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Posts from the ‘Jones Energy (JONE)’ Category

Week 278: Shorter Posts and thoughts on Credentials

Portfolio Performance

Top 10 Holdings

See the end of the post for my full portfolio breakdown and the last four weeks of trades.

Thoughts and Review

I had such a good response from my post on Radisys that I decided to change things up for the blog.  Rather than posting monthly letters summing up all my thoughts, I am going to deliver updates in a more traditional blog format.  I will write as things come up. So this update will be more brief, and will not cover any lengthy company updates.

I had a pullback in the last month.  I guess it shouldn’t be unexpected.  The previous three months were almost parabolic.  Having a portfolio that is weighted only to a few stocks, any kind of lull in the performance of those stocks can cause big fluctuations.  Right now my portfolio is heavily dependent on the performance of Radcom and Radisys. Both stocks had corrections leading into and following their third quarter earnings.

The good news is that nothing has occurred with either to warrant a change in mind.  While I expressed some concerns about Radcom in my earlier post, I felt a lot better about the stock after their Needham conference presentation.  I even bought some back over the last couple days.

I sold out of a number of oil stocks.  I still hold positions in Swift Energy, Journey Energy, Zargon Oil and Gas and a very tiny position in Gastar Exploration.  Other than Swift Energy, none of my positions are very big.  I started by selling Granite Oil after these comments on InvestorsVillage (here and here).  Looks like I was wrong there.  Later, as the price of oil began to break down I sold Jones Energy and Resolute Energy.  Both of these are levered plays and I expect out-sized moves as oil corrects.

I added a couple of new starter positions under the theme of Big Data: Attunity and Hortonworks.  The latter has begun to work out but the former has not at all.  I’m doing some more work to understand if I just made a mistake on Attunity.  With the new blog format I will write-up the positions and my thoughts on the Hadoop market (which led to my investments) in separate posts.

I also added a position in Nimble Storage.  The company has some good technology, can compete with Pure Storage and take market share away from incumbents like NetApp.  Again I’ll give more details in a later post.

Finally I mentioned in my last post that I had taken a very small position in Supernus Pharmaceuticals.  I’ve held that position over the last month and watched the stock correct downwards almost every day.  This is a big biotech sell-off and I don’t think the move has much to do with the company itself.  Supernus is growing very fast, there appears to be plenty of opportunity for further growth, and the pipeline of new drugs seems to be quite robust.  I’m seriously considering adding a big chunk to this one.


One final thought on the topic of credentials.  As I have written in the past, I manage my own family’s money.  Recently I had an opportunity to expand that to a number of friends.  But before going too far down that path I wanted to understand the regulatory requirements.

It turns out that in Canada at least, managing money and taking any sort of payment for it is very regulated.   It requires a number of courses, which is reasonable, but also years of very specific experience under the tutorage of a dealer.

Clearly I am not going to take 3 or 4 years to work as an understudy just so I can start a small part-time business on the side for a few friends.

My frustration is that there is no distinction between someone trying to scale into a large fund, soliciting money from the general investing populace, and someone who wants to do what I was looking into; basically help out some buddies and get paid on performance to do it.  These two activities do not seem equivalent in terms of public risk.  But in the eyes of the regulator there is no distinction.

I’m not a conservative in most ways but this certainly gives me sympathy to the position that abhors regulation.  I’m in a region that is suffering, I have a ready-made opportunity to create a small business, and the government has basically said no you can’t do that, because we know best.  Because as anyone who has read this blog for the past 6 years knows, I am clearly not qualified to pick stocks.

Portfolio Composition

Click here for the last four weeks of trades.


Week 274: Going with Growth

Portfolio Performance


Top 10 Holdings


See the end of the post for my full portfolio breakdown and the last four weeks of trades

Thoughts and Review

Since March I have been focused on finding companies with growing top line revenue.  I have put less emphasis on EBITDA, earnings and cash flow.  As long as the company is showing growth I’ve been taking a closer look.

This change in strategy has worked.  The market has pushed up the price of stocks with growth prospects, while value stocks, at least the small and microcaps I follow, continue to lag.

But I wouldn’t reclassify myself as a growth or momentum investor just yet.  Once it stops working, I’ll reevaluate, try to figure out what is working next.  I try not to have any allegiance to any particular investing methodology.  I’m just trying to figure out what is working and will take that approach whatever it is.

What remains constant is my process.  Small positions.  Add as they rise and announce positive developments.  Reduce if they fall even if I don’t always understand the reasons.

When things are working at their best this process feels like a manufacturing conveyor of idea generation.  I keep working hard, the ideas keep coming, when an idea doesn’t pan out I throw it away and move on to the next one.

This is the experience of the last few months.  My portfolio gains have been anchored by my two large positions, Radcom and Radisys, but I have been churning out gains from the numerous small positions I have taken on.  As is my method, I have been adding to these positions as they go up.  When a position moves against me, I don’t add and will throw it out if it simply isn’t working.

Last month I wrote:

I have noticed a change in temperament in the subsequent months, and this seemed particularly evident through the second quarter earnings season.   I still had misses.  BSquare had miserable results.  CUI Global was lackluster.  Both stocks fell.  But even then, the moves down didn’t have quite the same conviction as similar such moves in the past year.

Its hard for me to put my finger on exactly what it was that was different, so maybe this is all just sophistry, but it was almost like these stocks were going down grudgingly, because they had to, not because they wanted to.

It still feels this way, though I sense some early signs of headwinds.  But the path of least resistance, at least for most of the stocks I own, seems to be up.  I’ll continue to hold on until there is more evidence that the ride is about to end.

Apart from Radcom, the biotechs and the oils have been working particularly well.  It seems like the biotech stocks have turned the corner.  I took positions in a number of new biotech names: Aequus Pharmaceuticals and Novabay Pharmaceuticals, which I have written about below, as well as Supernus Pharmaceuticals, Verastem and Aeterna Zentaris, which I ran out of time to write about and are all pretty small starter positions anyways.  You will note though that Supernus Pharmaceuticals is a derivative play of Aequus, as the rights of two of the drugs being marketed by Aequus in Canada are being licensed from Supernus, for whom they are growing significantly in the United States.

Oil Gains

I timed the oil stocks well.  As I wrote about last month, I have positions in Jones Energy, Zargon Oil and Gas, Granite Oil, Journey Energy, Gastar Exploration, and Resolute Energy.

However, as I alluded to last month I haven’t had a ton of conviction in the price of oil over the last couple of months.  I wrote:

I don’t have a crystal ball on oil.   I am sympathetic that the builds we have seen (up until this week’s rather massive 14mmbbl draw) are due to the drainage of floating storage.  I’m hopeful that once this runs its course we could see some surprising draws in the shoulder season (this thesis has been expressed by a number of investors on InvestorVillage, not the least being Robry825, who describes his position here and  here).  I’m also cognizant that oil wells do decline and that we simply aren’t drilling like we were a few years ago.  Still, as I’ve said on many occasions before, I play the trend till it ends but when it ends I really don’t know.

Here is where it’s helpful to have knowledgeable folks to follow.  I mentioned Robry and his extremely bullish outlook in my quote above.   There is another poster on InvestorVillage named Sophocles.  I’ve known and followed him for a long time.    He isn’t always right, but he has an intuitive sense for a commodity bottom well before the data has changed or the experts are revising their forecasts upwards.

He has been steadfast in his opinion about the uptrend for oil prices over the last number of months.

Leaning on the calls of Robry, Sophocles and a few others has helped me hold my oil positions through what was a great deal of uncertainty in September.  I doubt I would have do so otherwise.  I would have been shaken out by the negative Goldman note, a couple of the precipitous two or three day drops, or after the price reacted negatively to what should have been extremely bullish storage numbers.

But here we are at $50 and one thing I have learned is to not second guess where you are going simply because the data hasn’t caught up with the price.  In a real bull market price leads data, and you will never know the why until its too late.

With that said, I thought this IV post was a very good summary of the fundamental oil balance heading into next year.

Shorts and Mortgages

The Canadian government laid out the ingredients for a pretty good shorting opportunity this week when they introduced new rules for insured mortgages.  There is no question that these rules will have an impact on the housing market.  There is a lot of uncertainty about the degree.  I suspect it’s going to have a pretty big impact, especially if some of the comments below on declines in transaction volumes come to pass.

There are two major changes.  First there has been a reduction in borrowing limits for anyone applying for an insured mortgage with a 5 year fixed rate.  They will be subject to a much higher interest rate than before:


James Laird from calculated the following impact of the rule change on a typical borrower:


Rob Mclister (from the blog made a similar observation in this clip, saying that an individual with a $50,000 salary, 10% down, prior to the rule changes could take a $300,000 mortgage, now that has been reduced to $240,000.

Mclister went on to point out that about one third of buyers are first time buyers and at least one third of those would have trouble qualifying for a mortgage with the new rules.

The other change, which applies more specifically to the non-bank lenders, is that a number of mortgage products that were previously eligible for bulk insurance are no longer eligible.  Mclister lists refinances, amortization over 25 years, rental properties, and mortgages over $1 million as being subject to the rule change.

Non-bank lenders don’t have a deposit base for funding.   They therefore require securitization to fund new originations.  In order to securitize the mortgages they need to be insured.   So without insurance non-bank lenders basically have to stop originating these products.

Its not wonder that, as Sherry Cooper said on Thursday, “alternative lenders and mortgage brokers…have suspended activities” in some lines of business and that “the part of business that is no longer insurable can no longer be done by these lenders – they get their funds by insuring mortgages and securitizing – they can’t securitize if they can’t insure”.

