About Me

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Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com

Wednesday, April 26, 2017

1Q17 Letter + Thoughts on Steel Pulse

Long Cast Advisers posted its 1Q17 Investor Letter yesterday. "1Q17 was our sixth quarter in business. Cumulative returns on accounts managed by Long Cast Advisers increased 10% in 1Q17, net of applicable fees. Since inception, we have returned a cumulative 42% net of fees, materially ahead of our benchmarks."

If you'd like to receive it in the future, you can sign up for it on my firm's website


On a side note, I've been listening lately to Steel Pulse, the reggae band from Birmingham, UK, which got me wondering about their evolution and sound.

i started with their first album, Handsworth Revolution (1978). i dug it hard and in the diligence of a discographic adventure, i moved on, in order, first to the offbeat and unusual "Tribute to the Martyrs" (whose album cover is an African version of Mt Rushmore); to "Reggae Fever" where a disco sound starts to take shape; to "True Democracy" a more traditional collection; to "Earth Crisis"; and ending painfully with "Babylon the Bandit", their sixth album, which won them the Grammy Award in 1986.

at this point i stopped the endeavor and went back to their first album, which i think gets better the more you listen to it, the mark of a good album.

yet, i'm confronted with this dissonance b/t their great first album and lousy award winning sixth album, which seems a mashup of 1980's theme music, part soundtrack to Beverly Hills Cop, part vomit on the bottom of Vans.

obviously this is a matter of personal taste and mine evidently lean towards the more traditional reggae. but it really gets me thinking about why the market would undervalue an incredible 1970's first new album and overvalue a crappy 1980's 6th album and what it says about decisions, investing and longevity.

>> what we can say about the band ...

they are masters of the traditional reggae sound paired with a desire and willingness to explore new, different and unusual boundaries

their willingness to take risks enabled them to move into new ideas and boundaries

the varied sound allowed the band to appeal to a wide audience (more sales / more success)

did they go "where the art took them" or did success lead them to be surrounded by people who overproduced the sound?

it must be difficult managing the evolution of a changing team dynamic, where band members come and go

big change in drugs b/t the 1970's and 1980's

>> what we can say about the audience ...

in 1978 the market was saturated with the traditional reggae sound

consumers sometimes put trust and faith in established brands and overlook what's new

the Grammy could have been awarded for their "body of work"

It's naive to think that an unknown band should be "discovered" and rewarded in its first year.

I think this resonates with my raw efforts to start a business (though hopefully by sixth year will be as good as my first); my efforts to stand out in a crowded field with low barriers to entry; my awe at the perseverance of artists even as their tastes invariably shift; the inability to know the future and where our art will take us; the follies of awards; the magic of an endeavor; the daily absurdity of betting on future outcomes even as people and tastes change; an idea of betterment that exists in our minds converted to music / writing / art / investment analysis; and if / how / when any entrepreneurs or artists' efforts will translate into material success.

-- END -- 


Tuesday, April 4, 2017

On the Epidemic of "Buy Low Cost Index Funds"

We residents of NYC and its environs regularly pay 3x the retail price of a pint of beer to drink it in a bar vs at home. There's nothing complicated with pouring oneself a beer at home so it begs the question: What do we get for this markup?

Bar owners require compensation for their rent and overhead, but they succeed solving problems for clients not themselves. To my mind, bars solve the problem of a scarcity of places where one can legally drink in public and the prohibition against talking at the library. I'm sure there are others as well. This is why we outsource the pour.

Choosing between bars is as easy as knowing the difference between cheap and expensive bars; Yankees / Giants / Rangers / Knicks bars or Mets / Jets / Islanders / Nets bars; hipster bars, Wall Street bars, sports bars, UK pub-type bars, Russian style vodka houses, gay bars, lesbian bars, Irish bars, tourist bars, after work bars (including those that cater to those working night shifts and therefore open at 10AM), etc.

In short, with bars, you pay up, but know what you pay for and it is easy to comparison shop. One thing I can say for certain is that I've never seen anyone standing outside a bar exhorting everyone to "only buy the low cost drinks".


This post is about ...

the difficulty to comparison shop between ETF products;

the inability for the majority of people who don't work in finance to know what they're actually paying for when it comes to ETF's / index funds;

and how those people who want as little risk as possible are sold ETF's / index funds as the "low risk / low fee alternative" but actually face wildly overlooked risk that could be potentially disruptive to their savings.

