MAY PERFORMANCE SUMMARY AND LOOKING AHEAD TO JUNE
*This is a copy of my letter to investors summarizing the month of May. April monthly report can be found here. 2012 Return: +58.61% 2013 Return: +4.89% Portfolio May Performance: +13.22% S&P 500 May Performance: +2.08% Portfolio YTD Performance: +4.89% S&P 500 YTD Performance: +14.34% Total Return Since Inception (1/1/12): +67.33% vs. S&P 500 +29.67% Portfolio Highlights For May - SPNS was liquidated from the portfolios completely, in a process that started in April. The company was held in the portfolios for roughly 11 months. In that time the stock gained 40% from the time the position was taken in June of 2012. On a pure risk/reward basis SPNS no longer justified remaining in the portfolios when an increasing number of well defined risk/reward opportunities are becoming evident. It should be noted that from the point SPNS was completely liquidated from the portfolios, the stock has come down 7% as of the close Friday, further confirming that the decision to sell was a prudent one. I will revisit this name over the coming months as I continue to believe that the fundamental opportunity for long-term growth remains intact. - WMIH has now been held in the portfolios for nearly 11 months, fluctuating between a mid to large sized position the entire time. Since the position was initiated in July of 2012, it has gained 76%. Perhaps more importantly than pure appreciation, the market for the stock seems to be developing recognition as monthly volume in May was eight times the amount of volume as July 2012. For the month of May, WMIH gained 47% contributing greatly to overall performance. The stock ended May as a large position due to both additions to the stock made early in the month and appreciation. During the April summary, I pointed to the increasingly rich environment for mortgage insurers/reinsurers. The attention being paid to these names only seems to picking up steam as there are increased reports that some of the largest hedge funds are making significant moves into the space. Specifically, here is a Bloomberg article from May 20th outlining moves Paulson & Co, Maverick and Soros, among others, are making into the mortgage insurance/reinsurance space. The consequences of this increasingly affable trend towards this sector does make a positive outcome for WMIH, whose only operating entity is a mortgage reinsurance company, that much more likely. The chances are becoming increasingly slim that the mortgage reinsurance company contained within the holding company that is WMIH will only serve as an entity that is meant to "runoff" prior obligations. The present Board of Directors is being handed a favorable operating environment for their sole possession on a proverbial golden platter. To...
APRIL MONTH END PERFORMANCE SUMMARY AND LOOKING AHEAD TO MAY
*This is a copy of my letter to investors summarizing the month of April. March monthly report can be found here. 2012 Return: +58.61% 2013 Return: -7.36% Portfolio April Performance: -6.86% S&P 500 April Performance: +1.81% Portfolio YTD Performance: -7.36% S&P 500 YTD Performance: +12.02% Total Return Since Inception (1/1/12): +47.80% vs. S&P 500 +27.03% Portfolio Highlights For April - SPNS ended March as the largest position in the portfolios. Throughout April the stock steadily rose, finishing the month up 6.43%. Given the performance of the portfolios thus far in 2013, the strategy employed is siding towards conservatism taking precedence over aggression. SPNS has gained some 40% since being initiated nearly 12 months ago, fluctuating between a mid to large sized position the entire time. Although I believe the company continues to have upside potential into the second half of the year, better opportunities on a purely risk/reward basis exist. SPNS was reduced throughout the month of April, ending the month as a small position. I will strongly consider adding to the position if prices become more advantageous in the months ahead. - CIDM is a new position in the portfolios. The research report was published on April 23rd and can be found here. It was made a mid-sized position from the start given the advantageous setup for the company at this junctures of its existence. To highlight a few points from the research report for CIDM: A restructured business model focused on two segments: 1) Cinema software, where CIDM enjoys 70% of the market on the distributor side 2) Content distribution, where CIDM is the #1 digital aggregator and distributor of independent film content, with major partnerships that include Netflix, Walmart, Amazon and Hulu. Management that includes an experienced former hedge fund manager who specialized in small-cap restructuring situations and a CEO who is a veteran of the movie business including being the COO of MGM before it was sold for $5 billion to a consortium of investors. A completely restructured debt picture that essentially absolves the equity investor base of any responsibility with the debt now being collateralized by existing equipment. The debt restructuring also saves the company substantial interest payments and extends maturities of the outstanding debt. This is an extremely "buzzworthy" opportunity in a digital content company that is selling at valuations that create as well defined a risk/reward equation as possible. What I mean by "buzzworthy" is that it is in the right industry at the exact right time. Any earnings momentum resulting in price appreciation has the potential to see the company appreciate 3-4 times in a relatively quick manner. Portfolio Lowlights For April - WMIH continues to adversely affect...