Mclister said that “non-bank lenders are going to have heck of time trying to dispose of these mortgages, nonbank lenders are going to have to go to banks to buy mortgages, they are going to jack up financing costs unless regulators level the playing field

Dan Eisner, of True North mortgage, was quoted as saying “many of their funding sources have announced substantial changes or are telling them substantial changes are coming.”

Earlier in the week Eisner was on BNN where he made the rather chilling prediction that transactions would decline by 40-50% across the country.

The final clip I will point out is from the Moneytalks radio show this last Saturday (October 8th, 9am about 40 minutes in).  The show has a weekly segment with a real estate expert named Ozzie Jurock.  I have been listening to Jurock for a long time, years, and I have never heard him speak so negatively about the outlook for Canadian housing.  He has typically been very upbeat and optimistic (which, incidentally, has been the correct position for the last number of years).  Worth noting is that Jurock singled out the non-bank lenders as being particularly hard hit by these changes.

While the cause is different, there are two things at play here that are eerily reminiscent to the United States a decade ago.  First, interest rates have, effectively, jumped suddenly for a number of borrowers (like the adjustable rate mortgages did in 2007).  Second, a formerly reliable source of funds (securitization via portfolio insurance) is now no longer available to some lenders.

I’m not an expert on the companies in this area.  I don’t know all the details of the loan books of Home Capital, Equitable Group or the insured portfolio of Genworth, to take a few names.  But from the simple experience of the United States, I know that when transactions decline and funding sources dry up, house prices fall and the tide for the monolines and originators goes out.  How far is the big question.

As I’ve said in the past, I don’t like to talk about my shorts.  There are a few reasons for this. For one, I short to hedge and tend to have weaker theses around the individual names.  For two, its too much of a negative activity.  You run the risk of going offside companies, other investors, who wants the trouble.

But I took a few shorts in the mortgage space this week.

I still own this damn rental property.  So I need a good hedge.

Radcom and Radisys

Lots of interesting puzzle pieces with both of these stocks.

There was an interesting announcement out of AT&T and AWS (Amazon Web Services) this week.  The two companies agreed to forge “a tighter partnership to develop joint cloud, Internet of Things, and security solutions, targeting enterprises and combining AT&T’s network with the AWS cloud.

I think the big move that we saw in Radcom on Thursday is likely due to this announcement, and the potential implications that exist for Radcom.

There are a few puzzle pieces that revolve around this partnership and Radcom.   They don’t all fit together yet, but they are beginning to.

A few of these pieces are centered around Gigamon.  You might remember me lamenting about Gigamon in a past letter.  It’s a stock I looked at in March, thought it was a great opportunity, but waited for a dip into the mid $20’s that never came.

Well Gigamon announced a few months ago that they would be offering the first visibility solution for AWS.  This includes security inspection of traffic and monitoring of resource access and use.

Gigamon is also a supplier of AT&T.  This was mentioned at the Gigamon analyst day but some more detail was given by kerryb in the comment section of this SeekingAlpha post:

I have an investment broker friend who introduced Radcom too contact Alex Henderson of Needham about Gigamon since the stock has done so well and asked the relationship with Radcom, Alex told him that Gigamon is not competition and that Gigamon and Radcom are currently working together for interoperability between their software. Gigamon does the monitoring of the data flows for mainly security and parses out the important information and sends the info to the Radcom MaveriQ software/tool which then takes the information and does the service assurance piece. Gigamon can reduce the processing of the Radcom and other tools by 65-75%.

Gigamon talked about how they were encroaching on the traditional probe vendors at their analyst day.  I listened to that call a couple of months ago, and made note of what they said because it seemed important:

new battlefront in CSP arena is subscriber costs which is the cost to maintain, upsell, attract subs. To do that you have to understand sub experience. Gigamon has capabilities that can reduce this expense significantly, which is exactly why they are seeing traction in CSP arena. In their visibility platform they have ability to look at traffic across all interfaces 2G, 3G, 4G, Wifi, to be able to recognize subscribers intelligently, the devices that subscribers are coming from, the applications that subscribers are using, and to then take high value subscribers and pair them with the tools that are being used to manage subscriber experience. What this allows service providers to do is to match their tooling capacity to the high value subscriber and not waste the tooling capacity on subscribers who really are not subscribing to new services. So as an example in my family, our plan, the people who use it most are the kids, but the person who pays the bills is me, the CSP needs to be able to discern who the high value subscribers are, whether its my traffic or the kids, and then be able to come back and make sure I have a fantastic experience they can bill me correctly for the services I’m using but more importantly can upsell me on new services they want to introduce. They have to have that intelligence in the infrastructure and that is the solution Gigamon is providing. A lot of this functionality used to be part of the traditional probe of the tooling manufacturer but now is part of their visbility platform and is reducing the number of probes that CSPs that to deploy is shrinking or being eliminated because the subscriber visibility in their infrastructure.

The final puzzle piece is Radcom’s announcement on their second quarter call that they were developing a new product for AT&T.  They said this product was “adjacent” to their service assurance implementation and “critical” to making the NFV implementation work.

The scuttle is that the new product provides a security function.  On the second quarter call one of the analysts, George Marima, asked whether the product was the “threat intellect” product or something else and what the licensing model was.  He was referring to AT&T’s announcement in July of “Threat Intellect”, which is a security offering to enterprises “helping to enable businesses to detect, analyze and address security threats faster and more efficiently than ever before.”

Radcom’s response was that it would follow a license model much like the rest of the MaveriQ suite.  But described the model a couple of times to it being an “enterprise” license.

What I wonder is whether Radcom is referring to enterprise in the context of a single license to AT&T or whether this is an enterprise license to the customers of AT&T, specifically those using the threat intellect suite of security solutions that is now likely being integrated as security solution for AWS, see this article for more details on that.  While there are still only a few puzzle pieces here, there is enough to speculate about it, and such a leap would be a huge win for a tiny player like Radcom.

On the Radisys front, in this joint paper (hat tip to kerryb again for digging this up) with Intel Radisys describes their DCEngine in some detail.  On the last page are the following comment about the Verizon deployment of DCEngine this year:

“The success of the initial 20-rack deployment has led the tier 1 CommSP to continue to deploy DCEngine in multiple locations, with hundreds of petabytes of storage and more than 200 racks being installed by the end of 2016.”

On the first quarter conference call CEO Brian Bronson said the orders from Verizon were for “less than 100 racks”.  This was said after the follow-on Verizon order had already been announced so presumably it includes most or all of the orders delivered in the first half of the year.

In the SeekingAlpha comments where this paper was linked to, Mike Arnold added the observation that the average selling price (ASP) of a DCEngine rack is $350,000.  I haven’t been able to confirm that number.  If it’s true, it suggests around 140 racks were sold to Verizon in the first half.

Either way the conclusion is that there has still been a lot of racks sold to Verizon in the second half.  I hoping that this will help lead to an upside surprise when Radisys announces its third quarter results.

Hudson Technologies, R-22, and youtube

I spent one night this month watching youtube videos of air conditioner installers talking about regulatory requirements for refrigerant.

I turned to youtube because I was having a hard time finding information about R-22 conversions.   Turns out that air conditioner techs don’t have time to pen a lot of articles.  They do however like to talk about their trade on camera and take you through the installation process in detail.

Its interesting stuff.  Most interesting is the perception.  The reality is that in the US virgin R-22 is being phased out.  But there is nothing preventing the use of reclaimed R-22.

However the perception for many of the techs I listened to is closer to “the government doesn’t want us using R-22 so we aren’t going to use it”.

It’s worthwhile to weigh these “boots on the ground” opinions before getting too rosy about just how high R-22 prices are going to go.

It’s also becoming clear that there are more legitimate R-22 alternatives than I originally thought.   These are refrigerant blends made by Dupont, Honeywell, Chemours.  This video does a good job of stepping through each of the blend alternatives.

Now again, the reality is that these blends tend to compare poorly to R-22.  They have lower cooling capacity, require more power, and are more likely to damage equipment like compressors on the unit.

Nevertheless, you can drain your unit of R-22, replace a few valves, recharge the unit with the replacement refrigerant, and you are good to go.  Add to that the previously noted perception that the government just doesn’t want you to use R-22, and you probably have more conversions, whether it’s the right thing to do or not.

There is also quite a bit of talk, both in the videos and on some message boards about the price of R-22 rising.  The rising price is a further incentive to switch.  It might not be the right decision, in terms of insuring the best performance and longest life for your unit, but I think its likely getting done more and more as R-22 prices go up.

This video provided some thoughtful  insights about the pros and cons of alternatives.

This has made me a little more cautious about my outlook for Hudson Technologies.  Not enough to sell just yet.  I still don’t think the stock is pricing in the current $15 R-22 price and I also don’t think its reflecting the new contract with the department of defense.  But the upside isn’t quite as high as I originally had anticipated.

New Position: Aequus Pharmaceuticals

This is a really tiny specialty pharma company based in Canada.  Market capitalization is only about $15 million after a recent $2 million capital raise.  The CEO participated in that raise to the tune of 800,000 shares.

The company is focusing on the marketing and sales of drugs in Canada. They also have a pipeline of early stage opportunities that revolve around taking existing drugs and repackaging them into a transdermal delivery mechanism.

The company has the Canadian marketing rights for 4 drugs, Tacrolimus XR has been marketed since December 2015, Vistitan has been marketed since May 2016, while Topiramate XR and Oxcarbazipne XR are still awaiting approval from the Canadian Health board.