... The assumption that anyone at anytime can buy an index fund and hold it forever as a solution to their savings / investment goals is as crazy as inviting a random person into their house to replace a water heater.

ETF's are a convenient - perhaps too convenient - solution to a most difficult problem of how to find and identify good investment managers. The ETF solution? Don't even bother! I'm a little biased here, but I think hiring an investment mgr can / should be done the same way one finds a doctor, lawyer, accountant, plumber, mechanic, etc. and the effort is a worthwhile alternative - even to the modest saver - to blindly buying and holding ETF's.


How finsvcs are different and how performance is woefully misunderstood 

Like other industries, there is generally an "information asymmetry" in finsvcs by virtue of the fact that an unknowledgeable client pursues the expertise of a knowledgeable professional, the same as when most people hire an accountant, plumber, doctor, contractor or mechanic, etc.

In most of these cases, an expert is hired to solve a specific problem and so there is match between what is provided and what is experienced. This expert is generally found by word of mouth, referrals, prior experience, marketing, price or convenience.

Also, like other industries - services and otherwise - there are multiple price points for the consumer to consider. And finally, like other industries where competition, low barriers to entry and a mechanized option exist, prices are coming down.

However, finsvcs differs from these other industries in three ways ...

1. In most industries, everyone sort of knows what value is offered at different price points ("leather heated seats" or "a knowledgeable helpful person on the other end of the phone") but not so much in finsvcs.

2. With a plumber or mechanic, accountant or even doctor, the engagement ends when the problem is solved. In finsvcs, the engagement goes on indefinitely.

3. In finsvcs I see a difference between the value the service provider thinks they provide and the value the client thinks they get.

... in all three of these cases, the difference between what is experienced in other industries and what is experienced to the finsvcs consumer generally resolves to "performance".

"Performance" however is woefully misunderstood. I'll get more to this later but suffice to say, since "avg performance after fees" always lags "avg performance excluding fees", we're living in this supposedly rational effort to simply "reduce fees." This has led us to this strange place that's poorly resolved with the oft repeated mantra "just buy low cost index funds."

I agree on the need for fee reduction, but needless to say, I believe the mantra to "just buy low cost index funds" is more of an epidemic than a trend and reflects further efforts by Wall Street to compel ignorance through propaganda while separating people from their money.


Comparison shopping is easy in the grocery store but hard for ETF investors 

It is perhaps an imperfect analogy but I see investors as grocery shoppers and often vice versa. The investment decision in my opinion is just a super refined version of the same kind of decisions that millions of supermarket shoppers make everyday.

And how do shoppers and investors make decisions? By inspecting the product. Both investors and shoppers are able to make informed decisions on products b/c regulations - "Section 13 or 15(d) of the Securities Exchange Act of 1934" and the 1966 Fair Packaging and Labeling Act - that require accurate and honest labels about the products inside.

I have no doubt that the learning curve to reading labels on SEC documents is a little steeper and longer than the learning curve for supermarket labels and therefore the group that does one is narrower than the group that does the other.

Yet, in both scenarios the consumer who is adept at reading the labels can make an educated decision that justifies their choice and potentially adds value to the experience they seek. It calls to mind the old Syms slogan "An Educated Consumer is our Best Customer".

So what labels are read by the massive number of Americans savers who have entrusted trillions in savings to ETF's and index funds?

In an environment where even the Oracle of Omaha says ...

"Both large and small investors should stick with low-cost index funds."

... what labels can "large and small investors" read to learn about the past and / or potential future performance of the fund? The answer is in the ETF prospectus, and they are light on relevant details.


The finsvcs industry probably doesn't want better ETF labels or for you to know their valuations

I come from the school of thought that when you buy a stock you become a part owner in the company's future cash flows, and that the stock's performance - over time and when acquired at a reasonable valuation - should approximate the company's cash return on total capital.

So I invest in a company's performance - it's collection of assets + / - mgmts ability to solve the variety of problems faced every day, etc. - with the expectation that over time, and with patience, if I'm right on the company's operating performance, eventually the stock performance will follow. I try to buy a good operating company at an inexpensive price and grow my capital as the company grows.

I am able to do this b/c of information available to me about the company via its "labels" (ie its 10Q's and K's), which, when properly analyzed, can indicate at the very least it's historic performance at generating a cash return on total capital.

Flip to an ETF label - its prospectus - and it seems devoid of information that would seem meaningful under this rubric. All you get are lists of the companies and their weightings.