MARCH MONTH END PERFORMANCE SUMMARY AND LOOKING AHEAD TO APRIL
*This is a copy of my letter to investors summarizing the month of March. February monthly report can be found here. 2012 Return: +58.61% 2013 Return: -0.33% Portfolio March Performance: -2.26% S&P 500 March Performance: +3.60% Portfolio YTD Performance: -0.33% S&P 500 YTD Performance: +10.03% Total Return Since Inception (1/1/12): +58.20% vs. S&P 500 +24.18% Portfolio Highlights For March - SPNS gained nearly 13% during the month of March after releasing their quarterly and full year earnings highlights during the first week of the month. The company saw annual revenue increase 63%, as growth of their insurance and relatively newly released financial suite of software continued gaining strength. Additionally, SPNS generated $18.8 million in cash during 2012, an increase of $8.4 million from 2011. The momentum within SPNS is clearly defined as the CEO continues to deliver on promises that he has been making for the past 18 months. I don't see any signs of this momentum decreasing in the near future due to a number of factors: 1) Insurance companies are still inundated with the need to upgrade from legacy systems that are inefficient relics of the past. As these companies continue to get comfortable following the financial crisis of 2008, more attention will be paid to allocating capital towards efficiency of operations 2) DECISION suite of software targeting financial institutions and their increasing need for seamless integration of compliance/regulatory requirements into their business systems. Sapiens has already signed one "major financial institution" in what is early validation of their DECISION software. 3) The markets have not even come close to factoring in the progress that SPNS has made over the past 18 months. The company continues to trade at less than 2 times sales in an industry where the average is 3 to 4 times sales for companies that are nowhere near the growth cycle that SPNS finds itself in. During the second half of March, I increased the position in SPNS, going from a medium to large position. This increase in exposure puts the portfolios at roughly 90% invested and 10% cash. - IWSY is a new position highlighted in the February monthly report. During the month of March IWSY gained roughly 19%, giving the portfolios a nice profit cushion on the position right from the onset. IWSY announced what seems to be a furthering of their relationship with FUJITSU during the month of March, as the Imageware CloudID product suite will be integrated on the Fujitsu Global Cloud Platform. This type of alliance with a major company puts the Imageware suite of products on the radar screen of other major companies and possible acquirers. Any success IWSY sees in this early adoption...
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...