Let’s start with Tacrolimus.  The drug is used as an immunosuppressant in patients receiving organ transplants, most commonly kidneys.  Aequus is selling the first generic form of the drug available in Canada.  In other countries, generics make up a significant portion of the market.  In the UK its 53% while in the US its 40%.  Right now Tacrolimus account for $100 million of a total $240 million immunosuppressant market.  The long-term goal here is for Aequus to take a market share that is inline with the US and UK.

Vistitan is a prostaglandin.  Prostaglandins are created naturally within our body and promote or inhibit all kinds of different effects on bodily tissues.  Vistitan contains bimatoprost, which is engineered to increase to fluid flow from the eye, which in turn reduces pressure in the eye.  Therefore Vistitan is used in the treated of elevated interocular pressure, or high eye pressure.  Its most commonly used in glaucoma.  I haven’t been able to get the figure on the Canadian market in 2015, but in 2014 the market for IOP-lowering medication was $140mm and bimatoprost 0.01%, which is a lower dose form of Vistitan that was the only dosage available in Canada, accounted for $42 million of this.

While Topiramate XR and Oxcarbazipne XR are awaiting approval in Canada they have been approved in the United States since 2013 by Supernus.  In the US sales of the two drugs are growing and the combined prescription growth was up 39% year over year in the second quarter while sales were up 47% to $50.3mm.  Assuming similar results in Canada, it doesn’t seem unreasonable to me that sales could exceed $20 million annually.

Its pretty early to be estimating revenue from these products, but in a recent Midas Letter interview, CEO Doug Janzen said:

You have a $20 million business that expects to do $2 to $3 million in sales this year, closer to $15 next year, peaking that at $40 off of existing products

That estimate doesn’t seem unreasonable to me, and may even be low given the corresponding markets in the United States for each drug.

The final puzzle piece here is the pipeline, which consists of 3 drugs in development.  Each of these drugs is already approved and well established.  Aequus is developing a new transdermal delivery method for each.   Transdermal means that the drug will be administered by path.


For the patch they have entered into a multi-product collaboration with a company called Corium International, which specializes in transdermal manufacturing. The two companies split the costs 50/50.

The three products  are still in very early stages.  One advantage though of the new drug application for a transdermal version versus an entirely new drug is that costs and time to deliver are significantly reduced, estimated to be $15 million and 4.5 years for a transdermal development versus $500 million and 10+ years for new drug.

It seems like a lot of irons in the fire, and a lot of potential, for a $15 million market capitalization.  If the stock dips back below 30c I will probably finish off my position with another add.

New Position: NovaBay Pharmaceuticals

I came across Novabay while scouring through presentations and the Rodham and Renshaw conference.  Most of the participants at the conference are early stage drug companies, but Novabay is an exception, having a product in production called Avenova.

Avenova is a really simple product.   It consists of a compound called Hypochlorous acid in a saline solution.   Hypoclorous acid is a natural compound that is given off by while blood cells to fight viruses.  It’s a particularly potent substance and is used in fighting flesh eating disease (for which Novabay provides Avenova for free) and can kill the ebola virus.

A second advantage of Avenova is that it does not create resistance.  Unlike antibiotics, Avenova can be prescribed without worries of creating anti-resistant strains of the virus that become harder to manage.  This is particularly important in chronic applications like bleptharitis, which I’ll expand on in a minute.

Novabay reminds me a lot of Bovie Pharmaceuticals, which I bought and wrote about back in August.  Both are tiny, have a single product driving growth (J-Plasma in Bovie’s case), are seeing really strong growth, and have plenty of room to run.

The two differences are A. Novabay is cheaper than Bovie and B. the potential market for Avenova is bigger than J-Plasma.

Fully diluted including warrants that are close to being in the money, Novabay has 12 million shares outstanding.  That gives it a market capitalization of $43 million at $3.60.  Bovie has a market capitalization of over $120 million.  Novabay is operating at about $10 million of sales run rate.  Bovie is at about $20 million, but keep in mind that only about 20% of this is revenue from J-Plasma, the growth engine here.

Meanwhile, the potential market for Avenova is really big.  Here is a slide from the company’s presentation:


The biggest part of this market is Blepharitis, which is a chronic condition of eyelid inflammation.  You can treat it with antibiotics but because it comes back opthamologists don’t like doing that unless it’s a severe case.  This article describes the benefits of Avenova:

Blepharitis has become more difficult to manage because of the resistance bacteria build against traditional antibiotics used for this condition. Hypochlorous acid utilizes a different mechanism of kill from traditional antibiotics and may therefore be less likely to promote bacterial resistance.

I read through a number of forums, which while anecdotal, generally pointed to positive patient experiences.  The most common complaint I heard was that Avenova is not covered by all insurers.  This is simply a fact of the newness of the product.

There is competition. This article describes Blephadex and Ocusoft which are two of the primary competing products.  Ocusoft published this report comparing their product with Avenova.  I think many of their claims on price comparison have been mitigated by recent insurance approvals.

While there may be some headwinds with competition, its such a big market and the patient experiences appears to be varied enough to support a few different products.  Moreover, the company is showing product and revenue growth. Given what remains a fairly low market capitalization, I’m inclined to think the upside justifies the risks.

Portfolio Composition

Click here for the last four weeks of trades.


Week 270: Change is in the air?

Portfolio Performance


Top 10 Holdings


See the end of the post for my full portfolio breakdown and the last four weeks of trades

Thoughts and Review

The second quarter results are finished and as I look back on August I can’t help wondering if something has changed.

Since February the market has done well but for the first time in over a year I have done better.  I had a miserable first month of the year but after deciding things had gone too far in early February, its really turned around.

Here is the performance of my more significant individual non-oil related positions since that day.


August was a particularly good month.  I was up over 10%. I’ve had a number of big movers over the past few months.

But its more than performance that makes me think that something has changed.

The way that the small and micro-cap stocks I own have been acting has been different than the past year and a half.  For reference, in August of last year I pondered whether you could have a bear market that was never actually defined as a bear market.  At the time I wrote:

When I raise the question of whether we are in a bear market, its simply because even though the US averages hover a couple of percent below recent highs, the movement of individual stocks seems to more closely resemble what I remember from the early stages of 2008 and the summer of 2011.

Through most of 2015 and into the first couple of month of 2016 the movements of small company stocks just didn’t feel right.  Every move up was pressured.  Every move down was too easy.  This of course climaxed with the selling stampede of January and February of this year.

But I have noticed a change in temperament in the subsequent months, and this seemed particularly evident through the second quarter earnings season.   I still had misses.  BSquare had miserable results.  CUI Global was lackluster.  Both stocks fell.  But even then, the moves down didn’t have quite the same conviction as similar such moves in the past year.

Its hard for me to put my finger on exactly what it was that was different, so maybe this is all just sophistry, but it was almost like these stocks were going down grudgingly, because they had to, not because they wanted to.

Even Friday, which was a brutal day for the indexes, didn’t seem as bad as all that through the lens of my positions.  Radcom ended up.  Radisys spent most of the day green before giving up the ghost in the last 30 minutes.  A number of other positions started the day poorly but didn’t really follow through, almost to be saying yeah, we have to be down because the averages are down but there is no reason to panic.  A couple  of the oil stocks I’ve recently added (more on that below), fell at the open only to grind their way back up.

To be sure, part of my perception may be that I’ve picked up my game and picked better stocks.   It took me a while to figure out what my theme was for 2016 but once I settled on growth stories it has served me well.  This replaced sectors like tankers and airlines and REITs where I tried to find gain in 2015 and for the most part failed at it.

So maybe that’s the source of the change.  I’m staying away from value, looking for growth, and that’s what is working.

I’m wary that we have had a big move up, that each of the prior moves up over the last couple years has been followed by a precipitous fall, and that the election in the United States isn’t really setting itself up to be market friendly.

Nevertheless I can’t lose the thought that while we never had an official bear market we did have an extremely ugly period for small and micro-cap stocks and maybe that bear market capitulated in the first couple of months of the year and we are on to something new.  Its worth keeping an eye on.

Oil and my oil stocks

Inline with my tweets over the last few weeks I have been increasing my oil exposure.  I added a number of names and been adding to a couple of others.  Here are the tweets.  I’ll talk about each of these below.

I also took a position in Journey Energy (JOY) late this week but I’m not going to write about that one in this update.

Nevertheless they are all small bets.  Other than Granite Oil, which is about a 3.5% position for me, my oil bets are in the 1% range.

I don’t have a crystal ball on oil.   I am sympathetic that the builds we have seen (up until this week’s rather massive 14mmbbl draw) are due to the drainage of floating storage.  I’m hopeful that once this runs its course we could see some surprising draws in the shoulder season (this thesis has been expressed by a number of investors on InvestorVillage, not the least being Robry825, who describes his position here and  here).  I’m also cognizant that oil wells do decline and that we simply aren’t drilling like we were a few years ago.  Still, as I’ve said on many occasions before, I play the trend till it ends but when it ends I really don’t know.

Its also worth noting that while the US election could turn out to be a gong-show for stocks in general, it sets up as having very little downside and a fair bit of upside for the Canadian oil stocks.  Either Clinton wins and its status quo, which has been already heavily discounted in the disappointment of investors with Canadian oil stocks, or Trump wins and well, regardless of what chaos that entails, he did say he will approve Keystone, which would be a big tailwind for energy producers, particularly given the boondoggle that’s taking place with Energy East.