Now this can be informative, but not along the lines of determining the aggregate present value of future cash flows of the contents of its portfolio.

Informative more along the lines of knowing that ~6% of the Vanguard Social Index funds is wtd to energy / mining companies, which should be meaningful to the investor who owns it in the effort to implement an SRI strategy (whoops!).

It seems to me these prospectuses would be more helpful if they included information on some independent variable like the RoTC of the the stocks in the index and for the entire portfolio, or other information that is essential to stock investors, such as sales growth, cash flows, earnings growth, etc. for each company and in aggregate.

That way investors would at least have a guide of knowing how much they're paying dollarwise for these independent variables. Those variables ultimately define the fundamental performance of the underlying companies.

Unfortunately, the big effort in finsvcs industry right now isn't about better product labeling on the most popular product of all time, but about the "fiduciary rule", which is a fight about whose interests should come first in the customer relationship.

I have a hard time holding these two ideas in my head without getting back to my earlier conviction that the mantra "buy low cost index funds" is an effort by Wall Street to compel ignorance through propaganda while separating people from their money.

Because if they are fighting against putting client interests first, they probably aren't.


Explaining ETF's to my kids 

My kids - two boys, 10 & 12 - have started getting interested in investing. I've been trying to figure out how to approach it with them in a constructive way that also dissuades them from pursuing it as a career choice, and I decided we would start simply by picking a few of the 1,000 largest stocks (still) posted daily in the WSJ along with a few index funds.

But what are index funds? My kids heard the phrase but don't know what it means, so we talked about it.

I gave them the analogy of a deck of cards. With a single stock, they can buy one card in the deck, and they would get a cut of / or / pay part of the cost of the kiddie whenever that card was played and won / lost. Which card would they want to own? The Aces, they said.

If everyone wants the Ace, its price goes up, then which card do you want? K, Q, etc. Can't even the lowly Deuce win a hand? etc.

The alternative, I suggested, would be to take a 1/52nd slice of every card in the deck, and create a new card that is equal portion of every card in the deck. That, I said, is like an index fund on the deck.

They said: "But then, if all the cards are used in a hand, don't the winners offset the losers?" And "Not every hand has every card so just a few cards will be played most often" And "The more hands played the more money the casino makes"

I'm starting to realize that even though they barely do a single thing I ask of them, at least they aren't stupid.


The goal of investing isn't to own ETF's or stocks

The goal of investing is a return on capital in excess of the rate of inflation without bearing the burden of "excessive" risk. I put "excessive" in quotes b/c there are a lot of different kinds of risk and it can mean different things to different people at different times of their lives and depending on their needs.

The benefit of ETF's is that they offer broad exposure to the market at a low cost with the ease - to both the buyer and the producer - of not having to understand (or disclose) what each company in the portfolio is doing. But keep in mind, "broad exposure to the market" isn't a goal in and of itself; the goal is the return on capital, etc ...

ETF's don't promise the return on capital part, they just promise the elimination of single company risk the same way any diversified portfolio does. If you compare an ETF or index fund to any diversified portfolio, one could safely say that ETF's are better and cheaper than alternatives at achieving this low risk return on capital goal, etc. This is an important attribute.

Through this lens, if you think about the problem an ETF solves, then you think about the problem a diversified portfolio solves, and you eventually get to theories on CAPM and the efficient frontier, etc.

And what problem do those theories solve? The problem - essentially - of how to judge and define a good investment mgr. It is - and remains - a ridiculously hard problem to solve. Endowments have a hard time doing it. Institutions have a hard time doing it. It would be nearly impossible for the average person to do it. So, from CAPM, to efficient market hypothesis, and all the way down to ETF's, the theory boils down to, "don't even bother trying".

The point is that ultimately, with ETF's you're just getting a ridiculously inelegant solution to the supremely difficult problem of how one should actually go about identifying good investment managers who can consistently generate a return on capital faster than the rate of inflation, and with limited risk.

And yet ... something is missing here. B/c when 99% of the world thinks about ETF's they're really just thinking about two things: Fees and Performance.


It should be easier to know what you're paying for

As it currently stands, Fees and Performance (along with some generic title) are essentially the only labels ETF investors look at. In a simplified world narrowed down to just those two things, and where one of them - performance - generally looks the same across asset classes, the mantra to "buy low cost index funds" makes a whole lot more sense.