JANUARY MONTH END PERFORMANCE SUMMARY AND LOOKING AHEAD TO FEBRUARY
*This is a copy of my letter to investors summarizing the month of January. December monthly report can be found here. 2012 Return: +58.61% Portfolio January Performance: +6.61% S&P 500 January Performance: +5.04% Portfolio YTD Performance: +6.61% S&P 500 YTD Performance: +5.04% Total Return Since Inception (1/1/12): +70.09% Portfolio Highlights For January - UPIP gained 68% during the month of January on an announced deal with Ericcson (ERIC) to essentially enforce their portfolio of over 2,000 patents and share in the profits of the patent enforcement. Essentially, UPIP has been given a portfolio of patents to capitalize on that is in addition to their already extensive portfolio of patents that belonged to the company when it was known as OpenWave. There is certainly a value that can be assigned to this portfolio, as certain patents are assured to bring in licensing revenue over the long-term for UPIP. The market, however, has not been reflecting the difficulty in valuing the portfolio, instead taking the route of being completely dismissive of the company all together. This dismissive attitude was fully reflected in the stock when it was trading at $1.20 to start 2013, valuing the patent portfolio at only $60 million despite assertions from those who had worked on the portfolio in the past that its worth was in the hundreds of millions of dollars. Ericcson entering the picture is as a big deal as the appreciation in the stock price for the month of January suggests. It certainly caps the downside, making the $120 million market cap that the company started the year at seem ludicrous given the exponentially increased potential for both licensing revenue and potential settlements as a result of enforcing the patents. I am hard pressed to see the company trading anywhere below $1.50 per share (valuing both UPIP and ERIC patent portfolios at only $90 million), clearly defining risk at roughly .50 cents per share from here. Despite my bullish feelings with respect to UPIP, no additions were made during the month as I am content leaving total long exposure right where it is currently. I will get to that later. - SPNS gained some well deserved recognition during the month in the form substantial buying in the name. The company share price increased 25% during the month of January on substantially greater volume than average. During January the company announced that they expected $135 million in revenue for 2013, representing a 20% increase versus 2012. They have also announced a new product for the financial services industry named DECISION, which, based on initial indications has received significant interest, creating potential to ramp revenues at a greater pace than expected...
2012 YEAR END PERFORMANCE SUMMARY AND LOOKING AHEAD TO JANUARY
*This is a copy of my letter to investors summarizing the month of December. Portfolio December Performance: +18.45% S&P 500 December Performance: +0.71% Portfolio YTD Performance: +58.61% S&P 500 YTD Performance: +13.41% A list of every individual investment gain and loss made throughout 2012 is available by clicking here. Portfolio Highlights For December - Four months of waiting while WMIH essentially carved out a narrow, sideways trading range paid off in December as the stock finished the month with a 75% gain. As noted previously, WMIH has been the largest position in the portfolios for sometime now. A majority of the gain during December is attributable to the move up in WMIH. The best news of all (from my standpoint, at least) was that the enormous run came on no news, and volume that was well above average. I tend to have a greater trust - built up over years of observing price relative to news - of large moves in stocks that do not have a tangible fundamental component to them. The share price is often times factoring in an event that is yet to be made public or word of the positive attributes of the investment has essentially leaked and the price is no longer willing to be accommodating in nature, allowing "cheap" accumulation. I did not sell a single share of WMIH during the month. Here are the reasons: 1. Our cost basis of around .50 cents coming off of a substantial technical base presents substantial probability that the lows have been witnessed for the name. At the same time, the upside for WMIH continues to be substantial in nature. While a 75% move in a month for a stock is significant by any stretch, WMIH's risk/reward equation is not as far stretched as such a move would imply. This becomes especially true when considering our cost basis. 2. The technical structure of the move in WMIH has been nothing less than perfect. From the volume accompanying pullbacks. To the price and volume action during consolidations. All the way up to the manner in which it creates gains. All of these moves have been textbook in their consistency and favorable nature. 3. Consider this: WMIH has a float of some 185 million (my average investments usually have between 10 to 50 million share floats) shares. Yet, on an average day recently, it has taken no more than 500,000 to 1 million share trading days to cause the stock to put together up days in the 5 to 15 percent range. This tells of a company that is extremely tightly held. We know, for example, that WMIH majority...