Nevertheless I don’t like not being in oil.  Part of this is simply hedging.  I am a Canadian investor who primarily invests in US stocks.  Therefore I am naturally short oil via the Canadian dollar.  If oil prices go up, so with the Canadian dollar and I will lose.  Owning some oil stocks helps to balance that out.  If I can hit the odd rocket ship like Clayton Williams or Resolute Energy have been recently, then all the better (note that while I have talked about Clayton Williams in prior posts I haven’t mentioned Resolute because I got the idea from a subscription service run by Keith Schaeffer.  He’s had a few winners for me since I took a subscription and would recommend it).

Empire Industries – China Theme Park Deal

On September 1st Empire Industries announced a “strategic cooperation agreement” with a Chinese company called Altair to build out a new space theme park in the Zhejiang province of China.  The announcement coincided with Justin Trudeau’s visit to China and apparently he was on hand at the signing.

The stock shot up on the announcement and to be honest I got a little too caught up in the hype and added to my position at 45 cents.  While I think those shares will ultimately deliver a positive return, there were some details left out of the news release that warrant caution.

In particular, this article from Business Vancouver fills in some of the details.

On the positive side, Empire will be delivering 6 attractions to the park for a price of $150 million.  This is significant dollar amount that will more than double the backlog.

Also, Empire will have an option to take a 20% stake in the amusement park.  Guy Nelson, president of Dynamic Attractions, the amusement park ride manufacturing subsidiary to which the work is directed, said they would likely exercise this option.  Given that the park has a price tag of $600 million, a 20% stake is a big investment for a company the size of Empire.  It would also makes you wonder about how Empire is going to get paid, as it seems a little too coincidental that their ownership opportunity is about the same dollar value as the cost of the attractions they are to deliver.

The other consideration that contributed to the stock pulling back from its highs was that construction of the park depends on getting the land.  Currently the land belongs to the Chinese government and the agreement that Altair struck was as the reserve bidder, meaning that they get the land if no one else places a bid.

I’m not selling any of the shares I own.  If the deal goes through it should still be a significant positive for the company.  But I should have been more wary of any Chinese dealings and I will wait for more news before acting further.

Granite Oil – Enercom

Granite presented again at the Enercom conference in September. They gave a presentation that an engineer would love and an investor would shrug at.  I don’t believe I heard the acronyms ROR or EBITDAX or even NAV a single time.

Last month I wrote that I had reduced my position in Granite.  After further consideration, a little more research and a more optimistic attitude towards the oil price, I decided to add back what I had sold.  The stock had also sold off into the low $6’s which has been good support in the past.

During the first six months of the year Granite focused on infrastructure.  They drilled one well in the first quarter and three more wells in the second quarter.  They converted a number of older wells into injection wells and added compression to facilitate the gas injection process (as I’ve written before their primary and only asset, Ferguson, is a large oil field where they are implementing an early enhanced oil recovery (EOR) strategy via gas injection.

In the second quarter the company achieved 100% voidage replacement in the heart of the Ferguson field.  The reservoir is now pressurized back to its original pressure.  Granite can move ahead with development drilling and expect the pressure support to limit well declines.

In the second half of the year the company expects to drill 5 wells.  On September 6th they announced results from the first of these wells.  Over a 96 hour test the well flowed at an average 815 boepd and ended the test at 995 boepd.   The company well costs are $1.2 million, down from $1.9 million in the first quarter of the year.

One number Granite did mention at Enercom was that the total contingent original oil in place (OOIP) at Ferguson is 457 million barrels. This is actually from a fairly old estimate by Sproule in 2012.

I contacted the company to clarify how much of their land package the estimate accounted for.  Their response was that the estimate encompassed an area a little larger than the current EOR approved area.  The EOR approved area is about 23 sections, shown below:


The entire land package held by Granite is over 550 sections.  This includes two other discovery wells to the south west:

entire-land-packageIts an extremely large package for a little company with a $200 million market capitalization and very little debt.  The wells aren’t as exciting as Permian wells, but they also come in at about 1/8th the cost.  The company doesn’t get much respect, but I hope that changes if they show some growth in the second half, which is possible as they finish out their drill program and see the full effect of the EOR.

There were a SeekingAlpha article written about Granite here.

Update/Summary of Accretive Health

I’ve owned a small position in Accretive Health since late last year.  And I owned the stock once before that, in 2014.  Yet I’ve never actually written about it.

Part of the reason I have stayed quiet on the position is because it has, until recently, been very small.  But I’ve also kept quiet because the thesis is hard to get behind.  This is the definition of a flyer.

Accretive Health has a few problems:

  1. They have been investigated for abusive billing practices.  There is a VIC article written around the time these issues arose that explains the claims in some detail here
  2. The abusive billing practices were followed up by an SEC investigation into revenue recognition.   The result of the investigation was that the company did not release its financial statements for the period of 2012-2014 until just last year. This article is a decent source for that episode.
  3. The conclusion of the SEC investigation led to a restatement of GAAP results and the subsequent GAAP accounting practices that were enforced make their financial statements pretty much useless.  Accretive can’t book revenue from a client until either the end of the contract term or when the agreement is terminated.  This means they go long periods with very little revenue and if they lose a client (generally a bad thing) they can show a big profit.
  4. Much of their business is dependent on Ascension Health.  Ascension is a large non-profit hospital operator.  They are also a large owner in Accretive.  They have shown their willingness to exploit their leverage as they did when they tried to take Accretive over with a a low-ball offer in mid-2015

Sounds exciting doesn’t it?   Nevertheless the potential upside holds my interest.  Here’s some details about how Accretives business works.

Accretive provides revenue cycle management for hospitals.  This means that they help streamline front- and back-office operations, including patient registration, insurance verification, coding compliance and collections.

Hospitals operate on extremely tight margins.  I have gathered margins can be as low as 1-2% if they are profitable at all.  Accretive’s model is to insert experts into the hospital, integrate their software into the hospital software, and work together with hospital employees to reduce costs, more effectively bill patients (for example finding insurance options, correctly classifying patient visits, etc), and improve revenue collection.

The contract with the hospital is performance based.  Accretive receives a percentage of the savings that they are able to achieve for the hospital, compared against a pre-contract run rate.  They also receive incentive fees that are based off of additional revenue the hospital generates due to their improved collection and billing processes.

This business model means that Accretive doesn’t get anything until later in the contract, after they have implemented their solutions, made changes to the processes, and the hospital has begun to reap the results.

It’s also a tricky business model for revenue recognition; billings are in part based on costs not yet invoiced by the customer and that have to be estimated, and the agreements typically include clawbacks if cost reductions aren’t maintained.  The consequence is that GAAP accounting insists that very little revenue be booked until the end of the contract.

Now lets talk about Ascension Health.  Ascension is Accretive’s biggest customer.  Accretive was actually born out of Ascension in 2004.  In 2015 Ascension accounted for 59% of gross cash generated (Gross cash generated is effectively the company’s internal metric of revenue equivalence it uses to get around GAAP accounting. I’m just going to refer to it as revenue from this point forward.  Likewise, I am going to refer to their net cash generated as EBITDA, which is basically what it is).

The relationship with Ascension is not always friendly.  Just around the time when the black cloud of lawsuits and SEC investigations was beginning to lift Ascension dropped a bomb on Accretive, writing a letter where they discussed taking the company private for about 50% of what was then the market capitalization (around $2.50 per share).  In a not so veiled threat Ascension said that if the takeover didn’t proceed they didn’t plan to enter into a new master services agreement with Accretive once the existing one expired in mid-2017.

In December of last year Accretive came to an agreement with Ascension whereby Ascension would drop the takeover offer, not walk away from their relationship, and enter into a new long term agreement for services.

The agreement is for 10 years.  Right now Accretive is responsible for about $6.5 billion of Ascensions net patient revenue.  The new agreement will add another $8 billion of net patient revenue from new Ascension hospitals and affiliates.

As part of the agreement Ascension gets an even larger piece of Accretive.  Accretive issued them $200 million of preferred stock paying 8% and convertible into shares at $2.50 (so 80 million shares).  Ascension also received 10 year warrants for 60 million shares at a price of $3.50.

Accretive has about 107 million shares outstanding not including any of the above conversion.  The market capitalization is about $200 million, cash is about $200 million and apart from the preferred there is no debt.

To put the size of the deal with Ascension in perspective, Accretive has provided guidance of $200-$220 million of revenue in 2016.  This would be “pre-Ascension new deal” revenue.  On the fourth quarter call management said that for every $1 billion of net patient revenue they on-board, they expect $40 million of revenue (they reiterated this statement on the second quarter call).

So basically Accretive stands to more than double revenue at the end of the on-boarding, which is expected to take 3 years (including this year).  The new business from Ascension will initially be at similar margins to the existing business, and those margins will improve as time passes and Accretive’s own systems and processes are implemented.

The tumult of investigations and Ascension related distractions has caused Accretive to lose some other business over the past year.  Ironically, the company had a blow-out first quarter on a GAAP basis, generating $167 million in net income.  But that’s because of customer attrition, which allowed them to recognize deferred revenue that had been accumulating for those customers.  The last thing you want to see with Accretive is strong GAAP results.  Hospital count dropped from 77 in the first quarter to 72 in the second quarter.

Nevertheless, the amount of new business coming from Ascension is substantial.  Accretive said that they expected EBITDA margins on the combined business  showed be in the mid to high teens.  At $400 million to $500 million of revenue Accretive stands to generate significant cash for a company with a $200 million enterprise value.