The trouble with this "two label" solution isn't just the opacity. As an industry we woefully misinterpret performance.

As we know it, performance is the change in the market value in a stock. But the price of a stock isn't information about a company, it's simply information about how "the market" values that company, day to day, quarter to quarter, etc. The "voting machine" at work. Stock price performance ignores the the critical information regarding some underlying independent variable about the operations of the company, like earnings, revenue growth, FCF Return on Total Capital (or something).

If people look at performance to buy funds, and they are only buying funds with good performance, then they are purchasing something that has already increased in price. Whether or not this is a good idea is hard to say - not enough information - but there is no doubt that buying something for the sole reason that it's gone up on in price isn't remotely related to a good capital allocation decision.

Let's say there were a better "standard label" for index funds and frankly for hedge funds and investment managers of all stripes as well. Not just Fees and Performance but information that would enable investors to choose whether they want to pay more or less for that independent variable. This would help them choose between products.

I'm not talking marketing.

I'm talking better labels on the portfolio that enabled shoppers to really compare / contrast products - say the aggregate FCF Return on Total Capital of all the companies in the fund and the valuation multiple on it ($x for every % in RoTC) - and it could be compared to the aggregate and valuation multiple of the benchmark, then customers would know better what they were paying for.

Whatever metric, it would at least incorporate one of the more important attributes of capital allocation, which is price paid for some independent variable.

This could (and ostensibly should) be calculated for any portfolio. With this improved "label", shoppers would have better information to choose b/t products. It would certainly be better than the most bullshit of labels imaginable, the Morningstar "five star rating".

I'm not saying this is a perfect solution. I'm sure if I'd pull back the layers on this idea, there would be multiple methods of gaming the system (and no doubt in this business, someone is always gaming the system), but it is a simple opportunity to add reasonable, fundamental and easy to understand information that would enable consumers have more insight into what they're buying.


There is plenty of room for a differentiated strategy 

An important question you rarely hear is; "are you willing to accept different performance than the market? It might be better it might be worse, but I assure you it won't be the same." Why bother asking it?

We know for a fully loaded 30 basis points investors can get some undifferentiated market return. This means that anything paid above that - 100bps for a financial adviser or 2% / 20% for a hedge fund - implies that there is some "other service" offered for the incremental costs.

What are those other costs?

Here I am, starting my own investment mgmt business ("the food truck version of a hedge fund"), trying to figure out how to get traction with "folks who look like us" ($50k to $5M to invest), and many of them say, "we'll stick with low cost index funds".

Meanwhile, the larger and more sophisticated investors I know stick with name brand expensive hedge funds. (And what is a brand really but another "authority shaping mechanism").

So I ask myself a whole lot of questions ...

How do I sell?
What's the right target and pace of growth?
How long should it take me to get to $10M, $20M or $50M AUM?
What steps do I need to take to have functional substantive conversations with family offices / endowments?
How long is a sales cycle?

... Conventional wisdom says that performance is a big part of AUM growth but I think the evidence suggests that scale supports AUM gathering at least as much, if not more than, performance. I even venture to observe that scale drives AUM growth while performance chases it away, but that might just sound fancy and mean nothing.

But what justifies fees? This gets back to the unoriginal question above. I think "stewardship of capital" broadly defines the endeavor, which broadly speaking is some combination of ...

don't lose it
grow it
kick out some income
help me make decisions / help take care of it for me
i trust you (and a host of other emotional content around money)

... none of that is worth anything to anyone who isn't willing to accept a differentiated return.

The point of mentioning all this is that it would be so much easier if I could compare and contrast my portfolio with benchmarks, not in terms of "performance" but in terms of maybe price / aggregate RoTC of stocks in the portfolio or price / aggregate revenue growth or / aggregate book value, etc. It would be neat of I could do this (on Interactive Brokers I can't even get real time quotes anymore without paying $1,464 / year).

Everyone says fees is a friction in finance but I think the real friction is the inability to tell critical and meaningful differences b/t products. Meanwhile, instead we're all just told "just buy the lowest cost one" as if we all should just eat spam for dinner.

