About Me

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This is written with serious investors in mind. I'm a former reporter, private investigator and institutional equity analyst who digs deep to find niche undervalued and undiscovered securities. I manage money for individuals, institutions and family offices via my business Long Cast Advisers. This blog is part decision-diary, part investment observations and part general musings about Philadelphia sports. It should not be viewed as a solicitation for business or a recommendation to buy or sell securities.

Saturday, May 25, 2019

A Brief Response to $INS Short Report

When I was a kid, one of the dad-things my dad used to say was "consider the source." If I came to him upset b/c so-and-so said something nasty, he'd say "well consider, the source." It meant ... should I take them seriously? Are they a legitimate conveyor of information? Should I really care what they think?

I continue to spend a lot of time "considering the source" though we live in a day and age when it's meaning has been turned inside out. On the rare occasion that I'm on a long drive by myself, I listen to Investors Field Guide and recall one recent and recommended episode ... "I met our guest Michael Mayer because of twitter. I followed and enjoyed one of several pseudonymous accounts that he maintains to experiment with ideas. His various accounts have wide followings" ... which I've been struggling to reconcile with the lesson to "consider the source". How do you value a source if you don't know who it is?

There've always been authority shaping mechanisms of one kind or another (the emperor, the church, the university, the paper of record, a bigger gun, etc.), which would exclude scrappy folks like Mayer and me for no other reason than our lack of access or pedigree.

Now however, an anonymous twitter account with interesting content and a lot of followers can carry the same weight as the emperor or church or university or paper of record. It's cool b/c without gatekeepers anyone can put up a blog (yay me!) and in an ideal world it expands meritocracy. But our world is far from ideal. Do I really need vaccines? I'll go online and see what it says.

Just from an observation of human nature, which tends to not change and oft strays from ideal, I have this gnawing fear that once we've exhausted questioning the legitimacy of everything we'll revert to the authority shaping mechanism of the bigger bone, sword or gun until we re-recognize that having some kind of organized system that kind of works is less exhausting than fighting all the time.

If it's not obvious by now, I'm the pessimist in my family, which bugs the shit out of my wife but is helpful with investing. This work requires holding two opposing ideas in our heads at the same time - success AND failure - in order to weigh, consider, inspect and decide, from all different angles.

And there isn't a single investment I've made where I didn't think early on or even at times throughout that whatever it is, it could be a total fraud. Part of my checklist is to conduct due diligence seeking signs of fraud - balance sheet imbalances, board composition, etc. - but just b/c you don't see it, doesn't mean it ain't there. Schiller's "Financial Shenanigans" delves deep into these issues and is a must read for anyone putting money into any individual stock.

Which brings me to a recent short report on INS posted by ... I don't know who ... some man or woman operating under  a corporate name who seems to have posted a bunch of short pieces on various public companies.

The report had legitimate concerns for sure, but no news.  The red flags it raised are front and center to anyone who reads a proxy and 10k on day one of their due diligence and does a bit of digging on day two. INS has a large client that is the target of legitimate short sellers. Parker Petit is on its board. It uses a regional accounting firm with limited pubco experience.

Everyone has their own comfort threshold and for some investors, these issues might equal a "hard pass". We all have to find and trust our own filters. But causation and correlation are two different things and those issues don't make the company a fraud just as the road that goes from my door to John Gotti's doesn't make me a member of the mafia.

No doubt, the issues raised in that report should be on anyone's list of considerations when evaluating the stock. On balance I felt - and still feel - that this a wonderful business and a wonderful investment opportunity. Others may disagree.

But a legitimate short thesis identifies frauds, broken business models and industries in terminal decline and this report fell way short of that, likely b/c INS doesn't fall into any these categories. Ultimately, the report resolved to a valuation short, plain and simple and as Manny Gerard once cautioned me, valuation shorts are really just a form of technical analysis.

As the report concludes ...

"If INS were to revert to a valuation of around 2-5x trailing sales, a multiple typical of Indian outsourcing businesses such as Syntel and Wipro as well as larger processing companies such as First Data, the stock would be worth roughly $5 to $12 per share (70%+ downside)."

