tag:blogger.com,1999:blog-6798074091942701235.post2975729815914019480..comments2024-03-29T01:35:09.550-04:00Comments on Can Turtles Fly?: Articles for the week ending October 23rd of 2009Sivaram Vhttp://www.blogger.com/profile/06361276466660862882noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-6798074091942701235.post-6285812421517760802009-10-28T10:30:26.000-04:002009-10-28T10:30:26.000-04:00Greenbackd is a brand new site and I'm not sur...Greenbackd is a brand new site and I'm not sure if he was writing for other sites before. My impression is that he doesn't cover risk arbitrage (M&A) but I wonder if he'll expand to that area if liquidations and activist situations dry up.<br /><br />Anyway, the quality of Greenbackd is amazing. Professional thinking and writing, all free :)Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-804931530447491072009-10-28T10:27:23.000-04:002009-10-28T10:27:23.000-04:00I kind of maintain my view that VNDA was a fluke. ...I kind of maintain my view that VNDA was a fluke. Think about it this way...<br /><br />When you were evaluating the upside what did you think it was? And how probable was that scenario? I'll bet the drug approval scenario would have been considered insignificant (since the probability was likely very low).<br /><br />As for management changing their views, I'm just a newbie and have no idea what they can and cannot do. I think it depends on how vague their original opinion is. For instance, I have seen cases (nothing to do with M&A or liquidations) where they renege on what they said (such as spinning off assets, expanding their stores, and the like.) They certainly get away with that because it is couched in some vague language. So I'm not sure about this case.<br /><br />If management was ethical, they would stick with what they said--especially in liquidations, M&A, and the like. But as we have seen, it's hard to trust them. For me, all this is an interesting exercise in learning agency theory first hand. One part of investing is to figure out how various interests (management, workers, government, etc) treat shareholders.Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-15320634859583670592009-10-27T22:54:14.000-04:002009-10-27T22:54:14.000-04:00As the market rises, net-net's will become ext...As the market rises, net-net's will become extinct. The only time we find net-net's is during a recession. A few here and their may pop up every so many years, but none of the quality we've seen during the recession.<br /><br />I too invest in M&A's and agree that during a bear market, they are great opportunites to earn rewards. I'm not sure if Greenbackd (Toby) only invests in net-net's or if he only dedicates his website to net-net discussion. I get the impression when I talk to him that he's been investing for many years and his website has only been around for a short period of time.Value Investornoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-84635817477566856022009-10-27T22:49:09.000-04:002009-10-27T22:49:09.000-04:00I agree with many of your points.
You wrote: &quo...I agree with many of your points.<br /><br />You wrote: "<span>If I remember correctly VNDA's management decided to liquidate the firm if it didn't get approval but what if management decided not to (i.e. decided to keep going)? I don't recall how much of the company the activist owned but would the liquidationists have won a shareholder vote on liquidation? I am not so sure."</span><br /><br />That is true regarding VNDA's management agreeing to liquidate the company. They publicly made note of that and had the FDA not approved their drug, and if VNDA decided at the last minute not to liquidate their business, a case could made that a fiduciary responsibility would have been called into question. You can't tell your shareholders one thing and then do the exact opposite. It's illegal.<br /><br />Although I agree that VNDA was a special situation, I disagree with the notion of it being a fluke. A value investor with a keen understanding of business and understanding the risks versus rewards of the opportunity could clearly see that the upside potential far outweighed the downside risk. After all, that is what value investing is. VNDA was a special and unique situation, but it certainly was no fluke.Value Investornoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-85329371032425821002009-10-27T20:35:46.000-04:002009-10-27T20:35:46.000-04:00Value Investor: "During a recession, I have f...Value Investor: "During a recession, I have found no greater wealth creator than investing in Net-Net companies who have a catalyst. Greenback has produced well over a 150% return doing this and I have been fortunate in producing in excess of 800% for the year."<br /><br /><br />Congratulations on your strong performance! At least someone out there is making money ;) I have profitted from some of Greenbackd's research and ideas so he/she is doing an excellent.<br /><br />In general, I agree with what you are saying about net-net investments in the current environment. I share similar views and think that such investments will outperform. In fact, I would generalize that a bit more and say that special situation investing outperforms during bear markets. Risk arbitrage (such as trying to profit from M&A deals), which Greenbackd doesn't cover and is more tricky, will also perform quite well.<br /><br />I suspect net-nets, liquidations, and the like, will produce lower returns going forward (because valuations have risen) but it remains to be seen how it stacks up against so-called 'buy & hold'.Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-84472903849675825332009-10-27T20:28:10.000-04:002009-10-27T20:28:10.000-04:00Thanks for dropping by :)
I'm not questionin...Thanks for dropping by :) <br /><br />I'm not questioning your strategy of going for situations with catalysts--I also would not participate in anything if I didn't see a catalyst--but does it make sense for biotech and similar companies? These companies will necessarily burn through cash and I don't see the thinking behind trying to liquidate them.<br /><br />I think the VXGN case is not a good example because I think that is the type of the company that should be liquidated. If I didn't avoid biotech or medical companies then I would have seirously considered that as well.<br /><br />However, let's look at VNDA. I wasn't following it much so correct me if I'm wrong, but did it make sense to attempt to liquidate that? Numbers may yes but that is the type of company that is researching for years while losing money. I would imagine that the majority of the investors in a company like VNDA know what they are getting into (i.e. a company seemingly bleeding forever, until it runs out of money or fails to get drug approval or some such thing.)<br /><br />If I remember correctly VNDA's management decided to liquidate the firm if it didn't get approval but what if management decided not to (i.e. decided to keep going)? I don't recall how much of the company the activist owned but would the liquidationists have won a shareholder vote on liquidation? I am not so sure.<br /><br />In contrast, industrial companies, service companies, and others, are a different scenario--at least in my eyes. I'll bet every single sharheolder, if educated on the matter, would be in favour of liquidation (assuming a better buyout/merger/etc does not materialize).<br /><br />(Of course, VNDA received approval and it skyrocketed but that's beside the point. That's a total fluke and is not representative of a typical liquidation.)Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-24206754779918578732009-10-26T22:00:45.000-04:002009-10-26T22:00:45.000-04:00This is Value Investor from the Greenbackd forum t...This is Value Investor from the Greenbackd forum that you mention in your article. The one thing that carries significant importance in a liquidation situation, and especially in the small cap market, is the that the company must have a catalyst. If you purchased a company because it was trading for less than its readily ascertainable asset value and that business was burning through cash on a quarterly basis without having a catalyst, then you've found a company that meets your description and would be correct in taking a pass on the business. But, if you found a company, such as what I've described, in which it had a catalyst and presented at least a 50% margin of safety to its readiy ascertainable asset value; then you have a real opportunity with little downside risk.<br /><br />I was lucky in the VaxGen deal in that I bought at such a large discount to value that when all hell broke loose, I was able to exit with a profit. VNDA was a similar situation. It was selling at a large discount to its cash, had an activist investor threatening to engage in a proxy fight for liquidation, had a pending FDA approval. These were all remarkable catalysts. Two months after my purchase, I produced over a 900% return. Is this common? Absolutely not. The one thing that Greenbackd and I share in common is the 'catalyst'. Neither one of us will invest without one and the more catalysts that are present, the more upside potential is available. During a recession, I have found no greater wealth creator than investing in Net-Net companies who have a catalyst. Greenback has produced well over a 150% return doing this and I have been fortunate in producing in excess of 800% for the year.Value Investornoreply@blogger.com