-- END --


Sunday, March 26, 2017

the best investing advice I ever got

years ago, one of my oldest friends, let's call him "daniel" (himself incidentally the son of a legendary investor), was consoling me.

for what you may ask?

another friend had excluded me from some event. i was in my 20's and such things felt mortally significant.

with perspective, i now know that the negative feelings that arise from being excluded  is fairly universal among humans of any age and of most cultures. in the worst cases, it causes otherwise smart people to do horrific things. these days in the generally overvalued prvt tech markets its characterized by the acronym FOMO.

in any case, "daniel" said to me: "why do you give a shit what he thinks?"

that turns out to be the best investing advice i ever got.

the desire for acceptance is a wonderful human trait but it is one investors should reflect on. how long can we go without it and for what reasons would we pursue it?

a chip on the shoulder isn't a bad thing unless it weighs you and your portfolio down.

-- END --

Friday, March 24, 2017

compounding, after taxes and inflation, isn't as much a wonder

the 8th wonder of the world - "compounding" - is the magical return that grows on itself, over and over. it is a goal for investors, and a challenge.

yet different investors experience 15% annual returns differently and this is not well understood.

the consistent 15% return grows $100k to $1M in 17-years

the investor who experiences 3% inflation has a real 12% return and takes 20-years to achieve $1M in real terms.

the short term investor who sells their gains every year and has a marginal 28% tax rate receives a 9% after tax real compound return. 28-years later the portfolio is worth $1M.

were one to invest $100K in a store or business, how long should they expect to wait for it to return 10x capital? 28-years seems like a long time. there are many alternatives to equity in public companies that should be considered when allocating capital

the beauty of the stock market is the ease of investing in businesses. on any given day there are tens-of-thousands of businesses worldwide with public bids. wait for the right ones at the right price, buy a lot of it and expect to own it forever.

the wonder is who wouldn't want to buy businesses, that redeploy capital wisely and grow in real terms, with the eye of owning them for long periods? anything else short changes the return.

-- END --


Tuesday, March 21, 2017

Sometimes a Balance Sheet is the Simplest Idea

Since this is a company in transition, the business description ("We are a vertically integrated, advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems...") is meaningless.

the important disclosures are the Shareholder Letter dated 2/21/17 and the new CEO announcement dated 3/16/17

I summarize below the key points from the shareholder letter ...

  • decision was made to limit our focus to the smaller but growing optical and industrial segments of the sapphire market ... quickly exit the mainstream LED and mobile device segments of the sapphire market ... sell most of our plant capacity and generate cash to provide more opportunities to deliver stockholder value.
  • We are actively pursuing the sale of a 134,400 square foot manufacturing and office facility in Batavia, Illinois. Also, additional land in Batavia, Illinois we acquired in March 2012, Also the sale of  a 65,000 square foot facility in Penang, Malaysia. 
  • Our wafer patterning equipment in Penang was sold in the fourth quarter of 2016 for $4.5 million, and we are structuring an auction in the next 90 days to sell the polishing and fabrication equipment. Additionally, the real estate is currently on the market. 
  • We are in the process of consolidating operations into our leased space in Bensenville, Illinois and Franklin Park, Illinois and vacating our largest owned facility in Batavia, Illinois. 
  • planning a second auction for the excess equipment in the Batavia plant in the next 90 days ... also actively selling this property and our initial focus is to seek a buyer that is interested in both the building and infrastructure. 
  • reduce overall company headcount from 220 at the end of September to 40 today, significantly reducing current and go-forward cash-burn. We have been careful to maintain the employee knowledge base in our strategic markets built over the past 15 years.
  • we are actively evaluating the acquisition of profitable companies both in and outside of the sapphire market in order to accelerate growth and to utilize our substantial net loss carry-forwards. 
  • Because acquisitions are being given greater consideration, the Board of Directors [has a new CEO Tim Brog] with more extensive experience in mergers and acquisitions 
  • In addition to reducing costs, these changes will maximize accountability to stockholders and bring in a fresh perspective and new skill set to the executive team and the Board of Directors.
  • we are beginning to see a meaningful improvement in cash flow. 

The new CEO has had prior success unlocking value in turnarounds and in monetizing NOL's through acquisitions. It is impossible to say whether he can do that again but the cost of failure is somewhat limited by the valuation relative to the balance sheet and mgmt's efforts to stem the cash burn. 

-- END -- 


Thursday, February 16, 2017

Year End Client Letter + Website Launch

I finally - at long last - launched my firm's website ...


... we published our 2016 "year end letter" concurrent with the website launch and that can be found on the website under the "Links & Letters" section.

I expect that I'll continue to post here about ideas and such, though not entirely certain how I'll balance that approach. As always appreciate your input, interest and comments.