... which is just silly. Those companies aren't growing organically +30% / year. Those companies haven't self funded their own development with internally generated cash flow for 15 years. Those companies aren't as parsimonious with expenses as INS is (few are). Those companies have probably issued more shares in the last year than INS (which doesn't dilute shareholders) has in its float.

However, buried in the "pants on fire" effort to raise red flags, there is a legitimate and critically important comment that's essential for perspective ...

"... if Apple gathered a full 27 million accounts over the first 3 years, equal to the entire number of American Express basic consumer cards-in-force in the U.S. ... "

... boom. The rest of the comment made little sense to me, but just that data point alone is a 100% appropriate response to the momentum traders who've pumped this stock up its triple waterfall.

CEO Dr. Strange has long explained that licenses are paid at certain thresholds on the number of active accounts. How likely is it that INS' big new customer (rumored to be Goldman Sachs / Apple) will have more active accounts in year one, or year two, or year three, etc. than American fucking Express? Put me down for "zero probability".

It's too bad the author didn't focus on that point, b/c it's a legit and important perspective to keep in mind. That doesn't make this a $12 stock however. There's evidence to suggest that behind the current large customer are more large customers, and if you consider the pathway and the TAM and comparable valuations of say PAYS it's not hard to get excited.

As I've written, I think there's a wide pathway for this company to do $100M in annual revenues at some point over the next five years not b/c their rumored customer is going to issue X0M credit cards but b/c they have a good system and good experienced people and a good platform to challenge the 40% EBITDA margin oligarchy that hasn't substantially invested in this area of their business over the last X years. (In my experience, PE owned companies like FDC don't make long term investments).

Take this FWIW. I know this blog ain't Forbes or Fortune. I don't have a CFA or an MBA from a prestigious university. This blog doesn't have a douchy Greek name. I don't rub shoulders with the twitterati and I still cry at the end of Cars.

I realize my 10-years experience as a sell side analyst means little to most people and that anyone can open an investment mgmt business. I never got past the gatekeepers at a variety of hedge funds and in this world each of us is our own gatekeeper. The only authority shaping that goes on here is what's occasionally punched out at a keyboard, which I hope includes a little original research and an interesting idea or two.

The goal here has always simply been to be an open book of lucid thoughts on the world of small company investing, following in the footsteps of others' who've done the same.

I've been spending less time here b/c investing resolves to IP and I owe it to my growing base of paying clients to save it for them. But it frustrates me when someone smacks down a good idea for no good reasons just as much as it frustrates me that others light up good ideas with poor reasoning. I can only advise others to work hard, read deep, figure out your own filters and stay skeptical.

I'll close with a brief anecdote: My wife is the optimist in our family. Years ago when we were still dating she came home from deposing a genteel older man noteworthy for two things: He made her a perfect homemade cappuccino and he told her "every relationship needs someone chipper". It's her most of the time, though I step it up when she's feeling down. Still, as a couple of NL East fans who hate the Braves, telling that story is the only time in our house we say "chipper" without screwing up our faces.

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Saturday, April 13, 2019

LCA's 1Q19 review ($INS, $CTEK, $QRHC)

I posted LCA's 1Q19 results on my website here. It includes brief discussions of three portfolio holdings: INS, CTEK and QRHC. As I wrote in the email that went out ... 

"Cumulative returns on accounts managed by Long Cast Advisers increased 20% in 1Q19, net of applicable fees. This was better than the baseline market indices. Returns for separate accounts managed by LCA ranged from 17% to 26% for the quarter. 

Since inception three years ago, LCA has returned a cumulative 96% net of fees, or 22% CAGR, ahead of the baseline market indices. Because our portfolio is comprised of just a handful of typically very small businesses, it is expected that returns will vary considerably from the baseline.

High returns certainly brings a lightness to the step but a strong quarter like this is really a cautionary tale on small sample sizes, the marginal impact of outlying events and the ability for anyone to look smart doing something right just once in every while. To me, it just illustrates why investors need focus on process, experience, differentiation and repeatability."

