FEBRUARY PERFORMANCE SUMMARY AND LOOKING AHEAD TO MARCH
*This is my monthly letter to investors summarizing the month. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com Download (PDF, Unknown) ...
JANUARY PERFORMANCE SUMMARY AND LOOKING AHEAD TO FEBRUARY
*This is my monthly letter to investors summarizing the month. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com Download (PDF, Unknown) ...
DECEMBER PERFORMANCE SUMMARY AND LOOKING AHEAD TO JANUARY
*This is my monthly letter to investors summarizing the month of November. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com Largest winning position in December: WMIH +145.22% Largest losing position in December: CIDM -12.17% New additions to portfolio: None New liquidations in portfolio: EVOL Portfolio exposure as of December 31st: 93% long/7% cash Top 3 winning positions in 2013: WMIH +236% (unrealized), IWSY +165% (realized), SPNS +44% (realized) Top 3 losing positions in 2013: PRXI -16% (realized), MITL -6% (realized), PTGI -3% (realized) Portfolio Highlights For December WMIH experienced an extraordinary month of gains following an announcement early in December that renowned private equity firm KKR would make a strategic investment in the company. This announcement created a gain of 145% for shares of WMIH during the month of December. The KKR deal, assuming it is fully-consummated over the coming weeks, immediately alleviates a number of pressing issues for the company: 1. It takes away the possibility of any further discounts in the value of the WMIH NOL shell, accompanied by WMMRC (reinsurance entity), due to fears of equity somehow being shelved in a future deal that puts equity holders at a severe disadvantage. The structure of the deal between KKR and WMIH provides, among other things, a hefty grant of 5 year warrants collectively totaling 61.4 million shares of WMIH common stock at an average exercise price of 1.36. KKR upon exercise of the warrants becomes a significant shareholder in WMIH, therefore removing the risk of any devious, underhanded type deals that will diminish or exclude the upside for equity holders. 2. It confirms that the NOL shell, with a reinsurance company attached, that is WMIH will more than likely be cultivated into an entity within the financial arena that is substantial in nature. Companies like KKR and Blackstone, not to mention the all star board of directors that has been assembled, do not come together in this manner to simply put up lemonade stands seeking profits that are inconsequential in nature. These are home run hitters. They seek out situations that in 2, 3 or 5 years can provide profits of an exponential nature. The modus operandi here is to seek out opportunities where relatively small amounts of capital are deployed, leveraged and cultivated into large amounts of gains. That will be the goal with WMIH, with details...
PORTFOLIO UPDATE: THE BOTTOM LINE & SOME YEAR END PERFORMANCE STATS
During the trading day Friday, I tweeted the following: EVOL is likely a stock that I will continue being wrong on. Well, perhaps I'm being too hard on myself. I originally discovered the opportunity when it was in the $6 range, publishing a research report based on what I gained from studying the opportunity. I never got the position sizing correct and my timing on the addition a couple months back wasn't necessarily inspired work. What I mean by continue being wrong with respect to the stock is that I wouldn't at all be surprised to see the stock move up from here. Perhaps substantially so. Here is the bottom line for me and it may just seem silly to you: If I'm not 100% comfortable in a position then I will move capital into positions that I am 100% comfortable with. Positions that I can wrap my head around completely, without any doubt whatsoever as to the clarity of my analysis. There is no reason to waste energy on positions that an investor doesn't understand. Diversification is the poorest excuse possible to wrap oneself into the mummified state that is a vast portfolio of ill suited opportunities that an investor fails to understand completely and totally. With that said, the current portfolios are spread across four positions at 90% invested of total capital. Those positions are: WMIH, CIDM, BFCF and KCG. All of these are companies that I get, both on a technical and fundamental basis. In going over my results for 2013 I had a total of 5 losing trades for the year, not counting trades in ETFs. That is against 9 winning trades for the year. These results are for both realized and unrealized gains. The average loss was 9.45%. The average winner has been 63.74%. Again, this is for both realized and unrealized gains, meaning stocks like WMIH, which I have been holding for 18 months now are included in the total. The largest realized/unrealized loss for the year was a near 18% loss in PXLW taken in January. This was a position I initiated in 2012. The largest realized/unrealized gain for the year is in shares of WMIH which are up 223% this year and 440% since initiating the position in July 2012. I'll have some more numbers in my year end performance summary next weekend. It has been a kind market. Don't confuse that kindness for any level of genius or you will find yourself on the opposite end of a poisoned spear to the...