-- END --


Tuesday, January 31, 2017

... And out of the Blue, I was Quoted in the NYT

Maybe it's a slow news day and not much going on, but I was quoted in the NYT the other day about the Park Slope Food Coop and its recent controversy surrounding the pension for its employees.

What the NYT actually quoted was a line from one of three letters I'd written to the board and the coop newspaper. The letters were about the poor returns in the pension fund and the need for the fund to articulate and disclose its investment process and strategy, as well as concerns over management, transparency and governance.

The quote in the NYT was specifically about one of the two trustees of the pension, George Haywood, a former Lehman partner who'd started his own investment mgmt firm many years ago.

He was also a coop member who since the 1990's managed the pension as part of his workshift (all members of the coop have to work 2 hours, 45 minutes / month). Under his mgmt, returns were under whelming.

I thought it would be fun to include links to the full letters and where applicable call out portions that are relevant and important to investors in general.

I conclude as well with a personal letter I wrote to George Haywood's lawyer, Gary M., with the hope that he would forward it along.

So as to not bury the lede, not long after I wrote the private letter to George, and after years of questionable management of the coop pension with potential violations of ERISA laws, Haywood quit the coop and was named a director at Fannie Mae.


LETTER 1, from September 1, 2016, was written in reference to three things ...

1) erroneously reported information about the coop revenues and gross profit
2) a graphic about the pension performance that was wrong,
3) a graphic depicting the impact of a pension shortfall illustrated as cheese on a pizza and coffee beans

... at the time, the issues with poor returns on the pension were just coming to light. I'd hoped these paragraphs - the last three of the letter - would resonate most with readers:

"I get that many people have limited experience with financial presentations but everyone—from infants to addicts—knows how to make decisions about preferences. The business of investment management is quite simply a concentrated version of the types of decisions made by everyone, all the time, such as what fruit, shoes or glasses to buy, etc.

The point is, it’s far better to present such information fully and with appropriate context than to promote the continued infantilization of people’s attitudes about finance with pizza pies and coffee beans.

The idea that “it’s too complicated, leave it to us” is a part of the fabric of institutional finance that unnecessarily enriches a few at the expense of many, due simply to ignorance and complacency. Every opportunity to break that cycle should be taken."


LETTER 2, September 29, 2016. At this point, a small but loud faction is pushing the pension to go all passive. Obviously, that's viewed as "most prudent" these days. I was just asking for someone to please articulate investment strategy. This is the full letter.

"To the Editor: 

I have been following the debate regarding the pension plan and its investment performance with a little concern and a lot of bemusement.

My concern is primarily around the unnecessary risk created by the managers of the plan for maintaining a concentrated investment portfolio without disclosing an investment plan or strategy. If the pension trustees would articulate its process and how each investment fits into that process, it could better assess the reasons for its underperformance, i.e. whether it’s from a flawed process or a flawed execution, and adjust as necessary.

My bemusement is from learning that the co-trustee of the plan, George Haywood, is a high-profile beltway-insider, with close ties to President Obama. I am curious why and how we have a relationship with him? It certainly isn’t because there’s a dearth of financial acumen in New York City and it smells like the kind of relationship where the due diligence begins and ends with “you should invest with so and so, s/he’s very good.”

Giving money without proper oversight to someone held in high regard by others but who cannot articulate reasons for success or failure is a terrible way to do business. We wouldn’t buy cheese, produce, vegetables or proteins that way. Nobody should invest that way."


LETTER 3, November 10, 2016, was written after I attended a general meeting, where I learned two things ...

1) the short list of highly speculative companies the coop owned
2) how little most coop members understood about the pension in general

... it was one last plea for them to define the investment process and strategy (believing that they actually had one).

"To the Editor

The goal of managing a pension of any size is to match future cash needs with future cash flows.

Presently, more than 1/3 of the Coop’s assets are obligated against those future needs, which are funded by Coop sales and by the investment performance of the plan.

As detailed in last night’s meeting, the plan invests in companies that are not about future cash flows but about a bonanza or bust payoff; it buys speculative stocks at a low price and hopes the price will grow if a future event happens.

However, no one knows the future. If they did, and knew with certainty that the bonanza would happen, these stocks would already trade at higher prices. The uncertainty keeps VirnetX trading at a fraction of the value of its now six-year old patent infringement lawsuit against AAPL, etc. These unknowns exist for all companies.