If I can simplify what I've learned in my first three years running a growing investment mgmt firm ...

you gotta pick the right stocks
you gotta own them at the right weighting
you gotta find clients who appreciate your worldview
you gotta have enough assets to make it all meaningful
and you gotta manage the administrative burden with an eye on time and costs

... it's complicated but the effort to get it right is energizing. 


It remains my desire to grow LCA thoughtfully and incrementally with just a handful of new clients per year. If you would like to talk about my process, experience, differentiation or repeatability, please drop me a line. I very much appreciate those that have and the partnerships made along the way. 

-- END --

ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Saturday, April 6, 2019

the full monte: a compendium of unanswered letters and emails to QRHC CEO & Chairman

It's been on my mind to share all my unanswered inquiries to QRHC. 

I'm sure they do not represent my finest moments - I've failed in getting many of these questions answered - but I try to be an open book and here at least offer my mind state on the stock, with the hope that others can learn and maybe someone else can ask these questions. 

I continue to reflect on what I could have done differently. I think too often I shot from the hip and maybe was overly aggressive. But don't think it's all on me. For ~$350k in annual comp it's fair to expect the CEO of a publicly traded company to answer reasonable questions from a large shareholder. I think when a management team or Board don't answer reasonable questions it ultimately reflects most poorly on them. 

In this case in particular, it also reinforces criticism I've received on the CEO's mgmt style, namely not wanting to hear about or address bad news. 

I met with the company on Oct 26, 2017, in non deal roadshow. seemed normal. The CEO gave a rebuke when I asked about the lack of insider buying (along the lines of 'what I do with my money is my business'). I'd also raised an initial issue with Glassdoor Reviews and was told along the lines of 'I take that seriously and i'm offended by negative things people write.' I was told he was heading back to TX for the annual Halloween party, a teamwork building and morale boosting kind of thing.

I followed up with this email from that never rec'd a response, including questions from two other investors I brought to the meeting ... 

... mgmt took my many questions on the 3Q17 conf call, November 14, 2017 (the one where they had "far out" guidance). I thought they were generally good questions. 

From Nov '17 to March 2018, CEO responded to two or three simple emails about conferences I could attend to learn more about the industry and a potential visit as I'd expected to be passing through the Woodlands. 

Then came 4Q18 (April 2, 2018) when they started walking back from "far out guidance" of just a few months earlier. These questions were unanswered ... 


... Concurrently I'd sent CEO this direct email ... 


... I was told they didn't see me on the queue and would call soon. Two days later, nothing. It's likely I was frustrated when I sent this, subject line "Glassdoor reviews" ... 

"Ray - 

Your reviews - especially the most recent ones - seem to indicate a pattern of lack of organizational expertise. 

Given how hard it is to even schedule a phone call with you, or for either of you to pickup the phone and return a call to a shareholder with 160,000 shares, I'd have to say I share their experience ... and their concerns. 

/Avi"

... I was told then by IR that had really pissed off the CEO, so I wrote him an apology ... 

... I figured at some point they'd get back to me. A week later I followed with another email, cc'ing their IR "jeff" ... 


... still nothing. 

I don't think I'm asking anything inappropriate. I'm not brow beating the CEO for the way he runs his company. I'm not prodding him to do anything unethical. I am not suggesting any steps simply to raise the stock price. I want this business built on a solid foundation of scalable service and delivery and I think these are fair and important questions related to those issues.  

So I decided to go write to the Chairman. This is a fairly tepid ask from a April 2018 letter. I probably should have asked more, but I just wanted to gauge their appetite for small steps towards success ...  

... I got a message through IR: Not interested. 

In May, this went out, a request to address tech investments on the upcoming call ... 

... The next week I followed with another note to the Chairman, suggesting a director who could help unlock value. (It looks like we might actually be getting that with the prospective new chairman as per the SEC filing on March 15th) ... 


