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.

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.

Wednesday, February 20, 2019

A long overdue lesson on backgammon

I frequently play a poor game of backgammon, occasionally against strong competition. It's all good fun, but I've long been stuck in ... "I know i'm doing something wrong, just not sure what it is". Last night (*with much gratitude*) my opponent became my teacher and in the span of a few hours this beguiling game revealed how much I've been mis-estimating, mis-calculating and mis-playing.

To start with, I've been using the totally wrong model. This die matrix ...


... is fine for craps but wholly insufficient for BG.

This is the right way to think about the bg dice matrix. These are the rolls ...


... Each of the 36 spots is worth 2.78%. Frequently faced issues can now be solved with simple math.

I used to think having five points blocking my opponent was a massive advantage. I was not even in the ballpark. Leave one open spot for your opponent to hit ("I need a 1!!" they say) and and they have 11 outs; that's a 30% chance of hitting what they need. Or in other words, leaving your sixth piece open probably works only 70% of the time.

Leave two open spots ("I need a 1 or a 2!!" they say) and that offers a 56% chance to hit; 20 outs.

Three open spots and forget about it. Probability of success in need of three different numbers is 75%. That's hardly a big advantage.


I also mis-estimated safe distances to keep an open pip?

The 7 spot always brought me caution. Totally wrong. It's sheer luck to make the right choices with the wrong information. The 6 is the most dangerous. Leave an open spot 6 pieces away and your opponent has a nearly 50% chance of hitting it. Keep it 7 spots away and risk declines 65%. This is basic stuff to sound players. Now we all know.



The game offers little morsels that are a bit like portfolio management. Not every move carries the same weight, yet each one embeds some level of risk and reward, randomness and valuation. Furthermore, you can do everything right, and still lose. That's important to keep in mind when managing risk.

The way I see, no matter the field or diversion, the pathway to improvement is about honesty and growth and willingness to keep going until you get it right. With time, attention and intentional practice, anyone can improve anything over time. I'm excited to level up!

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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.



Thursday, February 14, 2019

How Sixers Trade (and Investing) Offers Lessons on Yin / Yan of Hope and Frustration

Where everyone else sees frustration I often see hope, and when everyone else sees hope I often see frustration. It is a tendency that bugs the shit out of wife.

Take Ikea for example. Full of confusion, arguing couples, annoyed and frustrated families, a maze of lost kids, Eklynd and Harsgaard parts missing somewhere ... yet I believe it to be one of the most optimistic places in the world. Look around and you see new roommates, new families, new renovations all planning for a new and brighter future. Life's improvement is just an allen key away.

I mention this b/c at the NBA draft deadline, my Philadelphia 76ers* made a blockbuster trade to assemble a new starting five that fits together like a well assembled piece of furniture. If you believe the hype we should already crown them Eastern Conference finalists.

I rarely believe the hype and I always get a chuckle reading about "blockbuster trades" and dream teams and other "sure bets" b/c they are rife examples of the yin / yan of hope and frustration.

As the name of this blog suggests, I am a patient investor and I find distasteful the kind of impatience revealed by Sixers' management, their urgency to "win now". Urgency (and many are propelled towards it) is an awful environment to make good long term decisions and good long term decisions brought my team back from the depth of irrelevance even when they were losing at a historical rate.

Now they seek a kind of "get rich quick" scheme; "win the NBA finals quick". It makes me curious of the success rate of "blockbuster trades" like this, so I asked Michael Mauboussin about it when I ran into him at the recent CSIMA conference (I figure if anyone in finance would know, it would be him). Alas, how do you even define "blockbuster trade" and by what timeline would we measure "success"? In the absence of any info, I'd ballpark the baseline at 30%.

Why now? It's as if the team suddenly lowered the discount rate on their assets. Does it have to do with a stadium renovation, (which Comcast is paying for)? Have the rates on their loans changed? Maybe it can tell us something about $APO??! I think they're just impatient.

Youth and picks offer optionality like cash to a portfolio manager. They've lost that optionality so if they don't win now, have given up downside protection and future flexibility. In my mind, they haven't so much widened the opportunity pathway as widened their gutter and as readers here know, I love wide opportunity pathways and narrow gutters.

On reflection, I think Sam Hinkie's genius was recognizing that hoarding draft picks (he called them assets) offered optionality on the future b/c you could project on them any possible future, while turning them into players is so ... much ... harder. Better to wait for the fat pitch rather than chase the tail of instant gratification.

It's possible that my professional devotion to finding niche undervalued and undiscovered securities has bled into a preference for surprise 2nd round draft picks and undrafted free agent over splashy signings. Or maybe as a knowledgeable fan, and as an investor who likes to look at history, I am aware that Jimmy Butler has a spotted history as a teammate, that defense wins playoffs, that it takes time for players to "gel" and that although Sixers coach Brett Brown is a great team maker other teams improved as well, and without giving up as much.

I realize I'm conflating investing theories and sports, which is sometimes appropriate. But most appropriate is keeping our heads on straight and woe be the market participant who invests for the same reasons they watch sports!

I'll admit that with sports, I voluntarily submit to the emotional highs and lows of a season. In contrast, with investing, I aim for equanimity. Yes, it's invigorating to be up and enervating to be down, but investors must focus on facts and knowledge to support them when the whipsaw of short term prices is likely to remove reason from action or separate our heads from our profits.

With patient investing, the season is as long as you want it to be. At least through Long Cast Advisers' first three years, the record indicates some success with these efforts.

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* I don't actually own them, I'm just a lifelong fan

** When I took economics in college with this guy I was put off by my erroneous conflation of "utility" with profit. It wasn't until more recently that I learned that Bernoulli purposefully used the vague term "utility" to simply mean "betterness" as it relates to different people under different scenarios. That guy, by the way, was one of many Manhattan project physicists who transitioned to economics after the war and converted equations of nuclear destruction into equations of math destruction via modern portfolio theory.

ALL RIGHTS RESERVED. PAST PERFORMANCE 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.