Q1 2013
Greetings.
A funny thing happened on the way to writing this letter; let’s just say a wild ride is responsible for the delay in getting out your statements. Details to follow….
Please allow me to repeat part of what I wrote last quarter because I believe it to be a cornerstone of our relationship.
Working successfully with Goldberg Capital Management (GCM) requires the following: trust in my judgment, extreme patience (3-10 years) and absolutely NO thinking about trading in and out of stocks due to fiscal cliffs, short-term tax considerations, random acts of violence, daily news/noise, etc. I cannot control the macro environment but DO attempt to influence the micro (individual stocks).
I’d like to further expound on management style with the concept of first- and second-level thinking. You may not know this, but you’ve actually hired me because of my second-level investing abilities.
We go to doctors for medical advice and lawyers for legal advice; generally, we seek out people smarter than us with expertise. I have doctors, lawyers, engineers, CEO’s, CFO’s, accountants, etc., as clients and friends, yet I can think of only one (not in the business) who is a second-level thinker when it comes to investing . Most everyone I know is a first-level thinker and it has nothing whatsoever to do with intelligence or occupation. Allow me to explain:
A first-level thinker reads the headlines or watches CNBC and wants to buy or sell based on the news – Rising inflation, potential for recession, a company having a bad quarter, etc. I once had a client who called me on Thanksgiving day several years ago and told me we had to sell all our stocks the next day, Friday. When I asked why, the reply was, “because of the attacks on the hotel in Mumbai”. Huh? A first-level thinker says the world is going to end, but a second-level thinker mourns the loss and sees it as a non-investment event or possible opportunity.
A first-level thinker says, “Apple’s a great company and we have to buy the stock” or “Apple’s earnings are going to fall next quarter, so we better sell”. First-level thinking is simplistic and superficial and almost everyone can do it. All that a first-level thinker needs is an opinion, a dream, or a nightmare about the future.
Second-level thinking is deep and complex, and sounds more like this:
- “Apple is a great company but too expensive to buy right now.”
- “The competition is becoming quite severe, eating into Apple’s market share.”
- “If the consensus is all positive, it’s very likely that the share price is too rich.”
- “I like the company but will be patient for a much better buying opportunity.”
- “I really have to understand the competition, industry(s), pricing, financial statements before proceeding.”
Several clients asked me about Apple when it was around $700 a share but no one is asking me about it now that it’s in the low $400s (OK, my son asked). If you liked it at $700, you certainly should love it at $400, right? I currently have it on my “watch” list, but in all honesty, it’s not an easy one to figure out. To properly analyze it would take me hundreds of man-hours. Therefore, it’s not likely that I’ll purchase anytime soon. But, I’ll never say never – most everything at the right price.
Investing is not supposed to be easy and anyone who finds it easy is either a liar or a fool. Albert Einstein said, “Everything should be made as simple as possible but not simpler”. Because investing is at least as much art as it is science, it’s my belief that it can never be routinized. Particularly, when buying individual equities. I attempt to use an intuitive vs. mechanical approach. To be successful, one must be adaptive. As always, both patience and research play vital roles. Furthermore, I ascertain that there are few bad investments, just bad timing. As I’ve told new clients; just because cash is in the account, doesn’t mean it has to be invested any time soon.
Please compare your March-ending statement to your 2012 third and fourth quarter statements to see the progression (taking into account monies added or subtracted). Much of the growth has occurred since December 1st. This is due mostly to growth spurts with several of our companies, not the general market. Uni-Pixel (UNXL), about which I’ve been writing for more than two years, led the way – ending 2012 at $13.69/ share and exiting this quarter at $30.65/ share. Why the jump? The company has made continuous progress toward production and acceptance of its revolutionary touch screen technology. They have garnered the attention of some of the largest well-known tech companies, as well as the curiosity of the investment community. For the first two years since owning UNXL, it traded only a few thousand shares per day; Currently, we are witnessing days with more than 1million shares traded. There were more than 2 million shares traded, each of the first two days of April! This is extraordinary with only 10.4 million shares outstanding.
OK, so why the delay with getting out this mailing? The first two trading-days of April saw the stock sink nearly $10 ($31-$21), and my thesis for this letter, and the joy many you probably felt when reviewing your March statement, would quickly pass (assuming you scrutinize UNXL and your accounts daily as I do). There was no news about the company and phone calls were not being returned. Those that were watching were concerned. How do I know? – by the dozens of emails, texts, phone calls, that I received. I knew the fundamentals of the company were intact, so my concerns were minimal. Based on experience, I had a hunch about what was happening, which did turn out to be correct. I was more annoyed of the setback due to investors benefitting from spewing vitriol about the company. These are known as short-investors; betting against the company, wanting the stock price to go down, not up. In today’s world, shorts can misstate the truth and spread rumors (on the internet for instance) without retribution. As it turned out, Uni-Pixel was intending to sell shares and strengthen its balance sheet, etc., but the investment community let it leak (not UNXL’s doing) and the deal was smartly terminated. By cancelling the stock offering, UNXL declared that it does not immediately need the funds, particularly at a deflated price (low 20s). To date, shares have bounced back to $28. Expect more good news and ignore the daily gyrations!
Practicing What You Preach….. On the prior page, I stated extreme patience (3-10 years). We have two current examples of this – Acadia HealthCare (ACHC, formerly PHC) and Incontact (SAAS). We initially bought Acadia (PHC) in 2003 in the 3s and SAAS in 2005, in the 1s. ACHC recently touched $30 and SAAS, $8. We still own ‘em because we still… like ‘em! There were dozens of opportunities to sell due to poor news but did not – Second-level thinking
Experience is what you get when….you didn’t get what you wanted!
Happy Spring!
-Len
Goldberg Capital Management is an investment adviser registered with the State of CT Department of Banking. This Newsletter and its contents are for informational and educational purposes only. You alone will need to evaluate the merits and risks associated with the use of the information provided herein. Although this Newsletter may provide information relating to approaches to investing or types of securities and other investments you might wish to buy or sell, no information provided in this Newsletter is intended or should be construed as an investment recommendation or endorsement from Goldberg Capital Management. Please remember that past performance is no guarantee of future results.