ARE YOU NATURALLY A SELL OUT? JOIN A HEDGE FUND
The hedge fund industry is a failure. An outright embarrassment to every speculator who has ever looked into the eyes of the market with lust and want. An abomination by any stretch of imagination that has contributed greatly to the continued mistrust of Wall Street despite record highs in the major indices. What is at the core this failure? How is it that a group of supposedly gifted, talented, well heeled individuals haven't been able to beat their respective benchmark over a three, five or ten year period? Surely there must be an explanation besides the typical excuse of misallocation, misunderstanding of macro conditions and misuse of client assets. I want the essence of this pile of shit dissected and place in front of me as if it was a plate of Fettucini Alfredo at The Olive Garden. The truth of the debacle that is the modern day hedge fund can be explained by looking at what they have become. Or rather, let us look at what they are not. Hedge funds are no longer places where the most talented traders, investors or analysts go. They are not the cut throat shops that bred the legend of Soros, Robertson, Kovner or Tudor Jones. They are not beacons of independent analysis that point out the extraordinary while leaving the mundane to die. The modern day hedge fund is no more than a glorified frat house, where individuals of "esteemed pedigree" carry on in a psuedo-business environment, making pseudo-intellectual decisions that create pseudo-results. The vicious cycle of mediocrity they have fallen into is a direct result of the farm system that they access to find talent. There is no originality to be found. Only stale forms of overly-analytical thought that are streamlined away from dynamic forms of analysis that can actually cement relative outperformance. They all think the same way. They all behave the same way. They all react the same way. They all pile into the same investments. The passion for investing that creates greatness does not exist. Only the passion to collect their 1/20. And that 20 is derived from closet indexing rather any relative outperformance, in most cases. Perhaps an easier way to convey my message would simply be to say that hedge funds have sold out. I don't mean in the traditional sense, but rather the Chuck D from Public Enemy sense of sell out. The hedge fund industry has been taken over by punks. Individuals who have gone straight corporate without regard for the art form that should be investing. How much was the average hedge fund up for 2013? 9.21% How much was the average hedge...
PORTFOLIO UPDATE: GAME ON
During the trading day Friday, I tweeted the following: Those of you who have been hanging around these parts for sometime will recognize IWSY. I originally published research on the name on March 1st, 2013 when it was trading below $1. Over the next several months it rose close to $3 per share. The stock did get a little ahead of itself, causing me to take profits in the mid-$2 range at the end of July. I haven't really looked at the name much since. When I turn against a name, regardless of how much I like the company from a fundamental standpoint, I won't look at it again until I think the price and fundamentals have fallen in line. It is not enough for me to simply rely on a pleasant fundamental outlook. Price must validate my fundamental viewpoint and fundamentals must validate my viewpoint on price. An investment will not make it into my managed portfolios unless these two factors are reinforcing one another. If one side of that coin starts shape shifting on me midway through, I dump it until I can recognize what I am dealing with once again. I can recognize IWSY here again. The fundamental picture really hasn't changed here much. They haven't had much of a surge in revenues from any of their biometric offerings. Their government business remains cyclical and volatile in nature. What IWSY is and always has been is a play on an under-recognized company in an emerging sector. Further, IWSY is a play on larger tech companies being absolutely and unequivocally preoccupied with their core business to bother starting up a biometric segment that is highly dependent on patented technology that is difficult for inexperienced companies to replicate. And larger companies need biometrics as it is the future of mobile identity verification. Case in point: AAPL buying AUTH in July of 2012 for a near 100% premium over closing price. I was long AUTH at the time it was bought by AAPL, originally publishing research on the name when it was in the mid-$3 range. AAPL bought AUTH in the $8 range. Authentec had a variety of patented technology that AAPL needed for their biometric fingerprint verification that is being used in the IPhone 5. Could AAPL have replicated such a technology? Possible, if not probable. However, the time involved and the speed with which the mobile cycle evolves didn't allow them the luxury of taking a couple years to set up, recruit, discover and execute the technology necessary. It will be much the same with IWSY. The eventuality here will be that a much...