Still, there is enough uncertainty to warrant only a small position.  Will Accretive be able to turn around the business outside of Ascension, keep existing customers and win new customers?  Or have the last 4 years been too much.  And what is the state of the company itself?  Presumably after all the lawsuits, restatements, executive shuffles and unrest morale must be low so will they be able to execute?  Finally, the new agreement with Ascension is a departure from the legacy model; Ascension employees will be joining Accretive and Accretive will be taking over most aspects of the revenue cycle, as opposed to just advising and consulting.  Will this new model work and will it ultimately be as profitable as management predicts?

Lots of questions.  Nevertheless, if the questions are answered positively the upside is going to be significant.  While I did add to my position recently, I will keep it relatively small (its a little over 1%) until some of the answers become more clear.

Radcom Moves

Radcom has had no significant news since my last update.   Yet we still only have a single NFV deal.

I’m not too worried about how this plays out in the long term.  What I am bracing myself for is the scenario where Radcom presents third quarter results, gives a positive qualitative update on the pipeline but no quantitative progress.

Radcom has a $220 million market capitalization and a $170 million enterprise value.  It trades at 5.7x EV/sales.  I figure this means they need to grow revenues at 30-40% next year to justify that multiple.  That means another AT&T sized contract.

The market is going to want to see that happening by the third quarter report.  If it doesn’t the stock is likely going to sell back down to a multiple that reflects more skepticism.  Unfortunately these carriers aren’t known for their fast movements.  What’s another 3 months for a CSP looking to overhaul their network?

If such a sell-off occurs, it may be a great buying opportunity, but I’m not thrilled with the idea of getting from here to there.  Nevertheless the opportunity with Radcom seems to still outweigh this risk.  I sold a couple shares at $19 but less than 5% of my position.  So I’m just bracing myself for a potential pullback if carriers live up to their name.

New Position: CUI Global

I bought CUI Global because it has a new and better technology (for measuring gas composition) than the current standard, and they can sell that technology into a large addressable market (gas transmission companies and chemical plants).  But so far its been a struggle to gain a foothold into old-school industries that are not used to change and that are currently dealing with a protracted downturn.

Given this trajectory, it’s most likely that even if the story works out it will A. be delayed longer than anyone would have expected and B. have a number of false-starts and hiccups before finally showing consistent growth.

CUI Global operates two segments, Electronics and Natural Gas Integration.  The electronics business has been treading water and while it may have some medium term potential its not really the focus of my purchase.  There is a good discussion of the electronics division in the Q&A of the last quarter conference call.  For this write-up I am going to focus on Natural Gas Integration.

The natural gas integration segment sells a product for sampling and analyzing gas composition that is quicker and graceful than the existing technology.  Called the GasPT system, it consists of a probe and analyzer, both of which are unique in design and operation:

GasPTThe GasPT system is faster and cheaper than existing solutions.  These legacy techniques have been around for 60 years.  Their process works like this: gas is pulled out of the pipeline using a high pressure probe, transported to a gas conditioning unit which lowers the pressure to sea level, and transported through the low pressure pipeline to a gas chromatogram located in a shed where it takes 20 min to analyze the gas and report to operator the chemical content, from which energy content is inferred.

Installation of the incumbent technology costs a quarter of a million dollars, is a 6 week job, requires that a kiosk is built on site, that concrete, pipe, is laid and the carrier gas has to be replaced monthly.

In comparison, the GasPT system resides right on the pipeline, measures gas directly via the Orbital probe, there is no ancillary gas required, the cost of installation is $55,000 and it takes 90 minutes to install.   There is no operating overhead and the gas is analyzed in seconds.

Management has said on numerous occasions that during the bid process for the recently won Snam Rete business (more on that in a minute), they went up against Emerson, ABB and Elster and the head to head competition demonstrated that there is no comparable technology on the market.  They have also said that they are at least a couple years ahead of the competition in terms of development.

The company sells the GasPT system into two verticals:

  1. Natural Gas Transmission Operators
  2. Process Control for compressors and turbines.

The transmission operators they are trying to sell into are large national pipeline companies that aren’t easily receptive to change.  It took some time but early this year they began to make some inroads.  The company inked a contract with Snam Rete, an Italian gas transmission company, in February 2016.

The initial purchase order was for 400 units.  CUI Global has been delivering units at a rate of 50 per month.  The  total volumes of the contract is for 3,300 units with the opportunity for that to expand to 7,000 units.  They expect that next year volumes will ramp to 100 per month.

The thesis here is that

  1. The Snam Rete will ramp to 100 units next year and that will be enough volume to move the natural gas integration segment to profitability
  2. The Snam Rete contract will open the door to other national transmission operators.

CUI Global is engaged with transmission companies in France, Spain and Germany.  Listening to management I get the impression that they are furthest along in France, where in the second quarter they announced a distribution agreement with Autochim for sales of GasPT units in France and Africa.  They also talked on the second quarter call about their recent engagement with Transcanada Pipelines.

Worth noting is that Snam Rete is a low pressure pipeline delivery company, which is unusual.   Almost all gas transmission at a large scale is done at high pressure.  Because of the unique nature of their operations, Snam Rete did not have to purchase the whole solution from CUI Global, they took the analyzer but not the probe.  The other potential customers will be taking the full GasPT solution.

They are also gaining traction in its second market vertical, gas processing facilities.  On the last couple of calls they have talked about a contract with an ethylene plant operator in Texas.  In the first quarter they said:

Recently Orbital NA announced its receipt of a purchase order from a large scale ethylene plant operator in South Texas to design, build and deliver nine patented, ultra fast and accurate in depth, VE sample probes and sample systems and another purchase order for an additional six VE sample probes. That order totaling almost 1.8 million is a trial project which may result in a similar deployment of our technology across 54 other facilities operated by the same customer worldwide.

In the second quarter they qualified the potential of this operator as being a $100 million opportunity if they can expand the order to all the plants run by this operator.

Extending their reach into North America a bit further, a couple of weeks ago they signed a licensing agreement with Daily Thermetrics for the sale of the VE Technology, which is the probe portion of the GasPT unit.

I’m not sure what to make of management.  They tell a good story.  I came across the idea from a conference they participated in (the rebroadcast has expired but I can provide it if you email me).  What they described was compelling.  But going back through their old calls and financials, the execution hasn’t been great, though this may also be more of a function of the businesses they are trying to tap into.

CUI Global has a market capitalization of $110 million and cash and debt come close to cancelling one another out on the balance sheet.  When I model their business, it looks like they need to double the sales of the energy segment to get meaningful profitability for the company.

That may be a tall order.  But the contracts in the pipeline are big numbers.  The energy segment is operating at a run rate of $7.5 million per quarter.  The contract with Snam Rete for the 3,300 units was for $60 million Euro.  Presumably contracts with other transmission providers would be similar.  Likewise, the potential of this single ethylene plant operator is $100 million.

So the total addressable market (TAM) appears to be significant.  The company addresses its TAM on slide 11 of this recent presentation.

The question, which remains valid, is whether they can really gain traction and become the go-to solution.  The thing is, its binary.  Either they get more contracts or they don’t.  I don’t think you can sit on the sidelines and wait and see how it plays out.  Because the next contract, if it happens, will likely be the big move when it happens, and the stock will gap before you can react.

New Position: Jones Energy

I took a position in Jones Energy because of their recent acquisition of STACK/SCOOP acreage. Jones has long had a large acreage position in Oklahoma, but their target has been northwest and southeast of the STACK/SCOOP prospect, where they have targeted the Cleveland formation.  The new acreage should give better returns and more prolific well results.

The story you want to see play out is one where attention grows for the STACK/SCOOP and the play becomes recognized for its multi-zone potential that is close to, if not on par, with the Permian.   That should push up the price per acre and make the acquisition look even more attractive (it already looks like a good deal to me compared to other recent transactions.  Meanwhile an upcoming drill program should give some prolific IP30 results that will add excitement to the story.

At the moment the STACK/SCOOP does not have quite as good of returns as the Permian but they aren’t far off. Demonstrating the viability of the play even at these prices, Newfield points out (in their June presentation) that rig count is rising at a similar rate as the Permian:  

There are a number of large operators in the STACK. Devon has the biggest position, and Marathon, Cimerex and Newfield are also players. Newfield was the first mover in the play. Gastar (who I will talk about shortly) provides a good map of where the operators are.

Continental is a player in both the STACK and the SCOOP. They have acreage that is in the northwest for STACK (Blaine, Dewey and Custer county) and in Grady county for SCOOP.

Jones acreage (see the map below) is in the southern part of Canadian county, so around the Chaparral acreage, and south of that into Grady county. The northern border of Grady is roughly where the STACK ends and the SCOOP begins.  The STACK and SCOOP regions are considered distinct because the geology changes, as the Meramec formation dips down and is replaced by the upper and lower Sycamore.

Jones bought their acreage at $7,600/acre which is on the low side of other transactions I’ve seen. Marathon bought 61,000 acres at $11,800/acre (here they define their position). Newfield bought 42,000 acres from Chesapeake at $10,000/acre. Back in December Devon bought acreage at $17,000/acre. Continental recently sold SCOOP acreage that is in south Grady and further SW into Garvin county for about $9,000/acre adjusted for production. I don’t see too much evidence that Jones bought an inferior acreage position, other than that the STACK acreage is further to the southwest than the core STACK region at the intersection of Blaine/Kingfisher/Canadian.

As I said, STACK results look comparable but slightly less prolific than Permian. Most of the results are drilling into the Meramec formation, some drilling into Woodford. Well costs seem to be in the range of $4.5 million to $6.5 million for a 10,000ft lateral, which is a big range but I think that is because of changes in depth across the play. Continental is an outlier, they operate much further west than the rest of the operators and their wells cost $9-$10 million. The IP30 for the wells are around 1,500 boepd, with some wells delivering as high as 2,000 boepd.  Continental has seen its more expensive wells hitting 3,000 boepd. EUR per well is around 1 MMboe with again Continental being much higher at 1.7 MMboe. All operators report ROR that is consistently in the range of 70-80% at $50 oil.