... still not getting any engagement. I think by June I realized I've nothing to lose b/c they're not responding no matter what I ask, so I sent this fairly passive aggressive email about technology ... 

... it's just an effort for them to indicate that they'll take seriously an issue that I understand is at the heart of the business. Guess what? No response. 

And neither to these questions after 2Q18 ... 

... nor this after 3Q18 ... 

... after which I sent an email to their IR ("Dave") cc'ing the Chairman. I'm told the Chairman forwarded it to the CEO, and it didn't go over well ...

... from there on, I basically gave up trying to get in touch with them. 

After the filing about the potential new Chairman, I regrettably wrote these separate emails to the Chairman and CEO, over excited and shooting from the hip and trying desperately to paint myself as if i'm "on their side". That was stupid. I feel a bit sick about it ...  

  ... and to the CEO ... 

... I'm throw up a little reading it. Those were wrong. 

The guidance snafu aside, the company hasn't done a bad job to date - they've transitioned to CF+ by shrinking and changing their revenue stream - but topline growth is hard and they just seem to have zero visibility in their business, which I think comes down to a lack of solid IT. 

Former employees I've talked with indicate a small company with IT systems that don't communicate well and data still rolling into excel. I also get a sense from those I've talked with that the CEO is an exceptional salesperson but has the cliched management weakness of surrounding himself with people who agree and limited interest in dissenting opinions. My proximate experience supports this view. 

It's not an uncommon model. It''s definitely hard to find "five tool executives" in small cap land. But this is where the Board needs to step in to make sure the CEO is surrounded with people who can fill holes. 

I view all of these as fixable problems, which is why I hope the agreement with Dan Freidberg is seen through to completion as I hear he could really help focus the company on the technology piece that's been worrying me most. However, I have no insight into why the offering is taking so long. We'll have to see. 

At 0.3x revenues, mid-teen GP margins and 2x gross profits, I think there's an opportunity for value creation, either organically and with good tech so they can scale SG&A or by a sale to a company that has good tech and wants volume to feed their system. It's not the greatest business in the world but it's one that solves a recurring need for customers and when done right should generate cash that can be reinvested at high rates of return. Time will tell if this view proves correct. 

-- END -- 

ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF FUTURE RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Monday, March 18, 2019

Friday Filings Portend Potential Positives at QRHC

As I was digesting QRHC's 2018 results last week, I thought: "you know, the CEO deserves a lot of credit." He's taken QRHC from ($1.8M) EBITDA to +$2.3M in EBITDA in two years, partially by shrinking revenues 45%. There's cash flow and bvps growth, and they've done it patiently, in a brutally competitive business.

A patient investor has to admire this.

If QRHC can grow topline, this asset lite business (in theory) has a lot of operating leverage. But after purposefully "un-revenue-ing" in favor of higher gross margin business, the company has been slow to turn the corner to growth; easy comps should yield y/y growth in '19, but it's fair for investors to expect some sequential growth off the bottom.

With 10 days left in the quarter, I'm perplexed why mgmt didn't have the visibility to talk about sequential growth in the year end conference call. It's long been my theory that lack of good technology hinders visibility and scale. It's a solvable problem, but one that management has been frustratingly slow to acknowledge or address.

Cue the "deux ex machina"

A bunch of "Friday Filings" indicate a potential and potentially positive change on the QRHC Board and in ownership, that could help unlock value in the company. If all goes right, Daniel Friedberg of Hampstead Park Capital (formerly of Sagard Capital) will acquire +10% of outstanding shares at $2 and replace Mitch Saltz as Chairman. That would be a very welcome change. It even bears some resemblances to when Nahmad took over at EVI.

There are a lot of moving parts and multiple parties involved, but as I understand it from the public filings ...

Saltz (current Chairman) will sell Freidberg 1.7M shares @ $2 / share via put / call stock agreement

... on the condition that ...

Saltz + 2 co-founders Brian Dick & Jeff Forte can first sell combined 4.3M shares in a secondary offering (at a not unreasonable price, one would presume); Saltz + Forte resign from the board to be replaced by Freidberg's folks; and Freidberg will take over as Chairman

... meaning at the end of all this, if it happens as planned ...

