Semi Annual Exercise Mid 2017

Thank you, Peter Lynch for inspiring this exercise. For at least twelve years, I’ve regularly reviewed my investments through this one simple exercise. Every six months, I describe the companies I’m invested in, and their stocks (somewhat) succinctly. Peter Lynch describes a similar, though less rigorous, technique in one of his books. I’ve forgotten which one. Basically, if I can’t describe some reason to invest in the company, I shouldn’t own the stock. For some investors, every six months isn’t frequent enough because they trade rather than invest. For me, the exercise involves a lot of copy and paste because I typically own stocks for years, and lately, decades. Even in my case, though, the stories change. The last six months had the greatest change in the stories, increases in the potential values of some of the companies, but not much increase in my portfolio.

For the details of my investments, I post the semi-annual review of each of my stocks on various discussion boards. (See links below.) I could post the entire collection here, but 1) it would be very long, 2) the more public the conversation the more valuable it becomes, and 3) reading my posts on those boards introduces you to individuals who have different perspectives, strategies, and experiences. Collectively, those communities are more powerful than large financial institutions because the motivations and incentives are those of similar individual investors rather than that of profit-minded corporations.

For those who prefer skimming through the stories, here are the synopses of the synopses/reviews.

AMSC
To me AMSC is still American Superconductor. Central to their identity is their initial strategy to make superconducting cables. A rough analogy is that their cables can do for electricity what fiber optics did for communications. Considering the need for energy efficiency and infrastructure improvements, they could be well positioned. I’ve been waiting since 2003. In the last six months, the stock is down almost 40% because the company had disappointing earnings. That puts them down about 90% since I bought the stock. The company has diversified into wind power and other electrical grid enhancements. Maybe the disappointment is merely a delay. If so, they’ll be close to break even soon which is typically a positive event for a stock (and the company.) Ah, but dilution.

AST
Asterias may have a few treatments in clinical trials, but I’m most interested in the one that regrows damaged nerve cells. The data are looking objectively encouraging. The public may care more about the subjective improvement in some patients who regain use of their arms. I think it is a guess as to whether the FDA will require a longer approval process because of the unique nature of the treatment, or will be encouraged by the general public to expedite a compassionate approval for compassionate reasons – assuming the treatment is safe, effective, and affordable. That variability is one of the reasons I prefer to invest by Long Term Buy and Hold (LTBH), because guessing the timing of such events is removed if the stock is already in the portfolio. Until then, I don’t expect the stock to do much.

GERN
Geron is the home of Asterias’ technology. I’ve owned GERN since 1999. I liked their courageous approach to medical technologies. They were willing to develop stem cell treatments, cloning, cell mortality, and others; but they’ve had to sell off and spin off divisions to keep the company alive. Now, they’re down to one: telomerase control. Control telomerase, and control when cells die (auto-immune diseases) and when cells don’t die (cancer). So, they may be in clinical trials for hematological disorders, but a success for one ailment can mean much greater success for many ailments. Just like Asterias, biotechs are risky, risky technologies are riskier, but the potential rewards are also greater financially and compassionately. Ah, but dilution.

GIG
GigOptix,GigPeak, now something else, left my portfolio because they were bought out. Buyouts have never been good for my portfolio. Typically, the stock bumps up about 20% while the management makes millions. In GIG’s case, I watched a company with high potential celebrate becoming profitable, and before the stock could rise to my valuation, it was bought out. Big profits in a small and growing company produce great potential stock appreciation. Big profits in a bigger company get lost. I waited thirteen years for that celebration, then lost to a rich company that made management an offer they couldn’t refuse. I was right about the technology, had the perseverance, and watched it sail away without me. Sigh. My answer? Buy their competitor. See NPTN below. (Bye To My Gig Buys)