The northern part of Jones acreage is prospective for the Meramec but transitions to the Sycamore as you go south (so where the STACK becomes SCOOP).   Though there isn’t a lot of information I’ve found on the Sycamore, what I have gathered appears to validate that well performance is similar to the Meramec.  Jones provides a few well results from Marathon and a company called Citizen Energy (who unfortunately is private and so there is no information on their website) in the map I showed above.

A second prospect in the STACK/SCOOP is the Woodford shale.  Their are a few Newfield well results in the Woodford referred to in the Jones map.   Continental seems have cracked the Woodford code recently.  Continental talks about how they are seeing a 40% increase in EUR on offset wells from recent wells where they have tweaked the completion techniques for $400K incremental cost.


This is pretty interesting, especially because Jones acreage looks like it is in same area as Continental.  Below outlines where Continental has been drilling:

While the STACK/SCOOP lags the Permian in performance, the perception I get from listening to comments from Marathon, Cimerex and Newfield is that the area is earlier in the learning cycle, and we should expect further improvements (like we may have just seen with Continental in their Woodford SCOOP wells).

Cimerex in particular has acreage both in the Permian and in the STACK and they are allocating significant capital to both plays.  The gave a good presentation at Enercom, where they talk about both the Permian and the STACK/SCOOP making it easy to draw some comparisons.

Jones also has legacy acreage that is not too far away from the STACK/SCOOP.   They have 100s or maybe 1,000s of wells in this area targeting the Cleveland formation. In total they have 180,000 acres in Ellis, Roger Mills and Beckham county in OK and in Lipscomb, Ochil tree and Hemphill county in Texas. This acreage is to the northwest of the STACK but its not that far northwest. Much like the STACK/SCOOP, the acreage has multizone potential.  Jones has identified a number of potential zones in addition to the Cleveland. There is the Marmaton and Tonaka for example. Neither has been tested much. This article does a good job of delineating each of the STACK, SCOOP and the Cleveland/Tonkawa.

With respect to the multizone potential of the STACK/SCOOP and their legacy Cleveland land I thought the following comment was interesting from their second quarter call:

John Aschenbeck Got it, very helpful. One more if I could sneak it in on the Osage [ph], I’ve had a few operators say that Meramec EURs could potentially be possibly on the Osage as well leading you to believe Meramec-like returns in the Osage as well. Have any thoughts on that?

Jonny Jones We’ve got a 21-zone stack in the western Anadarko basin, of which these are just a couple of zones. We’ve been believers for a long, long time that there’s many pays out here, some of which are the ones you just mentioned, that really have not been exploited with modern technology. We have a lot of them in our section. People are just now starting to parse all the different trenches of the Mississippi and then that’s all they are. But there is a lot of other things out here besides those zones that are attractive. I think you’re going to see that come to fruition over the next six to nine months as folks actually start trying these different zones. The stack, the scoop, all these different zones right now are not one zone. There’s multiple pays here.

New Position: Gastar Exploration

Gastar is the other Oklahoma operator that I have taken a small position in.  By any traditional metric Gastar is a disaster.  They have about $575 million of debt versus a $125 million market capitalization.   Absent their hedges they aren’t generating enough cash flow to cover their interest payments.

But they own a lot of acreage (84,000 acres) right around the heart of the STACK:

The big question is whether the land in Kingfisher, which is a bit north of where Marathon, Newfield, Devon et al are drilling, is as prospective as the land further south?  I’m not sure, though from a number of presentations I’ve seen delineating the extents of the STACK it is clear the play extends well into Garfield county, so Gastar’s acreage is far from the edge of the formation.

While Gastar fails miserably on traditional valuation techniques, the stock looks pretty attractive if you apply acreage valuations that are comparable to recent land sales prices in the area.  By my calculation the current share price is reflecting about $6,000/acre for the STACK position and $4,000/acre for WEHLU (the WEHLU is on the eastern edge of the STACK and I don’t have as much information on how prospective it is but Gastar has been drilling decent Hunton wells there for a number of years).  The NAV is very levered to appreciation of this acreage.  At $8,000/acre for the STACK acres the NAV rises to $2.22.  If you use $11,000/acre the NAV is over $4/share.

I don’t know if Gastar gets revalued up to reflect the going rate of a STACK acre or whether the company sinks into bankruptcy.  I know they are going to do some drilling to prove out some of their STACK acreage and those results will be the key.  I also know from what happened to Resolute that when a company goes from reflecting bankruptcy to being valued based on current acreage prices the move can be pretty amazing.

New Position: Zargon Exploration

Unlike the first two positions oil and gas positions, Zargon isn’t a play on the STACK/SCOOP.  The company’s operations are primarily in Alberta with a small amount of production in North Dakota that is likely to be sold in the near future.

Up until July Zargon had too much debt and there was some thought that the company would eventually become a victim of bankruptcy.  At the end of the second quarter the company had $122 million of net debt to go against second quarter funds flow of $3.5 million.

But on July 22nd  Zargon announced the sale of is southeastern Sasksatchewan assets for net proceeds of $87.5 million.  The transaction significantly reduces debt and makes it much more likely that the company will make it through to the other side of this oil price downturn.

With the use of proceeds put towards the debt, the company’s net debt position is expected to be around $35 million.  I was buying the stock a bit lower than it is now, but even at 90 cents the market capitalization is only $27 million, meaning that the enterprise as a whole is going for $62 million.

This doesn’t seem like a bad price to me considering what you get.  After the asset sale Zargon is left with about 2,800 boepd of production, 79% of which is liquids.  The production breaks down to 400 boepd from North Dakota, 2,000 boepd from various Alberta land packages, and 530 boepd from their Little Bow Alkali-Surfactant-Ploymer flood project.

All of these properties are low decline.  Little Bow production should actually increase through the end of the quarter before stabilizing at over 600 boepd.  This number could go higher if oil prices recover as the company has suspended alkali and surfactant injection because of the economics of the project at current oil prices.


The other properties are very low decline, 14% according to the September presentation.

The properties as a whole have a proved PV10 of $108 million and and a proved plus probable PV10 of $176 million.  The enterprise value trades at a discount to the proved value of the reserves.  This is at forecasted prices though, and that forecast is assuming a slow oil price recovery through to 2030.

I think the current price is probably reflecting about $45 oil.  What I like about the stock, and why I took a position, is that at $55 oil the stock is probably a double at least.  Its probably not a great long-term hold, as I don’t see anything in particular about the properties that excites me, but as a vehicle for playing a price recovery in oil I think its worth a position.

One Last New Position: Limbach Holdings

I took a position in Limbach Holdings after one  of the funds I follow, Dane Capital, took a position.  Dane Capital is the same fund that I got the idea for RMG Networks from.  They have written up Limbach in two pieces on SeekingAlpha (here) and I’m not going to add more on the name right now because they describe the thesis quite well.

Portfolio Composition

Click here for the last four weeks of trades.

Below you will see that I’ve gone back to my old format for portfolio composition.  Those of you who have followed the blog for a while will know my love/hate relationship with RBC Practice Portfolios.  I used to be able to use the portfolio holdings page provided by RBC, but then they introduced a bug which basically screwed up the gain/loss on a position if you partially sold out or added to an existing position.  So I started tracking my portfolio via spreadsheet as well as with the RBC portfolio.  This is time consuming so when RBC introduced a new portfolio summary that wasn’t great but at least wasn’t totally out to lunch, I began to report it and have used it for the past few updates.  Well this week I realized that this summary has a bug as well, so I am back to reporting via spreadsheet.  I also took the time to add a function to my code that colors the gain and loss columns in green or red.


Week 2015: Maybe its just a bear market

Portfolio Performance



See the end of the post for the current make up of my portfolio and the last four weeks of trades

Monthly Review and Thoughts

I don’t flash sensational headlines about bear markets for the sake of getting attention.  I get about 100-150 page views a day and given the frequency and technicality of my writing I don’t expect that to increase materially regardless of the headline I post.

When I raise the question of whether we are in a bear market, its simply because even though the US averages hover a couple of percent below recent highs, the movement of individual stocks seems to more closely resemble what I remember from the early stages of 2008 and the summer of 2011.

A breakdown of the performance of the Russell 2000, which is where a lot of the stocks I invest in reside, was tweeted out this week by 17thStrCap and I think illustrates the pain quite well:

us market

The Canadian stock averages have been made respectable by Valeant and not much else. In a Globe & Mail article appropriately capsulizing my comment here called “The market is in much worse shape than the TSX index suggests” the following comparison was made between the TSX Composite and an equal weighted version of it that dampens out the Valeant effect.


When the Federal Reserve ended its quantitative easing program last year I was concerned that the market might revert back to the nature it had demonstrated after first two QE endeavors.  But for a number of months that didn’t happen.  Stocks kept moving; maybe not upwards at the speed they had previously but they also did not wilt into the night.

I am starting to think that was nothing more than the unwinding of the momentum created by such a long QE program.  Slowly momentum is being drained from the market as the bear takes hold.

A week late

I am a week late getting to this update.  We were on vacation last week, which made it tough to write.  As well I was in no mood to ruin my vacation and write with my portfolio going through significant perturbations to the downside.