New board
New ownership partially at $2 / share
Saltz will continue to own 11%, Forte 8%, Dick 0%

... which begs the question "is this good, or just different???"

I think this could be very good. There are a few things to love about this ...

I love what I've heard about Freidberg from colleagues and managers he's worked with in the past
I love that this guy is paying $2 / share for at least some of his stake
I love the potential that larger institutional shareholders have the opportunity to get involved
I love that the ownership will be less concentrated in the hands of Saltz and Co.
Yet, I also love that Saltz will continue to own enough to keep "skin in the game" (though he'll be obliged to vote his shares with the new Chair).

... a big difference b/t here and EVI is that Nahmad was from the get go so clearly a dealmaker while Freidberg here paints a picture of a more wonkish, "consultant turned operator". Having spent ~15-years in institutional research analyst before founding LCA, I have seen ways that doesn't work out.

Freidberg's bio indicates he's been involved in a handful of prior companies during periods that mostly align with under-performance. On the surface, a negative, but to be fair, if I were to join a Board, it would start with my investments that I thought needed the most help and that I aimed to try to fix. I think that sample is self selective towards underperformance.

A quick review of  year end 13F-HR's offers some sense of an investment record at Sagard under his watch ...


... some hits & some misses. An apparent value bent. Clearly likes the services companies. Is focused on smaller companies.

Noteworthy that Sagard's total value of stocks as per these filings grew from $200M in 2010 to $385M in 2014 (+17% CAGR), which means he had some success growing his business, before falling back to $180M in 2016 when Freidberg left (I reckon he took some of that with him).

In chatting with folks who've worked with him, I've heard: Smart, thoughtful, diligent, raised points no one else raised, the Board was better with him on it, aggressive but in a friendly way (the kind of thing you'd expect from a Canadian investor).

Assessing all of this will be an ongoing effort but the initial view is that this could be a terrific potential change. Hopefully the deal goes down, not only to have a more involved and engaged Board but specifically to have Dan Friedberg on Board.

At $1.65, QRHC is trading at 12x trailing EBITDA of $2.4M. The way I think about it, if it can get to +$6M EBITDA within three years, this is at least a double for investors. The pathway is topline growth + good technology to better scale overhead. The feedback I have on mgmt is they're a good sales and operating team but weak on tech. These are fixable problems for a team willing to address them. It seems like that team is waiting in the wings.

** Before closing, I wanted to circle back on something...

I am a large shareholder of QRHC but a year ago, its CEO stopped talking to me. It seems to have started when I asked about insider buying though I've been told it started with a question about negative reviews on glassdoor. Subsequent questions, raised after more substantive due diligence, remain ignored.

My older siblings can attest that I can get under people's skin and I am certainly not to everyone's tastes but I have never experienced anything like this since I started in institutional finance in 1999. There's a first for everything.

On one hand, everyone apportions their time how they want and if someone doesn't want to talk with me, they shouldn't have to. On the other hand, I think it's part of the CEO's job to respond when shareholders ask reasonable questions (and if they're not reasonable, at least explain why). I think it benefits all shareholders when potential weaknesses are raised with, and addressed by, management.

Whatever outcome of this investment will be independent of whether or not the current CEO ever talks to me. More watchful and careful eyes will soon be on the Board. They have likely conducted with their own due diligence (I've heard Friedberg is very thorough) and if the questions I've asked are indeed reasonable, this new Board will ask the same ones, likely more tactfully and undoubtedly more impactfully.

I am keen only to see the company operate towards its optimal outcome, something it appears this new Chairman may have the ability to help achieve.

-- END --

ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF FUTURE RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Monday, March 11, 2019

Information is the Foundation of Fundamental Analysis ($INS)

When I was in 8th grade, I lost $20 playing three card monte outside of Grand Central Terminal, an experience I'd be ashamed to admit were it not for the lesson I gained in the process: It's important to know what you're getting into before you lay out the cash.

