About Me

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This is written with serious investors in mind, though sometimes they're just drafts in progress. 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.

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."

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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. To me there's something here about music, investment analysis (especially in the small cap arena) and starting a business.

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, if anyone "appreciated them when they were small", if people thought "they sounded like all the rest" (I don't think they do) and what it says about decisions, investing in start ups / small caps and longevity in any creative pursuit including investing.

>> 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"

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

I can't let go of this feeling - perhaps b/c I'm a startup in my first year and everything looks like a nail to me - but 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.

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    1. Editing for clarity:

      The buyout offer for CDI from PE fund is a low-ball offer. If this deal gets completed, the PE fund will be getting a good value investment that they can unload in 3-5 years. I am hoping that shareholders reject the tender offer (though 26% held by management will be tendered).

      What are you thoughts?

    2. I've had three companies get taken out this summer and this is the one I'm least unhappy about simply b/c their end markets are weak with no catalyst for a rebound.

      even as Castleman fixes the company, he can't get customers to crack open their wallets. E&C CAPEX is pretty lackluster. end market weakness prob justify the low ball offer.

      still i was surprised simply from the fact that there are shareholders who bought in the last 6 months who won't get repaid.

      I'm curious if your views on hoping for a rejection have changed post 2Q results?