It is frustrating to see my portfolio doing poorly.  My investment account is being saved by two things:

  1. Shorts
  2. US stocks in Canadian dollars

As I mentioned last month I have had a number of technology shorts, some shorts on Canadian banks and mortgage providers, and hedges on energy and small caps via the XOP and IWM.  I actually took a bunch of the tech shorts off in the last few days for the simple reason that they are up so much.  I had some decent gains from INTC, SNDK, MU, ANET AVGO, RAX, HIMX and TSM.  I also ended my multi-year short on YELP.

I am covering my shorts because with earnings season over I think there could be a counter rally resulting from the news vacuum.   The China collapse angle has been beaten up and priced in; I could see the perception shifting towards the positive outcomes of the stimulus. And I’ve read that Apple is increasing orders for the iPhone 6s and 6s+ which may or may not be warranted (I suspect not) but could lift tech results in the short term.

I would put these shorts back on if the stocks recovered.  But I don’t feel like I know enough about tech to be pressing my luck on the names.  And as I reduce my long portfolio and raise cash, I feel less need to have what feel like stretched shorts to hedge those positions.

Without the benefit of short hedging this blog’s online tracking portfolio has done worse.  I’m down about 5.6% from a brief peak I hit in mid-July (when the tankers were at their highs) and I am essentially running flat for the last 4 months.

At the center of my frustration are tankers, airlines, small caps and the REITs.  So pretty much everything.  Let’s talk about each.

The Tankers

With oil oversupplied and refiners working at record capacity producing gasoline, jet fuel and heating oil, one would expect that the market would turn to crude and product tankers as a natural beneficiary.

No such luck.

The recent moves by my favorite tanker plays: DHT Holdings, Ardmore Shipping and Capital Product Partners, have been to the downside.  There was a brief move up towards the end of July that coincided with earnings (which were outstanding) but it was quickly unwound and now we are back to levels seen a few months ago.  While I sold some along the way up, it wasn’t (and isn’t) ever enough.

Ardmore Shipping

Particularly with the product tankers (specifically Ardmore Shipping), I just don’t get why the behavior is so poor.  I found it difficult to come away from their second quarter conference call with anything but an extremely bullish take on the company’s prospects.

The product market is benefiting from extremely strong refinery utilization and strong demand for products.  It is also benefiting from the move by Middle East nations to add refining capacity with the view of exporting finished products.

Ardmore had earnings per share of 30c.  They achieved those earnings with 18.4 ships. By the end of the year, once all of their newbuild fleet is delivered, the company expects to have 24 ships.  If newbuilds had been operating in the second quarter, earnings would have been 43c for the quarter.

In the second quarter Ardmore saw spot rates of $22,400 TCE.  So far in the third quarter spot rates are up again to $23,500.  At current $23,500 spot rates and with 12 MR’s in the spot market, EPS would be $1.85.  The stock has been trading at around $13.

Yet the stock sells off.

DHT Holdings

Likewise, I couldn’t believe it when DHT Holdings traded down to below $7 on Wednesday.  At least the crude tanker market makes some sense in terms of rates.  Voyage rates have come off to $40,000 TCE for VLCC ships.  This is seasonal and if anything rates have held up extraordinarily well during the slow third quarter.

DHT stated on its conference call that they had more than 50% of their third quarter booked at $80,000 per day.  The company has a net asset value of around $8.50 per share.

While I already had a pretty full position heading into the last move down I held my nose and added more at $7.15 (i never catch the lows it seems).  I’m not holding these extra shares for long though.  In this market having an over-sized position in anything seems akin to holding an unpinned grenade.

The Airlines

While Hawaiian Airlines has been an outperforming outlier, responding well to strong earnings, Air Canada has languished.  The stock got clobbered after the company announced record earnings and great guidance.

Air Canada reported 85c EPS and $591 million EBITDAR.  In comparison, BMO had been expecting 90c EPS and $618mm EBITDAR and RBC had been expecting 77c EPS and $558mm EBITDAR.

The story here really boils down to the Canadian economy.

Both WestJet and Air Canada are increasing capacity.  The market is worried that they are going to flood a weak market and pressure yields.  On the conference call Air Canada addressed the concern by pointing out that A. the capacity they are adding is going into international routes and B. they have yet to see anything but robust demand for traffic.

What’s crazy is that while investors have responded negatively, analysts have been bullish to the results.  I read positive reports from RBC, TD and BMO.   Only Scotia, which I don’t have access to, downgraded the stock on concerns about no further upside catalysts.

Its rare to see multiple upgrades accompanied by a 7% down move in a stock.  I would love to see one of the darling sectors, tech or biotech, respond in such a manner.

So the analysts are bullish and the company is bullish but right now the market doesn’t care.  As is the case in general, the market cares about what might happen if some negative confluence of events comes to fruition.  And it continues to price in those worries.

Its just a really tough market.

Trying to find something that works

Another contributor to my poor performance has been that what has worked over the last five years is working less well now.

In particular, over the last give years I have followed a strategy of buying starter positions in companies where I see some probability of significant upside.   In some cases I will buy into companies that do not have the best track record or are not operating in the most attractive sectors.  But because the upside potential is there I will take a small position and then wait to see what happens. If the thesis begins to play out and the stock rises, I add.  If it doesn’t I either exit my position or, in the worst case, get stopped out.

This has worked well, with my usual result being something like this.  I have a number of non-performers that I end up exiting for very little gain or loss, a few big winners, and a couple of losers where I sell after hitting my stops.

I’ve had a lot of winners this way over the last few years: Mercer International, Tembec, MGIC, Radian, Nationstar, Impac Mortgage (the first time around in 2012), YRC Worldwide, Pacific Ethanol, Phillips 66, Nextstar Broadcasting, Alliance Healthcare Yellow Media and IDT Corp are some I can think of off-hand.  In each case, I wasn’t sold on the company or the thesis, but I could see the potential, and scaling into the risk was a successful strategy of realizing it.

Right now the strategy isn’t working that well.  The problem is that the muddling middle of non-performers is being skewed to the downside.  Instead of having stocks that don’t pan out and get sold out at par, I’m seeing those stocks decline from the get-go.   I am left sitting on either a 5-10% loss or getting stopped out at 20% before anything of note happens.  Recent examples are Espial Group, Hammond Manufaturing, Versapay, Higher One Education, Willdan Group, Acacia Research, Health Insurance Innovations and my recent third go round with Impac Mortgage.

All of these stocks have hair.  But none has had anything materially crippling happen since I bought them.  In the old days of 2012-2014, these positions would have done very little, while others, like Patriot National, Intermap, Photon Control, Red Lion Hotels and most recently Orchid Island would run up for big gains and overall I’d be up by 20% or so.  Instead this year the winners still win, albeit with less gusto, but its the losers that are losing with far more frequency and depth.

So the question is, if what has worked is no longer working, what do you do?

You stop doing it.

I cleaned out my portfolio of many of the above names and reduced a couple of others by half.

So let’s talk about some of what I have kept, and why.

Health Insurance Innovations

HIIQ announced results that weren’t great but the guidance was pretty good.  Revenue came in at $23 million which is similar to Q1.  In the first quarter the company had been squeezed by the ACA enrollment period, but in the second quarter this should have only impacted April.  So I had been hoping revenue would be a touch better.

The guidance was encouraging though.  The company guided to $97-$103 million revenue for the year which suggests a big uptick in the second half to around $28 million per quarter.  In my model, I estimate at the midpoint they would earn 40c EPS from this level of revenue if annualized.

Also noted was that ACA open enrollment would be 90 days shorter next year, which should mitigate the revenue drag in the first half of the year.  And they appear to be doing a major overhaul of management – bringing on people from Express Scripts (new president), someone new to evaluate the web channel and a number of new sales people.

Its been a crappy position for me but I don’t feel like there is a reason to turf it at these levels, so I will hold.

Impac Mortgage

As usual Impac’s GAAP numbers are a confluence of confusion.  The headline number was better than the actual results because of changes to accretion of contingent expense that they incurred with the acquisition of CashCall.

The CashCall acquisition had contingent revenue payout and that payout expectation has decreased leading to lower accretion via GAAP.  Ignoring accretion the operating income was around $8 million which was less than the first quarter.

The decline was mostly due to lower gain on sale margins, which had declined to 186 bps from 230 bps.

While origination volumes were up 8% sequentially (see below) I had been expecting better.  The expansion of CashCall into more states was slower than I expected.  In the second quarter CashCall was registered in 19 states.  I actually had thought that number was 29.

q2volumesBy the third quarter CashCall is expected to be compliant in 40 states.  And really that is the story here.  Volume growth through expansion.

CashCall is a retail broker dealing primarily with money-purchase mortgages (mortgages to new home owners).  Therefore Impac is not as dependent on refinancing volumes as some other originators.

While it was not a great quarter the company still earned 70c EPS.  Its lower than my expectations but in absolute terms not a bad number.  On the conference call they said that Q3 margins looked better than Q2, and while July production was only about $700mm, they expected better in August-September as the pipeline was large.

I made a mistake buying the stock at $20 on the expectation of a strong second quarter.  But I think at $16 its reasonable given earnings power that should exceed $3+ EPS once CashCall is operating nationwide.


The response to the PDI quarter is indicative of the market.  The company released above consensus earnings on Thursday along with news that their molecular diagnostic products were being picked up by more insurers.  In pre-market the stock was up 20% and it looked like we were off to the races.

It closed down.

Recall that PDI operates two businesses.  They have a commercial services business where they provide outsourced sales services to pharmaceutical companies looking to market their product.  And they have the interpace diagnostics business, which consists of three diagnostic tests: one for pancreatic cysts and two for thyroid cancer.