Knowing how the trustees define a good company and what has been their “batting average” on selecting the right ones would be incredibly helpful in gauging their effectiveness, far better than simply quarterly or annual returns.

If the trustees have a good process for selecting the right companies, and a track record for doing it well, then it’s just a matter of following that process and practicing patience. But if they can’t define the process, then we have no information, just the emotional whipsaw of the stock market.

Joe, who is one trustee, is an incredible asset to the Coop and he does so much with his heart in the right place and concern for all the stakeholders but—I speak here as a professional investment manager—I fear he is at the edge of his competence when it comes to investing. (Search “krill oil boom” and you’ll know what I’m talking about). That is not a good place to be with other people’s money and a terrible place to be for someone acting as a fiduciary.

George, the other trustee, and supposedly a capable and experienced biotech investor, should be able to explain and articulate his stock selection methods, process and expectations. That he hasn’t is completely unfair to Joe, who is left to explain why he “believes” these companies “will be great”, absent any fact, like a politician in an election cycle. It is also unfair to the stakeholders in the plan, and the Coop itself, for whom he creates risk.

The alternative approach pitched by Hessney is the widely accepted process of the moment. I’ve never been one for widely accepted processes and I believe there are better solutions for investing capital. But without a well thought out and well articulated investment policy statement that defines the processes by which the trustees make their selections, they are creating risk to the Coop. 

Randomness is a most unjust way to treat our capital and our employees."


Then I gave up writing letters to the board.

But I wrote one last letter to George Haywood via his lawyer Gary M. whose name & address I found on his SEC filings. I was told it was forwarded along.

The letter had two purposes ...

1) I wanted to meet him. He's not the typical coop member.
2) I got a sense that George didn't really know what was going on, and that the other trustee stubbornly wasn't asking for his help.

... here's portions of that letter.

Dear Gary –

I write to you in your capacity as George Haywood’s attorney on SEC filings to request that you please facilitate an introduction between us and also to relay information that I believe is important so that he can help a mutual associate.

The genesis of this letter is that we are both members of the Park Slope Food Coop. I realize this is a tenuous – perhaps absurd - connection for an introduction but it also the basis for the more critical information described below.

About the introduction ... Last November I started my own investment management firm, Long Cast Advisers, which makes concentrated investments in well researched small / micro-cap securities. We apply the same fundamental analysis I used while working for 15 years as a sell side analyst. With just a year under our belt returns are +25%. We are off to a good start.

I would like an introduction to ask for his advice and counsel on building an investment management firm. I have always found it helpful - and an enormous privilege - talking with experts like him who have experience and success in areas that interest and engage me. I would be most grateful for that opportunity.

About the information to be relayed ... Mr Haywood is one of two trustees on the PSFC pension plan. The plan, which is invested in many of the same companies as Mr Haywood, has been underperforming the major indices for the last two years.

Some members of the coop have engaged in an organized effort to highlight the underperformance, increase the plan’s disclosure and consider a change in strategy. (I am not a member of this group, though I agree that more transparency is always a good thing).


The key factor here is managing the task of a fiduciary while limiting risk. Based on what little I know about the plan, it appears that there is insufficient oversight in its administration, in the management of its assets, in the nature of its investments, and in its underwhelming performance. With an organized group planning to highlight these risks in order to implement its agenda, I fear a negative impact on the coop and perhaps even the trustees of the plan.

I have suggested to Joe several times that the plan should have a detailed policy statement that explains why and how it makes investment decisions so that in the absence of returns, the stakeholders can at least be assured that it is following a proven strategy, is invested wisely and always with prudent due diligence.

I have also told Joe that the plan should have quarterly or semi-annual letters discussing the why’s and how’s of performance with a look towards future expectations, the kind of memo that every Hedge Fund or Investment Manager worth their salt shares with clients. I would imagine Mr. Haywood already makes these available to his clients.

I am certain others with more experience in this area could provide additional counsel on how to better manage these risks, both seen and unseen.

I’m not sure how much of this has gotten to Mr. Haywood. Perhaps I am speaking out of line but I would rather be wrong for the right reasons than allow incaution to prevail. Mr. Haywood should know what is going on and I urge him help Joe so he is not alone in dealing with this. It is sad and unfair for Joe to work so hard for the coop with his heart in the right place to be discredited on this account.

George never responded to my request for advice and counsel on starting an investment mgmt firm but as mentioned, he's left behind a mess at the coop pension to become a director at FNMA.

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