That tidy conclusion would be a nice segue for the topic at hand, but in full disclosure its worth mentioning the rest of the story. I had no train fare! The shivering realization of consequence frightened me and I started to freak out. I didn't know the game was rigged, but I knew I had no way of getting home and I was in a panic.

To make me go away, the crew (3cm is always a crew) gave me back $4 for the ride home. Though lighter $16, i'd gained a further education in managing risk; make sure your mistakes don't leave you stranded.

I imagine the inexperience of youth forms the foundation of so many of our future endeavors but I had no idea then how proximate mine would become. Years later, here I am, running an investment management firm dedicated to fundamental research and downside risk management.

I've been thinking about this following recent news on Bloomberg that Goldman Sachs is the new customer on the $INS CoreCard platform. Close readers know that back in December, when I presented on Intelsys for MOI, I mentioned the scuttlebutt that Goldman was the large customer driving customization revenues for a license due to close in early 2019.

Where did I learn that information? Nobody at the company told me. It's not available in financial filings. But the basis of the work I've been doing since college, as a writer, factchecker, PI and in institutional equity research, is trying to figure things out. Information is the foundation of fundamental analysis.

Information, for the fundamental analyst, is the air we breathe, and it always starts with some independent variable that can be tested and assessed, like historical financial statements. Not charts. Not trading patterns. Not analyst reports. Not forecasts based on imaginary futures. Not hot tips. Not whisper numbers.

Then (if you like what you see) the fun begins; figuring out what you don't know and where you can find it. I find this often takes time and like any creative pursuit, emanates sometimes from intense focus or sometimes from intense distraction. Either way, the goal is to understand - qualitatively - what led to the quantitative information in the filings, how sustainable it is, and what if anything is changing.

Sources of information can come from reading news or industry rags, sometimes through the public filing of a non-financial document, sometimes as a passing comment at an industry conference, sometimes as a note passed over the transom, sometimes its simply shared by another investor.

The key is that experienced observers - from investors to fishermen to mechanics - can identify information based on tell tale signals that appear as noise to most everyone else.

The information that I see around $INS isn't limited to this one specific piece of news now reported by Bloomberg, but on the company as a whole, which to mine eyes is different, unique and unusual.

To name a few: It is an owner / operator company run by the same CEO for +30 years who owns 25% of the company with limited dilution. This isn't his first rodeo in payment processing and he's focused on building a strong, durable and flexible platform, that now offers processing as well as licensing. That's recurring revenue in a business with a huge TAM. And he's just signed one of the premier customers in the space. 

CoreCard has been funded over the last 15 years through cash generated by another operating company that Intelsys has since sold, to the frustration of shareholders. Now the company is growing, profitable and cf+ (and only spends 200 bps on marketing). I could go on and on ... but if the news reported by Bloomberg is true, kudos for landing such a large contract. IMHO the ingredients exist for continued success.

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF FUTURE RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Monday, March 4, 2019

A Brief Comment on "Casual Racism"

I recently had a meeting with someone who mid-lunch dropped racist tropes as easily as talking about their children. I have no interest in disclosing information about private meetings but I do have a desire to make change, even in small ways, when I see and experience prejudice.

I write here b/c in relaying this event to someone else, they indicated that my response was unusual. I imagine anyone else would've done the same thing, but in an effort to make the unusual more common place, I wanted to share.

The over-arching goal is that racism won't change until white people talk about it and that's what I'm doing here. It doesn't matter what he said; his comments reflected unfair biases without regard for context, empathy and blind to the wider reality.

Specifically, I told him three things ...

1. There is a lot of institutional racism in this country. White people may never see it, may not be aware of it, may never feel it and likely may never experience it.

I can send my kids to the cornerstore and I'm pretty confident they won't be given the side eye, they won't be looked at suspiciously, they won't be stopped-and-frisked and they won't be followed or questioned.

These experiences can be very very different for our african american friends, especially boys and men, all too violently, all too glaringly and all too recently, while they were going shopping, talking on a phone, retrieving their license, etc.

