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 --

ALL RIGHTS RESERVED. 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.

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 -- 

ALL RIGHTS RESERVED. 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. I MAY OWN POSITIONS IN THE COMPANIES MENTIONED HERE.