I suspect that the market decided to focus on the one negative in the report: reduced guidance for interpace revenues from $13-$14 million to $11-$12 million.  The guidance reduction was caused by a delay in receivables from some customers.  The metric by which to judge the growth of the actual operations, molecular diagnostic tests, increased from 1,650 in the first quarter to 2,000 in the second quarter.

But in this market you gotta focus on the negative.  At least on Friday.

Patriot National

When I bought Patriot they were a new IPO whose business was a platform that allowed them to procure and aggregate workers compensation policies for insurance carriers.  They sign a contract with a carrier for a bucket of policies with particular characteristics and then distributed that to their pool of agents, collecting a fee in return.

But over the last couple of months Patriot seems to be expanding that role to something more holistic.  Among their nine acquisitions in the past six months is an insurance risk management firm, an auditing and underwriting survey agency, an insurance billing solution platform and a beneits administration company for self-funded health and welfare plans nationwide.

Patriot describes themselves in their latest presentation as follows:

whattheyarePatriot has shown solid growth since their IPO, both through their roll-up strategy of small insurance businesses and organically.  They have increased their carrier relationships from 17 to 82.  They are expanding their relationship with a few big carriers like AIG and Zurich.  They have grown their agent pool from 1,000 to 1,750.

I’m not really sure what it was about the second quarter that caused the stock to sell-off like it has.  It was down 16% at one point on Wednesday, which is about the same time I tweeted that this is crazy and pulled the trigger.  I suspect its simply another case of a bad market, a run-up pre-earnings and a release that didn’t have anything clearly “blow-outish” about it.

Nevertheless the company provided guidance along with its results and for 2016 predicts 37% revenue growth and 55% earnings growth.  These numbers make no allowances for further accretive acquisitions, which undoubtedly will occur.

The stock trades at 6.5x its 2016 EBITDA multiple.  From what I can tell its closest peers trade at around 10x, and they aren’t growing at a pace anywhere near Patriot.  As I said I added under $16 and would do so again.

Orchid Island

I have followed Orchid Island for a long time having been an investor in its asset manager, Bimini Capital, in 2013.  I never bought into Orchid though; it seemed small, it always trade around or above book value and being an mREIT it seemed that you had to have more of an opinion on the direction of rates than I have had for a while.

But when the stock got below $8, or a 30%+ discount to book value, it just seemed to me like the opportunity was too ripe to pass up.

There have been a number of good SeekingAlpha articles by ColoradoWelathManagementFund on Orchid where he describes the MBS investments and also the Eurodollar hedges.  These hedges, which require a different GAAP accounting then other more commonly used hedges, seem to be at least partially responsible for confusing the market and leading to the massive discount to book.

However I don’t plan to wait this out until book value is realized.  When the stock hits double digits again I expect to be pulling the trigger.

Higher One Education

I bought back into Higher One after it got clubbed down to $2.20, where it seemed to be basing.  Upon buying the stock was promptly clubbed down again to below $2.

Like many other names I am not sure if the clubbing is warranted.  The company’s second quarter results were better than my expectations.

Adjusted EBITDA in the second quarter came in at $8 million versus $7.2 million in Q2 2014.  While the disbursement business EBITDA was down, both payments and analytics were up (46% and 38% respectively).  EPS was 8c which again was better than last year.

They lost 6 clients representing 86,000 signed school enrollment (SSEs), signed 4 new clients with 16,000 SSEs and renewed 59 clients with 675,000 SSE’s.  Their total SSEs were 5mm at the end of Q2.  Given the headwinds in the industry, Higher One is holding their own.

The overhang in the stock is because the DOE proposed new rules that ONE and others are pushing back on, with the biggest issue being that you can’t charge fees for 30 days after deposits.  From their conference call:

The way the rule is proposed every time there is a disbursement made into the students accounts, we’d have to freeze all fees for 30 days.

This of course would severely impair Higher One’s ability to be profitable with these accounts.

On Friday after writing this summary I decided to sell Higher One.  I’m waffling here.  I like the value but don’t like the uncertainty and if the market can knock it down to $1.90 then why not $1.50?  Uncertainty reigns king.  I might buy it back but its difficult to know just how low a stock like this can go.

My Oil Stocks

I’ve done a so-so job of avoiding the oil stock carnage of the last few months.  After the first run down in the stocks I added a number of positions in March and ran them back up as oil recovered to the $60’s.  Then oil started dropping again and in May I began to sell those stocks.

oiltweetBy mid-June I was out of all my positions other than RMP Energy.  By July I had reduced RMP Energy down to about a percentage weighting in my portfolio.

So far so good.

Unfortunately I started buying back into the oil names in mid-July, which was too early.  I bought Jones Energy in the mid to high-$7s but sold as it collapsed into the $6’s.  I tried to buy RMP again at $2.20 but got pushed out as it fell to $2.  I bought Baytex and Bellatrix which was just stupid (I sold both at a loss).  I’ve probably given back half of the profits I made on the first oil ramp.

In this last week I made another attempt but I am already questioning its efficacy.  I took small positions in RMP Energy and Jones Energy and a larger position in Granite Oil.  The former two have done poorly, while the latter had an excellent day on Friday that provides some vindication to my recent endeavors.

One thing I will not do with any of these names is dig in if the trend does not turn.  I’ve learned that commodity markets can act wildly when they are not balanced, and the oil market is not balanced yet.  So its really hard to say where the dust settles.

Even as I write this I wonder if I should not have just waited for a clear turn to buy.

These positions are partially hedged in two ways.  First, I shorted XOP against about a quarter of the total value of the positions.  And second by having so much US dollar exposure (still around half my account) as a Canadian investor they act as a bit of a counter-weight to the wild moves I can see from currency changes.

Jones Energy

One of the interesting things happening right now is that natural gas production is flattening, in many basins it’s declining, and yet no one cares.  When natural gas first went to new lows in 2012 many pointed to the declining natural gas rig count, believing prices would quickly bounce back.  They didn’t, in part because of the associated gas coming from all the liquids rich plays.

With the oil collapse much of the drilling in those liquids rich plays is no longer as attractive.  You have to remember that even as oil has fallen, natural gas liquids like propane and butane have fallen even further (ethane, which is the lightest of the liquids, is now worth no more than natural gas).  Many producers that were labeled as oil producers, because they produced liquids, really produced these lighter liquids that are now trading at extremely depressed levels.  Drilling in light-liquids rich basins (the Marcellus but also the Permian and parts of the Eagleford) has declined precipitously, and with it all of the associated gas being produced.

Meanwhile much needed propane export capacity is on the horizon and expected to arrive en-masse in 2016.

Jones Energy has too much debt (around $770 million net) but they also have oil and natural gas that take them out into 2018.  I think they are a survivor.  They have reduced their drilling and completion costs in the Cleveland from $3.8 million to $2.6 million.  They actually increased their rigs in the Cleveland in June, though I have to admit that might be dialed back again with the prices declining.  I bought back into the stock for the third time this year when it was clobbered on what seemed to be pretty good earning results (a beat and guidance raise).  Its a play on oil, but also on falling natural gas production, as natural gas makes up 43% of production and much of the associated liquids are light.

RMP Energy

I think that the miserable performance of this stock is overdone, but I have thought that for some time and down it continues to go.  RMP gets punished over and over again for essentially the same concern – Ante Creek declines.  This latest pummeling seems to have been precipitated by the disclosure that August volumes at Ante Creek were around 8,500 boe/d.   This is a decline from April volumes of 12,200boe/d but similar to end of June volumes.  Below is a chart from Scotia that details Ante Creek production:


The April increase coincided with the new gas plant.  The subsequent fall was because the company drilled no new wells in the second quarter.  That production has stabilized from June to August without any new wells being drilled is encouraging.

But the market sees it differently.

Lost in the shuffle (with nary a mention in any of the reports I read) is that RMP has reduced its drilling and completion costs by 30% and that operating expenses were down from $5.26/boe to $3.89/boe.  Also forgotten is that the company is experiencing positive results at Waskahigan with it new frac design.

RMP trades at about 2x Price/cashflow and has debt of about 1.35x expected 2015 cash flows.  Its not levered like many peers and its not expensive.  These constant concerns about Ante Creek need to be priced in at some point.

Granite Oil

Of the three names I own, this is the one I am going to stick with the longest.  Granite has a $150 million market capitalization and $50 million of debt.  Their asset is a large position in the Alberta Bakken (350,000 net acres).  They can drill 240MBBL wells that are 98% oil for $2.8 million per well.

And they are beginning a gas injection EOR scheme that is showing promising results.  Below is company production as gas injection has increased.

alberta-bakken-eorThe results are well above expectation and show minimal decline even as the number of wells drilled has only increased marginally.

The result is some pretty strong economics even at lower oil prices.


Granite management had been loading up on shares in the $4’s.  I did too.  The company announced earnings on Friday and is probably the only oil company to announce a dividend increase.  Like I said, this will be the last oil position to go for me.

Portfolio Composition

As I’ve said a number of times in the past, I sometimes forget to mimic my actual trades with the online RBC portfolio I track here.  After a while these differences get too out of whack and I have to re-balance.  I did some of that on Friday, and so the transactions on that day are simply me trying to square up position sizes.  I don’t have things quite right though; the cash level of my online portfolio is negative while my actual investment account is about 15% cash.  I looked at why this is and its the contribution of a number of positions that are all slightly larger in the online portfolio than they should be.  I didn’t have time to adjust everything exactly so I’ll just try to reduce this discrepancy naturally over time.

Click here for the last five weeks of trades.