One effect of this institutional racism is what's seen on TV. I'm sure crime, drug addiction, domestic violence, sexual harassment, etc. exist across all races but they are reported on and prosecuted very differently by race.

2. There are an awful lot of successful black people in America. To say there aren't is to diminish these successes. Concurrently, anyone of any race, gender or color can fall through the cracks and margins of society.

3. The stories we tell ourselves about our family history and our background are deeply embedded in our personal identities. These stories help form identity.

Now consider how slavery deprived +4 million people directly of these histories, and their ancestors for years after. Abolition of slavery was only 150 years ago and in parts of this country, for the first 100 years after abolition, black people were still denied education and opportunities for advancement.

Now think about how easily family history comes to many of us. Charlie Munger said this about his grandfather at the recent DJCO shareholder meeting ...

"... he was a Captain in the Black Hawk Wars, and he stayed there and he bought cheap land and he was aggressive and intelligent and so forth and eventually he was the richest man in the town and owned the bank, and highly regarded, and a huge family, and a very happy life."

... his idea of who he is at +90 is supported by family lore he's heard since he was a child.

How long does it take to overcome a loss of history? Layer on institutional racism, incarceration, etc. that prolongs its effects and it seems to me that we are only beginning to dig ourselves out of this. A long overdue reclamation of history has only begun, and needs to continue.

(Incidentally re: family history, my grandfather was a police officer in Philadelphia and many of my views on race were informed by him and his empathy for the people he spent a lot of time around. I believe his experience is true for most police officers, even while they work extremely stressful jobs in a profession that like many is tarnished by the behavior of a few.)

As a kicker, over lunch I was also offered complaints about political correctness. PC is all too easy to disparage ("How many letters of the alphabet do I need to describe someone's sexuality these days?")

The reason PC exists is to show respect through language. For too long, people have been denied this respect b/c of the color of their skin, their sexual orientation, their fondness for unusual hobbies and habits, their dress, their hair, their look, their attitude, etc that might not have fit in with rigid norms.

Yeah, it seems to go overboard sometimes. But it's not there for me. It's there for people who for too long have been denied the same respect. It definitely requires a different way of thinking and speaking but at the heart, it's an effort to give space and respect to anyone of any stripe willing to reciprocate.

I cannot fathom why any mindful and healthy adult wouldn't want to participate in that effort.

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF FUTURE RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Thursday, February 21, 2019

Letter to RVLT BoD

I briefly wrote about $RVLT after it announced a takeunder by its Chairman, CEO and largest shareholder. I've been a passive, removed observer since that announcement. It is an unfortunate experience for involved investors and painful to watch given how unfairly shareholders are being treated.

An investor in RVLT reached out to me and asked me to post this letter to the Board. Given my knowledge of the company and my general indignation towards Board and Management malfeasance, I agreed. This letter is from an investor who wishes to remain anonymous.

"To the Board of Directors of Revolution Lighting:

On October 17, 2018, concurrent with a negative guidance pre-announcement around 3Q earnings, Revolution Lighting's Chairman, CEO and largest stockholder offered to acquire all the outstanding stock for $2 per share.

Two days later, the company disclosed an SEC investigation into revenue recognition practices at the company and less than a month later, your Chairman, CEO and largest stockholder reduced his offer to $1.50 per share.

Other than a mid-December press release indicating that you'd hired HC Wainwright to explore the offer and alternatives, public shareholders have received no substantive communications on these proposals. Meanwhile, the company has lost 80% of its market value.

I understand the need to assess alternatives but why should it take so long? The offering party is the CEO and largest shareholder. It is difficult to imagine what further diligence is needed to consummate a deal.

As a concerned shareholder, I urge the Special Committee of the Board to expeditiously conclude negotiations to sell the company before further value is lost.  If, in your exercise of fiduciary duty you decide a sale is not optimal, shareholders are long overdue a thorough explanation as to why not and how you plan to enhance the company’s value to greater than the $1.50 per share offering price.

Sincerely ... "

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF FUTURE RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.