NOVEMBER PERFORMANCE SUMMARY AND LOOKING AHEAD TO DECEMBER
*This is my monthly letter to investors summarizing the month of November. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com - Largest winning position in November: CIDM +28.49% – Largest losing position in November: EVOL -4.22% – New additions to portfolio: KCG – New liquidations in portfolio: SBCF Portfolio Highlights For November – CIDM was the largest gainer in the portfolios for the second month row, exceeding October's gain of 19.33% to finish November with a gain of 28.49%. The primary driver behind the surge in November was CIDM's earning release on November 13th. The earnings report and the conference call that was to follow didn't contain any information that was different than what was said after October's conference call in which CIDM management discussed the acquisition of Gaiam. It simply seems that the market is much more receptive to CIDM as a company now that they have reiterated the projection of near $100 million in EBITDA for fiscal year 2014. The market is realizing the transformation that has occurred here, showing that recognition the best way its knows how: Through an increase in share price. The CEO of the company mentions Lions Gate Films (LGF) on almost every conference call as a model for what CIDM can become. In the November conference he had this to say regarding their recent acquisition of Gaiam compared to LGF: In a lot of ways, we always like to use Lionsgate, as a parallel. I think I said that on the last couple of calls. The real transforming event for them wasn't when they ultimately did the Hunger Games, and bought Summit. It was back in the mid 2000s when they acquired Artisan and became the 800-pound gorilla among independents and physical distribution, and that's -- we'd like to compare our acquisition of Gaiam to that. Bear in mind that LGF was once a two dollar stock without much recognition in the marketplace. The path to value creation for CIDM can indeed take the same path as LGF over the long-term given the business model that has been created here, capitalizing on (1) an experienced management team (2) partnerships with virtually every major retailer and content provider that exists (3) licensing deals with companies like NFL, WWE and National Geographic that give the company immediate clout (4) a library of 32,000 film and TV episodes. It can't...
OCTOBER PERFORMANCE SUMMARY AND LOOKING AHEAD TO NOVEMBER
*This is my monthly letter to investors summarizing the month of October. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com - Largest winning position in October: CIDM +19.33% – Largest losing position in October: WMIH -9.84% – New additions to portfolio: BFCF – New liquidations in portfolio: HMPR Portfolio Highlights For October: – CIDM was the leading gainer in the portfolios during the month of October. The company announced a transformative acquisition during the month that completes their transition from a cinema services company to a leading digital content distributor. The acquisition is immediately accretive, with only a mild level of dilution taking place with a $13 million stock offering. The acquisition does provide CIDM with enough cash flow from operations going forward to avoid further dilution in the future, which has been the major concern among investors. The company acquired Gaiam's “GVE” unit for $51.5 million. The most alluring part of the deal is GVE's licensing agreements with major entertainment brands such as WWE, NFL and Discovery, which immediately transforms CIDM's library, as well as their clout in the marketplace. Following the acquisition, CIDM now has over 32,000 titles, relationships with every major retailer from Netflix and Amazon to Walmart and Target. This transaction turns CIDM into a company with $320 million in revenue. That revenue number is miniscule when taking into account the market share that the company can command as a result of their newly found dominant position. Digital content distribution is the engine of the current entertainment business model. Those who deliver content to the homes of consumers will come to rely on companies like CIDM at an ever increasing rate to deliver the content consumers demand on an ongoing basis. This leaves CIDM with a highly-reliable, beginning stage, recurring revenue model that can be leveraged to the hilt to gain further market share. The aggressive nature of management, along with their diligent nature when it comes to tending to the debt structure makes for some outstanding possibilities going forward. 2014 should produce some noticeable results for the company as their efforts of the past few years start becoming reflected in the top and bottom line numbers, resulting in a dramatic increase in share price. – EVOL posted a gain of close to 9% for October. This is another portfolio holding that announced an acquisition during...