THE LIST: EVERY PORTFOLIO GAIN AND LOSS DURING 2012
I'm going to be posting these numbers in the month/year end summary on Tuesday, along with the year end portfolio performance results. Putting together the numbers for all the researched stock positions taken this year. This list doesn't include hedges taken and the few short-term trades I participated in during the year. Here is the breakdown of all the portfolio investment gains and losses, along with the corresponding links for verification: * = current position Position/Return/Entry Date&Price/Exit Date&Price SYNC +100% 3/28-3/29 @7.10-7.30 7/10@14.50 *WMIH +76% 7/20-7/25@.50 avg Open Position AUTH +73% 7/12-7/13@4.50 7/27@8.16 SPRT +40% 8/7@3.00 10/1@4.20 AUTH +37% 5/8@3.65 6/5@5.00 PTGI +37% 1/17-1/18@12.50 4/16@17.10 PRGS +27% 1/13@18.60 3/28@23.70 SPRT +21% 1/27-1/28@2.60 3/29@3.15 SPRT +15% 6/15@2.60 7/24@3 *PRXI +6% 11/19-11/20@2.60 Open Position GSIG +6% 1/17-1/18@10.90 4/9@11.70 BWC +2% 8/22@25.50 9/21@26.10 GSIG +0% 4/22@12 5/23@12 *SPNS +0% 6/15-6/19@3.98 Open Position *PTGI -8% 11/28@11.50 Open Position GSIG -15% 6/19@12.10 7/24@10 YELP -22% 4/17@25.75 5/10@20 *PXLW -22% 8/4@2.80 Open Position CIS -24% 3/26@3.30 5/8-5/10@2.50 ATNY -30% 4/17-4/20@4 10/1@2.80 *UPIP -38% 9/21-9/24@1.95 Open Position Losing positions were kept small and managed relatively well this...
NOVEMBER MONTH END SUMMARY AND LOOKING AHEAD TO DECEMBER
*This is a copy of my letter to investors summarizing the month of November. Portfolio November Performance: +1.03% Compared to benchmark S&P 500 November Performance: +0.28% Portfolio YTD Performance: +34.90% Compared to benchmark S&P 500 YTD Performance: +12.61% Portfolio Highlights for November - The market neutral posture adopted early in October performed exceptionally throughout November. The portfolio was in positive performance territory for the entire month of November. This is despite the fact that November was, at one point, 400 basis points in the red as of mid-month. A substantial reduction in portfolio exposure in October, as well as a hedge utilizing TZA, made November a much less difficult month for the portfolio than the headlines and volatility would suggest. - TZA was closed for a small profit as of November 28th. During the same period of time, portfolio long exposure increased to 75% invested, from below 50% previously. This puts the portfolio in a much more opportunistic position to take advantage of a seasonally favorable time of year. The substantial increase in net exposure was due to a mechanical, short-term trend signal that determines exposure levels. - A position was taken in PTGI late in the month. PTGI was a portfolio position in January through April, yielding a 40% profit during that time period. Since that time, PTGI has seen a substantial decrease in share price, $2 of which can be attributed to a special dividend. At $11.34 (Friday's closing price), PTGI is selling at a 33% discount (including $2 special dividend) to the price I sold in April. This is primarily due to two factors: 1) The company has very little sell side coverage. Therefore, when the markets landscape starts becoming unfavorable, PTGI essentially leaks market cap on a daily basis. 2) The company has seen some revenue weakness due to divisions of the company that aren't performing well. On the positive side, PTGI is free cash flow machine. Continues to pay down debt, increase operating efficiency and expand margins. It is trading at a ridiculously low 3.5 times EBITDA. As with most of the equity investments I make, the downside equation is what I pay attention to first and foremost. There simply is very little in the way of downside for PTGI at these levels given both the price and fundamental outlook. - A small position was taken in PRXI on November 19th-November 20th at 2.56-2.60 per share. Subsequently, the position was increased in size during this past week to a mid-sized position. Details of the position are in the research report. PRXI is basically an undervalued asset and operating entity play. The business model (museum exhibitions) is very easy...