NEWEST RESEARCH REPORT: 18 PAGES ON HH (HOOPER HOLMES)
T11 Capital Management is currently long HH at an average cost in the low .50 range. Please see disclaimer at end of research report. You can also view the full PDF by clicking...
PORTFOLIO UPDATE: BLACK CATS
During the trading day Friday, I tweeted the following: After listening to CIDM's conference call and reviewing their earnings report, I can't say I was disappointed with anything that company had to say. The quarter can best be described as positively transitional, with the sum of all their parts being moved into place in order to create the company that CIDM will turn out to be 24-36 months down the road. In the meantime, however, my focus is on performance. CIDM did constitute roughly 30% of overall portfolio exposure before I sold half of the position. With the reaction to the earnings report, I couldn't perceive a clear outcome for the stock over the next few months. Given that reality, the prudent decision became the best decision. Trimming exposure down to a roughly 15% position overall will allow me to judge the circumstances evenly as they evolve over the intermediate term. I could add back in. I could reduce the position further. I'll simply take it as it comes. I have no love for any of my positions. The only thing I am in love with is the consistency of my performance. Anything that has the potential to interrupt that love affair gets kicked out of the house. And that is how I differ from the typical special situations, value, restructuring guy. I'm not willing to put up with the inordinately large drawdowns over any timescale. I've weighed the expected value (EV) of this decision as it pertains to long-term performance very carefully. The plain and simple of it is as follows: A drawdown in excess of 30% has a far more detrimental influence on a) long-term performance b) confidence of client base than any positive outcome of sitting through disturbances that your typical special situations, value manager would be open to doing. To borrow loosely from Paul Tudor Jones, given that I run a smaller asset base I have the luxury of being that fast boat on a choppy sea as opposed to being the large tanker that is immobile and clumsy in nature. I'm going to take advantage of that until I absolutely can no longer do so. Additionally, I don't think there is another special situations investor out there who has as good an understanding of the tape/price action/technical analysis as I do. With that said, I'm going to play into that strength with both entry points and exits. I have no need to sit still, allowing the market to have its way with me while proclaiming that "price and volume mean nothing over the long-term." Being proactive in studying price and volume as a complimentary function...
THE CIRCUS THAT WILL BE 2014 IS JUST WARMING UP
If 2014 will teach traders and investors anything, it will be that reading too much into any market move is a dangerous, wasteful way to make a living. That is because this seems to be a market that is setting up to be as deceptive as possible. It did it from the very beginning, when it refused to stick by a very dignified ally in January. Instead, it made this friend look like a silly, obnoxious turd. An act of utter defiance in the face of pleasant circumstances. This recent rally exhibits the point perfectly. The rally we are experiencing caught investors off guard after what looked like dismal circumstances to begin the year. It has gone beyond any point of reasonable retracement, with important indices like the SOX hitting new highs, while the bears have been taken for another ride. Given the modus operandi this year, the current rally should be trusted about as much as the dip the preceded it. Both are lies. Both should be looked upon with skepticism. And both tell you nothing about the market except for the fact that it is unpredictable. This is the market we are operating in, however. And I have a distinct feeling that a majority of 2014 will serve the purposes of unpredictable behavior and random movements. With that said, the importance of stock picking should be at the forefront of the investors' mind. This is followed closely by the practice of taking a minimalist stance towards general market analysis. A market environment of this nature will benefit two types of investors: 1. Those who know how to pick the right stocks and are willing to hold onto those names, realizing that winners are now more difficult to come by than previous years 2. Those investors who have the common mental decency to realize that even the best short-term market analysis can, in certain circumstances, be rendered completely limp. In essence, investors who stick to the right stocks without over-thinking the general market will excel. Investors who bounce around the market, attempting to analyze each step the market takes will suffer. It will become exceedingly deceptive as the seasonal tendencies give way to the black hole that is March-May trading. Along that path, will come correlation studies that will call for market crashes. Sentiment studies that will call for smashing rallies. Technical indicators that warn of tremendous volatility. A potpourri of ravenous circus performers begging for investors' attention. Tread lightly. Tread smartly. ...
JANUARY PERFORMANCE SUMMARY AND LOOKING AHEAD TO FEBRUARY
*This is my monthly letter to investors summarizing the month. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com Download (PDF, Unknown) ...
