When should you sell a share?

Buying a share is easy, perhaps too easy, but when should you sell a share?

Well, renowned investor Philip Fisher explained all about this in his book Common Stocks and Uncommon Profits. His focus on the qualitative aspects of value investing was a big influence on Warren Buffett and this book deserves a place on the bookshelf of every investor.

I’ve recently written an article for Reader’s Digest that explains when you should sell a share, drawing on the ageless wisdom of Philip Fisher. Enjoy!

Expect massive re-rate of Seeing Machines by year end

Seeing Machines put out a positive year-end trading update today, without actually providing news of auto contract wins.

Fortunately, they are set to pile up over the next 6 months, with the company admitting it is bidding for a A$900m pipeline from numerous car manufacturers with 16 Tier 1s.

My view is that Seeing Machines, which has been working with the likes of Toyota and VW for years is set to take at least 75% of that pipeline. Indeed, one source (from outside the company) has already told me that A$750m is the figure I should have in mind, which would equate to over 80%. Another source (again outside the company) has recently validated my long-term bullish view on the companyā€™s prospects in auto.

Of course, that pipeline will also grow as OEMs scale up initial contracts further. Indeed, the fact that Seeing Machines tech is now so much in demand must be the reason so many Tier 1s are now scrambling to work with it. They, unlike most investors, have seen the writing on the wall and its reads: ā€˜Seeing Machines DMS rules ok!ā€™

That of course brings in the whole question of who is going to bid for the company and when?

With a A$1bn+ order book in auto set to become a reality in the present financial year, Iā€™m sure informal approaches are becoming more regular.Ā 

But Seeing Machines is traditional and I have a feeling any match will be an arranged one. One that will need the approval of the whole family of shareholders.

However, Seeing Machines neednā€™t be in any rush as its value should be considered in pounds not pence. Iā€™ve earmarked the end of calendar year 2022 as the most likely date by which weā€™ll have some M&A action. By then it will be clear that:

  1. Iā€™m not making this stuff up.
  2. Aviation is another cash cow
  3. VR headsets/mobile phones is a likely growth area for its tech. For instance, its technology seems perfect for the next iteration of the Microsoft Hololens, which only has rudimentary eye-tracking.

The exact timing of any offer depends, of course, on contract announcements and broker upgrades as companies generally prefer de-risked investments. Still, by the end of this year I expect Seeing Machines’ auto division to be almost totally de-risked.

At this point, I want to put in a plea for Seeing Machines to engage Morgan Stanley as a broker and to ensure Adam Jonas is the analyst covering it. It is a plea Iā€™ve made directly to the company in the past and now is certainly the time to consider it seriously.Ā 

SEE is a global leader in one of the hottest areas in tech. Waymo brags about full autonomy but in scale that is decades away. Long before then Seeing Machines tech is going to be in hundreds of millions of cars.

It therefore needs huge coverage in the US, where they naturally think big and fully value a successful global tech company. Who better than Adam Jonas to serve SEE up to the investment world?

Price

Speculating on price is a mugā€™s game. But then Iā€™ve been labelled a mug multiple times for holding SEE for so many years. So here goes:

Personally, I think Ā£1 is achievable in the next 12 months, provided:

  • VW/Toyota contracts are announced before the end of 2021
  • Someone admits weā€™re in Honda, courtesy of GM
  • Qualcomm reveal more about our wins together in auto
  • Volvo win is announced (Okay, I just put that in because I crave validation)
  • We get at least one firm aviation licence deal
  • We get Morgan Stanley (more importantly, Adam Jonas) on board

It could be a lot more by this time next year, if:

We get confirmation that our tech is being factory fitted to trucks

We get confirmation that Microsoft is putting our tech into the HoloLens headset

We get confirmation that Apple/Tesla is using us

An aviation license deal provides significant up front payments

If a bidding war were then to kick off, well it could even stretch to an Ayrton Senna. However, Iā€™m sure a certain chip manufacturer or some Private Equity firm laden with dry powder wonā€™t want a bidding war.

Soon, the institutional holders will have to decide: do they want a pound in the hand or a tenner in the bush?

The writer holds stock in Seeing Machines.

SEE: when will you deliver for investors?

Iā€™ve tried being subtle, not that it suits me. Still the question now needs to be asked, when will Seeing Machines start delivering, instead of taking from its investors?

