying image more than they do truth. Until that fundamental human fact changes, Wall Street will remain the same. That is why when a guy as unpolished yet successful as David Tepper comes along, you have to love him. This is one of the most successful investors of the past 20 years. His returns are consistently tremendous. His intestinal fortitude to make large bets going against popular consensus is legendary. He has vision. And vision is something sorely lacking among investors of all variety. His vision tells him that stocks are not in a bubble currently. In fact, during an interview today, he stated that stocks have 20 to 30 percent upside into 2014. This is not an opinion you will see shared often. It falls too far outside of the distribution curve for normal returns when compared to the past 15 years. In other words, it takes balls and vision to make such a call. His primary worry was that "he wasn't long enough," a refreshing perspective that I can guarantee you haven't heard from another manager in 2013. He is going to be right. Equities are closer to a beginning than an end to this bull run as I have been conveying all year. While Tepper expects a sharp 5-10 percent drop in Q1 of 2014 brought on by Fed tapering, I expect it will take place in Q2. It will be sharp, but short. It will have all the bearistas out working overtime discussing the various reasons stocks will drop further. Be careful the voices you allow to populate the empty spaces of your mind. They will creep into your methodology at the worst possible times, causing underperformance that is difficult to overcome. If you are going to allow one voice to make its way into your cerebral cortex, David Tepper is as good as it gets. ...
THE FLAMETHROWER OF INFORMATION, ACTION AND THE MIND
Increasingly our culture has become addicted to processing information. The flood of information makes people connected when in fact they are more disconnected than ever. The connection people desire can only be attained through quality not quantity. The deciphering of the signal from the noise. Instead it seems that individuals who are not the least bit stale-minded are on a never ending quest for quantities of information that they not only are unable to filter correctly, but in fact keep them detached from any consequential outcome. The noise has become the signal, without consideration for the necessity of what is being ingested. This confusion due to an overabundance of information has a chronically negative expected value proposition in a bull market. The reason the expected value is negative is due to the fact that during a bull market the duty of an investor is to sit until the bull trend comes to an end. The value creation proposition that is brought on by ever increasing market capitalization and multiples can only be maximized through an approach that fears losing one's position more than any other emotion. Instead it seems that investors are hell bent on avoiding the next drawdown in their portfolio through cute acts of trading bravado that inevitably leave them in a disadvantageous position relative to the market. An investor in a bull market must manage drawdowns, not avoid them. It is just as reckless to have liquidated a stock portfolio on October 10th due to the fear of an impending bear market brought on by governmental woes and fears of a new bubble, as it is to allow a 10 percent loss to turn into a 30 percent loss in a position that is mismanaged. In other words, the threat to profitability with the act of being out of a bull market is equally as destructive to the potential of a portfolio as it is to have inordinate losses. The act of attempting to preserve equity during a bull run by timing every turn and escaping each drawdown is reckless conservatism and amateurish. Over a long enough period, the expected value of avoiding drawdowns becomes an even proposition at best due to the fact that the market cannot be consistently timed. It is inevitable that an investor will miss a series of upturns due to mistiming reentry. The simple act of sitting tight and treating one's positions as gold is the highly recommended path of action. I know, it doesn't lend itself to the swashbuckling image of a trader with 8 screens flashing information that needs to be processed, digested and acted upon in seconds. The...
SMART MONEY HAS GONE THE WAY OF SPANDEX SHORTS
Being that it is SEC Form 13F (quarterly institutional holdings report) season, I thought that it would be appropriate to remind everyone of what a fruitless endeavor this relatively new found obsession with following the supposed smart money truly has become. I'm not sure what it is about 13F zombies that I find so irksome. Perhaps it is the thought that simply following the popular guys, without any analysis to accompany the investment is somewhat insulting to those investors who put countless hours into investigating, reading and understanding companies before, during and after an investment. Or perhaps it has to with the thought that this concept of simply following "smart money" will lead to inordinately large gains. The lore of smart money had some truth to it many years ago. There used to be an information advantage that institutional managers shared. Information pre-2000 was incredibly expensive to access, which kept anyone without either vast soft dollar accounts or vast real dollar accounts out of the information market. The large funds would pay for access to information that is now accessible for free. They would have access to the opinions and minds of those who now disseminate the same information now for little to no cost at all. In fact, just getting real time quotes pre-2000 was a couple hundred bucks a month. The same fundamental data you can get from Yahoo, Google or Ycharts cost hundreds or thousands of dollars. As the projectile vomiting of information has continued unabated, access to information has become more efficient and less expensive. This inverse correlation between efficiency and expense will continue as the volume of information grows. What will also continue its inverse relationship is the destruction of any edge supposed "smart money" has as the efficiency and volume of information increases. Those who attempt the payment model for information are simply going against the technological grain and will be dealt with by the market. Asking readers to pay for information, regardless of the perception of how valuable it is will not be a sustainable business model because the volume of similar information trumps whatever perceived edge your "valuable" information will bring to the table. If we are all on standing on relatively level ground from an informational angle, then what would be the advantage of simply following an investor into a stock because the symbol showed up on a list of companies they own? Never mind the fact that the fund manager's position could have changed, been hedged or part of a greater "basket" strategy that those who simply follow the 13F won't see. The answer to the question of an investor's...
