Semi Annual Exercise Mid 2014

An encouraging characteristic of good habits, rituals, and regular exercises is that their descriptions and rationales don’t change. Welcome to my semi-annual review of my stocks, and an introduction that hasn’t changed much so copy and paste helps me balance my time.

Introduction
For over a decade I’ve ended every June and December with a simple exercise: in a few sentences, well, maybe a few paragraphs, for every holding my portfolio, explain the company behind the stock, why I have the stock, what I think the company can do, and how I think things are going. It is an exercise inspired by Peter Lynch (author of One Up On Wall Street). If you can’t explain why you’ve got it, maybe you shouldn’t own it. I suspect that is true of any possession. Welcome to my opinions, lightly supported with facts, that explain to me why I own what I own and what I may do differently. I leave you to judge whether you want to do something similar. I also encourage you to follow the links and check my opinions about the various stocks. More minds are more perspectives, and each adds value – especially, if the insights are posted. Diversity is the power behind the discussion boards.

If you want specifics of my strategy and analyses, buy my book! Friends encouraged me to write Dream. Invest. Live.Dream. Invest. Live., which means I’ve probably done more that most to document my investing style. As for the details of the ups and downs of a risky portfolio, well, that’s what this blog has chronicled.

The arcane shorthand of my investing approach is LTBH, PV of FR x %risk, and Buy Small Sell Large. Otherwise known as Long Term Buy and Hold (typically for years), Present Value of Future Revenue Discounted for Risk, and Buy stock in Small companies and Sell them when they are Large. Data from my history is in the book, but we’re all measured by where we are; and, where I am as I type is recovering from a financial upset caused by an unlikely confluence of unfortunate possibilities. One advantage of taking the time to write a book about my strategy is that I’ve analyzed my data and can recognize the probability of recovery – though there are no guarantees.

In short:

  • AMSC is up 20%.
  • GERN is down 18%.
  • GIG is up 30%.
  • MVIS is up 105%.
  • RGSE is up 22%.

So, life should be marvelous. Well, life is worth marveling at, but my portfolio is so damaged from a number of effects that a lot of recovery has to happen before I can call myself retired, again.

Over the last five years (Yes, five years. I told you I Buy and Hold.)

  • AMSC is down from its peak by ~96%
  • GERN is down from its peak by ~66%
  • GIG is down from its peak by ~59% (possibly more because it traded under a different symbol for a while)
  • MVIS is down from its peak by ~95%
  • RGSE is down from its peak by ~36%

(not accounting for dilution)
Ouch. If you haven’t guessed, my style of investing requires high levels of risk tolerance – and they’ve certainly been tested since 2008.

With numbers like that, where’s the cause for optimism? Optimism is within the numbers. One of the tenets of Long Term Buy and Hold is that markets are irrational in the short term but eventually acknowledge logic and reality.

I invest in companies. I just happen to do that through stocks. I invest in companies that I think will help make the world a better place, which frequently means investing in new technologies. All of those companies have been making progress with their current technologies. The companies’ values are increasing, even if that isn’t reflected in the current stock price.

During this market recovery attention has been focused on the mega-cap companies, the Microsofts et al. Quietly, in the background, many small companies are developing the next wave of goods and services that will eventually be properly valued. I don’t think that all of my investments will succeed, but I suspect they won’t all fail.

To generalize:

  • If the companies with products reached a conservative price/sales of 6, their stocks would quadruple and my portfolio would triple.
  • If the stocks recovered enough to return my portfolio to even, my portfolio would quintuple, and my net worth would increase by about three year’s living expenses.
  • Considering that I aim to at least earn about 10% per year, and that most of these stocks have been held for over seven years, then on average, my portfolio would at least double that three year’s living expenses.
  • If MicroVision hits its (only) analyst’s estimate for 2015 revenues and gets a price/sales of 6, I’ll have years of living expenses and a net worth equal to about half my mortgage debt.
  • Based on a simplified estimate of an eventual one billion dollars in sales and a price/sales of 6, the present value of those future revenues exceeds a million dollar portfolio. Account for some risk and there’s still more than enough.
  • Except for RGSE, each of these stocks represent disruptive technologies, and disruptive companies are known for having stocks that languish until the companies succeed at which point the stocks excel. Price/Sales of 6 is small for desirable stocks. Apply a premium and it becomes easier for me to relax and enjoy.

My best return so far is 2,400%. That sounds incredulous, but incredulity is emotion rather than math making judgments. MVIS and GERN have that potential. Oh, and as for RGSE, its competitor trades at a price/sales 30 times higher – and RGSE is my conservative stock.

The reality check, though, is that my portfolio has languished, it is possible for them all to fail, diversification only changes the odds, and that they may recover in ways or with timing that doesn’t benefit me. Buyouts happen. Delays happen. For the last few years the pessimists have been right.

For those that want the details, here are the links to my synopses of each of these stocks. I post my synopses on the public boards so the conversations can take place within community, not just sequestered to my blog. Jump in and join the crowds. There is wisdom there. (There’s also some flaming and a few trolls, but hey, that’s the Internet.)

Investor Village
AMSC
GERN
GIG
MVIS
RGSE

The Motley Fool
AMSC
GERN
MVIS
RGSE
Economy and Markets

Silicon Investor
AMSC
GERN
GIG
MVIS

About Tom Trimbath

consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.wordpress.com/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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