OCTOBER MONTH END SUMMARY AND LOOKING AHEAD TO NOVEMBER
Portfolio October Performance: -9.03% S&P 500 October Performance: -1.98% Portfolio YTD Performance: +33.53% S&P 500 YTD Performance: +12.29% Portfolio Highlights For October: - SPRT was sold for a gain of 40% since initiating the position on August 7th. This was the third successful, double digit percentage profit taken in the stock since the original research report was published on January 29th, 2012. The position was liquidated during the first week of October, as a result of my growing skepticism regarding the market in general. Subsequently, my posture became more defensive as opposed to offensive as the month progressed. - The portfolios were hedged via TZA (3x inverse small-cap ETF) on October 10th. This hedge, along with liquidations of numerous holdings, put the portfolios in a net neutral position early in the month. A defensive posture is warranted given both portfolios performance this month, along with some worrying technical deterioration in numerous important market indicators and indices. - The portfolios started October with 100% long exposure. As of today, that exposure has been scaled back to 45% long, 15% short (45% notional), 40% cash. Portfolio Lowlights For October: - ATNY was liquidated earlier in the month for a loss at an average price of 2.80. The restructuring that has been ongoing at the company seems to have run over in terms of time and damage to the quarterly top and bottom lines. Worries over budgetary concerns within Congress with respect to defense spending also seem to be inhibiting investor participation. Recently, the company did announce that they are exploring strategic alternatives (a sale), hiring a respectable investment bank to assist with the process. I have always thought this was an inevitable outcome. However, I didn't think that the company would sink more than 25% from where I originally purchased it, only to be bought out at a 75% premium. I prefer to have my timing with respect to investments like this a bit more refined. Unfortunately, in this case, that wasn't to be. - PXLW, a company initiated in early August that proved to be quite profitable right off that bat, gave back all of its gains and then some throughout October. The primary catalyst behind the losses in October was an average earnings report and below average guidance. The guidance the company gave fit right in with what a majority of corporate America saw during Q3. That was a dramatic softening during the second half of the quarter. It seems to have intimidated PXLW management enough to the point that they guided down Q4 substantially, causing a 20% decline in the stock to take place on the day after earnings were released. PXLW has...
SEPTEMBER MONTH END SUMMARY AND LOOKING AHEAD TO OCTOBER
September Performance: +2.96% ------------ S&P 500 September Performance: +2.42% YTD Performance: +46.60% ------------------ S&P 500 YTD Performance: +14.55% Portfolio Highlights For September: - SPRT, a position that was originally re-initiated in August, with an addition to the position taking place on September 6th, saw its share price increase 37% during the month. This is turning out to be the third, round-turn, double digit percentage profit in SPRT for 2012. It has, needless to say, been a kind stock for the entirety of the year. The bulk of the gains for the month of September came as a result of the move in SPRT, which was the largest position in the portfolio for a majority of the month. - WMIH saw its share price rise 6% during the month. This is essentially the spread between the bid and ask. I won't be putting too much faith, therefore, in the viability of the increase. I have a very long-term objective in mind for WMIH. This isn't a company that is going to suddenly blossom into a pretty flower due to a magical sprinkle of stock market good fortune. The opportunity equation here is very simple to understand. WMIH is a company with very defined risk as a result of their .38 cents per share in cash, no debt and very little cash burn. At its current price of .50 cents, I am essentially risking .12 cents to participate in an investment that has potential to yield 300%, 500% or upward of 1000% depending on the outcome. Whenever I am allowed to participate in an opportunity that defines my risk clearly while offering as much reward as WMIH, I will grab the bull by the horns, so to speak, prepared for a tussle. - BWC was exited for a tiny profit since the investment was initiated in August. The reason for the exit was purely to make room for a new small-cap play that took priority over BWC, which is a mid-cap company. The portfolios seek out small-cap opportunities first. Every other class of security comes second in terms of priority. I continue to believe that BWC will move into the 30 range over the intermediate term and much higher over the long-term. The company remains undervalued inside of a niche that has a barrier to entry 5 miles high and 100 miles long. - UPIP is the newest portfolio investment. I issued a research report for the company on September 24th. It is a very simple formula that I use to choose my investments. UPIP embodies that formula extraordinarily well. It comes down to three things: (1) A company that is experiencing accumulation and stability/predictability...