By David N. Baker, Managing Principal, Mercadyne Fund Management LLC
When considering various individual investments (long or short) for your portfolio, one should go hunting, not gathering. Gathering is passively purchasing securities, fairly immediately, when one learns about them (from a friend, magazine article, online research report, brand affinity, etc.); and perhaps even adding to these investments incrementally over a duration of time; or when disposable income allows for further purchases. It is investing based upon a story, thesis or even familiarity (e.g. brand equity-say you love Container Store or Dunkin Donuts). Gathering investments uses only the information overtly in your view. It does not search for or canvass the entire picture. There is no regard for timing, price or valuation in making the investment. It is passive, instant gratification investing. Filling the desire to deploy cash or jump on the band wagon to start marking money. While in theory gathering investments could/can be profitable if duration of holding the investment is for a long enough period of time (e.g. buying FAANG stocks many years ago and for sure before July 2017); it almost certainly requires luck; and the majority of this type of investing results in losing money. Frankly, I think I would rather play Blackjack [arguably with better chances to make money] than to gather my investments. At least Blackjack has a strategy.
Hunting investments is very different. Think of yourself as a hunter or sniper taking single rifle shots, not shot gun shots. You are not trying to hit everything. You are trying to hit a few targets on center. Consider the behavior of your target, distance, speed, momentum, etc.; and of course your ballistics: projectile (round), flight behavior, speed, trajectory, elevation, windage and Coriolis Effect. Investing successfully requires hunting investments. Sniping. Everything matters. Investment considerations include but are not limited to: the type of business; its product/service market,;
TAM (total available market); geopolitical issues (i.e. tariffs); business model (how does the company make money) and competition; regulatory factors; company’s balance sheet and capital structure; and management team (always bet on the jockey not the horse–think Steve Jobs, Jeff Bezos). After all of these factors are assessed, then consider all valuation factors: absolute and relative valuation, now and historically across the public life of the company; operating metrics; and financial ratios. If these check out, now you have your investment in your sights. But don’t pull the trigger yet.
Continue to stalk your investment. Consider other qualitative factors such as the management team’s propensity to conduct active investment community visibility activities (critical for a microcap security), sponsorship in the name increasing/decreasing, insider buying? interest or lack thereof now or later for sell side research coverage. Insure that the company is not going to do a financing in the near future (which will dilute your position and drag the equity down fairly immediately). Continue reading the news for a while. Study the overall markets’ behavior compared to the behavior of the security you are stalking.
Consider measuring correlation coefficient to the indices. Watch the price, volume and price behavior closely. Remember: Volume is the fuel of price. Sentiment is the fuel of volume. Calculate your return-risk profile. Consider all aspects of applicable technical analysis (e.g. exponential moving averages—select your durations, stochastics, Bollinger Bands).
When all of the fundamental, quantitative, qualitative, technical, correlation and return-risk profile. questions and considerations are answered to your satisfaction and comfort and there are no surprises since completing your research and stalking process, take the shot! Invest. Apply hunting not gathering.
For additional information on Mercadyne Fund Management, visit www.mercadyne.com
Mercadyne Funds, LP (“Mercadyne”) is not currently registered in any capacity in the financial services industry, and the information that accompanies this disclosure, as well as any other information provided by Mercadyne, should not to be construed as financial advice, investment advice or a solicitation to buy, sell or hold any particular security. Mercadyne makes no warranty, expressed or implied, as to the accuracy or completeness or fitness for a purpose (investment or otherwise), of the information provided in its publications, including its websites and social media posts, including video, audio or text. The published information has been sourced from publicly available sources, but Mercadyne does not guarantee the accuracy, timeliness, completeness or correct sequencing of the information, and does not warrant any results from use of the information. Readers are encouraged to consult their personal financial adviser before making any decisions to buy, sell or hold any securities mentioned in any materials from Mercadyne. Investing in securities of emerging growth companies or emerging growth economies is highly speculative and carries an extremely high degree of risk. It is possible that all of an investor’s invested capital may be lost or impaired due to the speculative nature of the companies profiled. In addition, Mercadyne’s personnel and/or investment vehicles may have or take long or short investment positions in the companies discussed in the accompanying information (the existence of any such positions will be disclosed when applicable). Mercadyne encourages readers to invest carefully and to read the investor information available at the websites of the Securities and Exchange Commission (“SEC”) at www.sec.gov and/or the Financial Industry Regulatory Authority, Inc. (“FINRA”) at www.finra.org/investors. Mercadyne is not responsible for any error, mistake or shortcoming that may be occasioned at the time of publishing of the information in this publication, any other Mercadyne publication, or its web site(s) and is not obligated to, and undertakes no duty to, update and/or correct any information. No liability is accepted by Mercadyne for any direct, indirect or consequential loss arising from the use of the information that accompanies this disclosure. Mercadyne expressly disclaims any fiduciary responsibility or liability for any consequences, financial or otherwise arising from any reliance placed on the information provided. The information that accompanies this disclosure is subject to change without notice. While the accompanying information may include details relating to Mach 100, LP (the “Fund”), a private investment fund managed by Mercadyne that relies to SEC Rule 506(c) to maintain a “private placement” of its securities, an offer of such securities may be made only by the delivery of the Fund’s Confidential Private Placement Memorandum specifically addressed (either on the cover page or in an electronic mail message) to the intended recipient.