MVIS
MicroVision, oh, MicroVision. Their display technology is incredible. The company’s potential is incredible. The stock price is flat. And management’s communication style has lacked credibility (until now?). MicroVision has the potential to change the display market the way laptop and tablet displays changed the market for CRTs. Remember CRTs? Those big bulky boxes that were shoved into corners as blank-faced anchors in offices and family rooms? Now, displays fit in pockets and are carried everywhere. MicroVision can create a CRT-sized display that weighs less than a laptop display, uses less power, can create a bright image (for similar image sizes), and can project onto any surface without having to worry about focusing. The images can be interactive, responding to touch as if they were tablet screens. Flip the technology and instead of a display, create a sensor. The list of applications is also incredible. Incredible describes the company and the stock because in-credible can also be read as not-believable. That doesn’t mean it can’t happen; but it hasn’t. I first bought the stock in 1999. Almost every year has been a repeat of “great things are going to happen in the next year or so”. Maybe this is the year. But, not yet. Ah, but dilution.

NPTN
NeoPhotonics is my answer to GigPeak. The product they provide is one that’s in demand today. Faster Internet speeds are assumed. To make that happen, network providers need faster switches. Fiber optics are fast enough, but at some point the information in the light has to be changed to information in electricity. They can do that. (Though I admit I preferred GigPeak’s solution.) They, too, had an earnings disappointment. Ironies abound. I bought NPTN near its peak (get the irony? GigPeak?) and have watched it fall ~30%. Long Term Buy and Hold means not overreacting. They, too, are dancing along profitability. If they can demonstrate steady growth and profits similar to their revenue growth, then the drop may seem slight in retrospect. While my portfolio is depressed, however, it is easy for doubts to rise and confidence to fall.

RGSE
Sigh. Such a good idea. Invest in solar power, renewable energy, and sustainability by buying stock in one of the oldest solar power companies, Real Goods. For a while, they were my largest holding. Yet, somehow, as solar is doing so well that it is undermining coal power, and while the company was making tens of millions of dollars in revenue, the stock fell by more than 99% and is now private, no longer a publicly traded corporation. Great idea somehow executed poorly. One solace in such situations is the tax loss benefits, but the stock was in my IRA, so I lost out on that, too. Investing does not come with guarantees. (My Real Goods Is Gone)

Ah, But Dilution
For reasons that could create a great and long digression, you may have noticed a common thread. I own stocks in small companies that have innovative technologies. (Want details? Read my book, Dream. Invest. Live. Maybe even buy it.) Small companies that take a long time to mature frequently dilute their stock (Want details? Read my post about A Study In Dilution MVIS.) Long Term Buy and Hold meets Dilution and the potential for the holdings is diminished. The potential for AMSC, GERN, and MVIS may continue to be great; unfortunately, their stocks may not appreciate as much. In MVIS’ case, since 2011, the market cap of the company has gone up four-fold while the stock has stayed relatively flat. The companies can succeed regardless of the stock; but if the stock has been diluted by a factor of four, then the stock’s success is only a quarter of what it could have been.

In large companies, Long Term Buy and Hold may never meet Dilution, in which case the potential passes through to the stock directly. My situation is impacted by dilution in several of my investments. In each case, I expected the potential to have already been realized, for the small company to have become a large company, and for dilution to be insignificant. After a decade, that isn’t the case. The result for my portfolio of small companies is a lower potential for my portfolio. I consider Long Term Buy and Hold to be a valid strategy, but applying it through a Great Recession meant investing in companies that couldn’t launch products in a dismal market and couldn’t raise money any other way.

The good news is that my portfolio had more than enough potential. Even with dilution, it may yet help me re-retire; but it’s just going to have to work harder at it and benefit from overdue good luck.

So stands the portfolio at the end of June 2017, the end of the first half of a year that I thought was going to be far more profitable when I looked at it five years ago. Six months remain. It may yet please and surprise me.

Here are the links to the discussion boards I use. Feel free to comment here or there, and to pass along links to others. The bigger the discussion, the better the chance of valuable insights (as long as the trolls and flamers are moderated appropriately.)

Investor Village
AMSC
AST
GERN
MVIS
NPTN

The Motley Fool
AMSC
GERN
MVIS
NPTN
Economy and Markets

Silicon Investor
AMSC
GERN
MVIS

Reddit
MVIS

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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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