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Q3 2015
Greetings.
Let’s start with a refresher. In the June 30th newsletter, I stated the following facts: We’ve raised a lot of capital; It NEVER hurts to take a breather; A one-third position in Dot Hill at $7.37/share was sold (cost basis = $1.05) but… HILL could go to $8+/share, so we’ll hold onto the remaining 600,000+ shares.
The markets have tumbled since 6/30/15 but we are still handily out-performing. One reason is Dot Hill. It was purchased by Seagate in August for $9.75/share! This transaction will automatically convert to cash in your account (October) – there is NO action required on your part. You can ignore all correspondence asking you to take action/vote your shares. So, when looking at your 9/30 statement, the investment in HILL will be cash shortly and for those who own Adept (ADEP), that will also convert to cash soon.
Also from the last newsletter – “We’ve raised the cash, so what should we do now? Personally, I think it’s a great time to sit back and watch things unfold before making the next move. Being cautious at times can provide relief and reduce anxiety.”
Boy, was this a good decision! The markets are down roughly 10% since last quarter’s close and we are – still cautious. One concern revolves around this fact – Just a few companies are driving the gains in major U.S. stock indexes this year. For instance, Six firms— Amazon.com, Google, Apple, Facebook, Netflix and Gilead Sciences now account for more than half of the value added this year to the Nasdaq Composite Index (one should question the Index’s relevance).
With Dot Hill converting to cash, GCM is currently sitting on a record cash hoard. While the markets are taking a beating, we’re going to work. For instance – In 2013, we paid approximately $20/share for Qorvo (then known as RFMD). In May 2015, we sold a healthy position for $79.15/share (we’ll call this a “4 bagger”). We are currently buying QRVO back in the $40s. Normally, I do not repurchase shares, but I believe that the market has this wrong and, once again, the upside is much greater than the downside. Originally, we took advantage of the price inequity in the summer of 2013 at $20/share and now the market is offering it up 18 weeks later – roughly half the price we sold it for! As long as we can continue to buy QRVO at the right price, we’re looking to repurchase most of the shares we sold. I’m hoping in the short-term that it stays depressed. Looking out 12-18 months, we can expect a 50+% gain from current levels.
Our multibaggers wouldn’t be possible without the losers. When smoking out potential small-cap winners, I prefer companies early in their growth and awareness cycles. A single winner can go a long way. The approximate 400%-800% return in Dot Hill would be more than enough to offset several losers. I’m not saying that a single multibagger is a license to be careless, but it does give us the leeway to take chances. Even the best power hitters will strike out more often than they hit one out. However, if we keep swinging for the fences, we will eventually find that we’re taking more trips around the bases. Our strategy has always been to surround our small companies with larger, more stable companies. This provides the necessary ballast. The combination approach of owning small, medium and large companies, and retaining sufficient cash has worked very well for us throughout the past 20 years.
OF MISCELLANEOUS NOTE
HURTING? IT’S OKAY TO WINE….. Between sports and workouts, it’s easy to do a number on your knees. (Boy, do I know!) So let’s raise a glass to this finding: Drinking wine might help you avoid knee trouble. In a U.K. study, people who imbibed 4-6 glasses of red wine per week were 45% less likely to develop knee osteoarthritis than those who abstained. The key ingredient – resveratrol.
KEEP IT IN YOUR PANTS….. your wad of Benjamins, that is. Women are more attracted to men who save money. A University of Michigan study revealed that dating profiles of people who stated that they’d save most of a financial windfall were deemed much more desirable than those who’d spend it. My suggestion – don’t be a tightwad, but do point out your savvy-money ways.
OPT OUT OF COMMERCIAL MAIL SOLICITATIONS….. When I get the mail, I go directly to the recycle bin. If you’re also tired of all the junk mail, you can arrange for a ban of 5 years at a time with the Direct Marketing Association’s mail preference service – dmachoice.org. To eliminate unsolicited offers for credit, go to optoutprescreen.com. Also, don’t forget about the DO Not Call Registry – donotcall.gov. They’re all very easy to do and will only take a few minutes of your time.
This type of market bodes well for us. Yes, we’re well off our yearly highs but I’m optimistic because there are bargains once again. We do have to watch out for falling knives though. Timing the bottom/purchase of stocks on a downward spiral is never easy. Watch out above!
Here’s to continued gains in 2015. My best for an enjoyable autumn.
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.