A POTPOURRI OF SCENTED THOUGHTS
- I mentioned CIDM more than enough on Twitter today so I won't go into it again. All of my thoughts both young and old are chronicled in a relentlessly organized fashion in my monthly reports that I have been publishing regularly for sometime now. - The markets are functioning just as they should and just according to schedule. The strength we are seeing now should continue into the end of November. - There will always be far too many investors who attempt to get cute in bull markets. By cute I don't mean walking around with a bowl of fruit on their heads while juggling rabbits. What I do mean is that investors make a regular habit of outsmarting themselves needlessly. It is a frivolous pursuit and has a negative expected value over the long-term. The job of an investor in a bull market is to sit tight, holding onto their positions as if they are the last remnants of hope for all of mankind entrusted to you for safekeeping. That is all there is to it. The rest is a bouquet of fresh garbage. - The popular technicians have a song and dance that they play for themselves that while amusing, doesn't provide much in the way of profits for those who follow their advice. Popular technical parlance saw the recent move into November as being exhaustive, with several signs of lagging momentum, breadth and various other technical indicators of the coin-flip variety. Those who perform technical analysis without trajectory points as their foundation are similar to quarterback who is playing on field without any hash marks, goal posts or first down markers. The quarterback will have no idea where he is in relation to where he was. That is what most technicians are doing in their analysis. Lost in a sea of inescapable mediocrity. - As far as the length of time this rally continues, I attempted to answer that question during this past weekend's review. For those who don't feel like clicking on the link, the Cliff Notes version is that we don't see a substantial pullback until mid-year 2014. Until then it will be either up or sideways, much like we have experienced this year. That is all I have...
HERE IS WHAT SEEMS TO HAVE BEEN MISSED IN THE EVOL CONFERENCE CALL
EVOL is an investment that has been in the portfolios since July. Here is the original research report issued at the time. The company is extremely well managed. The executive team there seems to very deliberate in the actions they are taking, whether acquisitions or other use of the cash they are so good at generating. The DSA technology that is the bread and butter of the company seems to gaining efficiency and acceptance in the marketplace. Despite the run it has seen since July, I don't see much risk in the share price here at all. Let me demonstrate why by highlighting a few points from the conference call. To understand what follows you must first understand the way EVOL's revenue model works. When EVOL signs a new DSA customer it includes a license for a set number of SIM activations. Once the activations are spent, the customer must then renew their license with a new set of activiations that EVOL refers to as FUAs (first use activations). FUAs are a 100% margin product. They are all profit. Here is what seems to have been missed in the conference call: EVOL management: As we look to 2014, we expect to see more FUA renewals. And with the -- and with that, we expect to see the corresponding impact on our top and bottom lines. And while this FUA renewal did help our margins in Q3, during the quarter we did incur fees for our acquisition of Telespree Communications, a transaction I'll talk about in just a minute. Yes, 4 are in FUA. So we've had one in FUA for a long time. Now we just got the second one. And numbers 3 and 4 are coming right along, I mean, momentarily. Cameron M. Wright - Jay A. Fishman, Ltd. Okay. So you just got the second one with 2 close to the pike? Thaddeus Dupper - Chairman of the Board, Chief Executive Officer and President Yes. We -- number 2 came online in Q3 for FUAs. And customer 3, I don't know if it's Q4 or not, but it's close. And customer 4, I think we're forecast for Q1. Isn't it, Dan? Daniel J. Moorhead - Principal Accounting Officer, Principal Financial Officer, Vice President of Finance & Administration and Secretary That might be Q2. But it's coming in, yes, the first half 2014. So we feel good about our DSA funnel. We're making progress in the M2M space, and we think both will contribute, of course, DSA more than M2M, significantly in 2014. Thad, can you just quickly go over the carriers that are in reload mode next year and just an...