SEPTEMBER PERFORMANCE SUMMARY AND LOOKING AHEAD TO OCTOBER
*This is my monthly letter to investors summarizing the month of September. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary posted to Zenpenny. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com - Largest winning position in September: WMIH +19.61% – Largest losing position in September: HMPR -7.84% – New additions to portfolio: SBCF – New liquidations in portfolio: None – Portfolio exposure as of September 30th: 85% long/15% cash Portfolio Highlights For September: ---- WMIH provided a bulk of the gains in the portfolios during September. The position had the fortunate distinction of being both the largest holdings in the portfolios, as well as the largest gainer for the month of September. Since initiating in July of 2012, the position is now up 150%. During that time, I have kept it a large position for several reasons, apart from the obvious “receiving billions in NOLs at a steep discount” angle. The first reason has to do with the general murkiness surrounding the entire situation. That murkiness is what caused the stock to fall into an abyss of pricing depression that had its shares trading at and below .50 cents for a period of several months. You don't get that type of misguided pricing in shares without confusion as to the structure and potential of the company. There simply hasn't been much thought or attention given to WMIH shares until very recently. The second reason is focused on the confusion regarding the mortgage reinsurance arm of the entity that has been in captive, run-off status for a number of years now. Taking a very simple look at the structure of the company, including the tax shelter in the form of NOLs, it would seem that the solution to their problems already exists in the form of cultivating WMMRC (Washington Mutual Reinsurance) into an entity that exists beyond paying maturing policies. It is, after all, true that reinsurance is getting a lot of attention from some of the most influential financial companies, mostly hedge funds, which have taken large stakes and in some cases formed their own reinsurance entities offshore for the various tax benefits. As the era of cloak and dagger transfer and masking of assets comes to an end, hedge funds are increasingly focusing their attention to domestic reinsurance opportunities. There certainly is a market for the business that WMMRC currently participates in. The third reason has to do with the fact that when...
AUGUST PERFORMANCE SUMMARY AND LOOKING AHEAD TO SEPTEMBER
*This is my monthly letter to investors summarizing the month of August. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary posted to Zenpenny. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com Portfolio Highlights For August: - EVOL was the largest winner in the portfolios for the month, posting a gain of 18.48% for the month of August. This was a position that was just initiated in July, making for a significantly positive start for the investment. This company proved to be an attractive candidate when I initially discovered it due to several factors that only seem to be strengthening in the short time the company has been in the portfolios: 1. As shareholder friendly a company as you will find in the sub-$500 million market cap space, with an aggressive attitude towards returning value to shareholders in the form of dividends and buybacks 2.An extremely steady history of generating cash flow through a very difficult market environment over the past several years 3. A commanding market position in DSA (dynamic sim allocation) technology that is difficult to penetrate for competitors In August, EVOL announced earnings that had a number of positive aspects. DSA bookings were up 48% year over year. In the conference call it was already noted that Q3 is off to a strong start. The company is generating plenty of cash with cash on hand increasing 51% since the beginning of the year. This allowed EVOL to announce an increase in the dividend the company pays, which now gives EVOL a 5% yield. Furthermore, the company has gross margins of 71%, highlighting the efficiency of the operation. During the call, they announced their first enterprise wide-licensing agreement in DSA with one of the world's top 5 carriers. I don't think the market, as a whole, has caught onto the potential of EVOL, given their leadership position in the emerging market wireless space. As continued wins and the relevancy of their DSA technology comes to light, the appreciation in the shares should be substantial. - WMIH managed to finish the month of August with a 13% gain. The most important aspect of this gain was the fact that WMIH is now trading above $1 per share. In fact, the break of $1 came early in the month, with WMIH barely looking back since retaking this important technical milestone. Typically, when a stock breaks out over an important number, such as 1, 10...
JULY PERFORMANCE SUMMARY AND LOOKING AHEAD TO AUGUST
*This is an excerpt of my monthly letter to investors summarizing the month of July. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary posted to Zenpenny. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com Portfolio Highlights For July: As detailed in last month's summary, HMPR was increased from a mid-sized position to a large position in June, as continued improvements in the balance sheets of regional banking companies (HMPR included) had been greeted by a minimal amount of appreciation in the shares of the company.A relatively substantial appreciation took place in HMPR during July that saw the shares appreciate from a low of 1.22 on July 1st to a high point of 1.86, before settling in the 1.70 range to end July. There were no fundamental developments during the month to spur such an increase in price. The sudden strength in shares of HMPR can be attributed to several things: Overall strength in the financial sector A recognition that regional banks are faring much better along the path to recovery than anyone thought possible just 4 years after financial Armageddon HMPR, specifically, has returned to profitability in their recent quarter for the first time in years. Additionally, their net charge offs and non-performing assets have returned to pre-crisis levels. The market has been somewhat slow in recognizing the recovery in a lot of the smaller regional banks. This is much to the joy of company insiders who have been extremely comfortable with picking up shares for themselves repeatedly throughout 2013. HMPR has not seen any insider buying to date. However, I would be surprised if that doesn't change by the end of 2013. WMIH is another financial sector holding that performed well during the month of July, appreciating 12.5% during the month. WMIH remains a large position in the portfolios since it was initiated in July of 2012. During that time, WMIH has announced no relevant news to justify the 80% appreciation in the share price. It should be noted, however, that there wasn't any relevant news to justify the companies assets selling for approximately $25 million when you strip away the cash at the 2012 lows either. The stock has simply been moving in a range that has reflected the mood of the market and the mood of its shareholders, at any given time. The mood of the markets, as we are all witnessing, has been rather jolly as of late....
JUNE PERFORMANCE SUMMARY AND LOOKING AHEAD TO JULY
*This is a copy of my letter to investors summarizing the month of June. May monthly report can be found here. 2012 Return: +58.61% 2013 Return: +9.54% Portfolio June Performance: +4.44% S&P 500 June Performance: -1.50% Portfolio YTD Performance: +9.54% S&P 500 YTD Performance: +12.63% Total Return Since Inception (1/1/12): +74.76% vs. S&P 500 +27.73% Portfolio Highlights For June - TZA was a position that didn't affect overall performance during the month of June as it gained 0.25%. However, I wanted to mention it first in order to highlight the nature of the performance in the portfolios during a month that was exceedingly volatile relative to anything we have witnessed in 2013. In fact, the decline that took place on the 20th of June was one of the most severe we have witnessed over recent years. On this day, the portfolios were up .02%. During the volatile week of June 17th, the portfolios were relatively steady throughout, witnessing a gain of roughly 200 basis points during a week that saw most asset classes decline severely. These small data points are significant because they provide validation to the core strategy of maintaining the appropriate levels of both market risk and position risk within the portfolios. Every action that is taken within the portfolios is taken with either position risk or market risk in mind. With that said, I was extremely pleased with the way the portfolios handled the extreme turbulence of June. The position in TZA was increased during the first week of June to a maximum allocation of 25%, where it remains through the end of the month. -IWSY saw its share price appreciate 71% during the month of June. This is on top of a 60% gain in the month of May. The overall position is now up some 170% since it was initiated in late February. There was no fundamental information that caused this price spike during June. It should be noted, however, that this run did essentially start with the conference call that took place in early April. I highlighted portions of that conference call in last month's monthly summary. I will reiterate the fact that Jim Miller (CEO of IWSY) strikes me as an extremely conservative individual given his past history. The type of aggressive, excited statements he has made regarding the advancements the company has made are not something that should be taken lightly by investors. This is, after all, a veteran of this company, not a fly by night CEO who was brought in to resurrect and recreate, with immense incentive packages attached that are determined by stock performance. The fundamental news that I believe the share price is in the process...