Iā€™m concerned that the management of Seeing Machines has long forgotten that it runs the company not for itself but for its investors. This was brought home to me by a quick look at the latest Annual Report.

A case in point is the huge payment that Ex-CEO Ken Kroeger received last year: A$654K (Ā£347K), revealed on page 47. Thatā€™s great pay considering the share price plummeted 75%. Admittedly, AIM CEOs are well known for paying themselves well regardless of performance, but (as a shareholder) I find this instance especially outrageous.

Nor does it end there, as staff recently received huge share bonuses for work over the same period. Clearly, management arenā€™t sharing the pain with us long-term investors.

Iā€™d hoped that new CEO Paul McGlone would chart a new path but I donā€™t see it yet. Here areĀ 3Ā issues I personally have:

  • There still seems to be no discernible PR strategy in place. For example, SEE has a fancy US PR firm that donā€™t seem able to generate mass coverage for what is an easy sell to editors; car tech that saves lives. As a case in point, when I tried to get some simple answers to some obvious questions about their RNS on Alaska Airlines recently they failed to deliver. Am I being singled out for special treatment or are all journalists treated so poorly?
  • Lack of transparency for shares awards to the CEO; why have no targets been set and communicated via RNS? This is how SEE do it. This is how another AIM company, Parity did it. Take a look at page 17 ofĀ Seeing Machines’ annual report to learn about a remuneration policy with no policy.
  • Lack of disclosure re. relationships with partners. For example, what is going on with Mix Telematics and why arenā€™t we being told? Itā€™s been years since a contract was signed and we still have yet to see it bear any fruit. Hiding behind NDAs just looks weak.

I hope next week at the Capital Markets Day the management under new CEO Paul McGlone will adjust course and address longstanding investor concerns about the lack of transparency and poor news flow. After all, investing should work for the many, not the few.

This isn’t meant to knock the staff of Seeing Machines or its technology. I have the highest respect for the brilliant technology coming out of this company and the dedication of the majority of its staff to delivering life-saving technology to the masses. I just want more transparency and better execution from management.

The writer holds stock in Seeing Machines.

Takeover endgame in progress for Seeing Machines

Ā 

Iā€™ve been following the LSE board and Iā€™d like to confirm that Iā€™m as disappointed by the share price fall in Seeing Machines as any other long term holder. Iā€™ve not sold out and would have expected the share price to be much higher by now.

Still, the good news is that I still believe SEE is the worldā€™s best DMS supplier and will be snapped up very soon. Let me explain 5 reasons why:

1) The actions of the company. It doesnā€™t appear to have made any reasonable effort to mitigate the share price fall. Why would any management allow such a fall when it would have been easy to release positive news on contracts/prospects for the coming year?

2) Canaccord Genuity hasnā€™t released a broker note since January and then kept on reiterating 21p as its target price. However, in July it removed these reiterations. I wonder ā€œWhy?ā€. Ā By any logic a detailed note is overdue (and I hope it wonā€™t be released to merely rubber stamp a low-ball takeover price). Anything below 30p would Ā be criminal in my personal view.

3) Silence from management. Iā€™ve previously found that when the company goes silent on me it is for a good reason. It could be a fundraise but I think the recent bonus to the founders/staff is more likely a golden pat on the back before it is sold. Moreover, if a fundraise was being planned Iā€™d have expected a raft of positive news.

4) I can think of at least 2 Tier 1s that absolutely need Seeing Machines Fovio technology for their businesses. Sources have also previously stated that chip companies will bid for SEE on any move.

5) There have been rumours of share price manipulation by market makers to force the price down. I donā€™t know the truth of this but AIM is the Wild West of investing, so Iā€™d expect that there is no smoke without fire. Of course selling by Miton wonā€™t have helped. Still, there must have been buying by others so Iā€™d urge Seeing Machines to update its list of top 10 investors on its website.

Would Seeing Machines care to comment on this ā€œpress speculationā€? If not, I think that might be a deafening silence under the present circumstances.

The writer holds Seeing Machines stock.

Understanding management priorities on price

Iā€™ve been wrestling with the issue of divergent interests between management and shareholders of a public company. How can the stock price of a great business be very undervalued and management be unconcerned? (Successive fundraisings that dilute long term holders are a sign of that, for example).

I didnā€™t have the smarts to work it out but fortunately I know a man who does. Benjamin Graham, the father of value investing, worked this out 50 years ago in his book ā€œThe Intelligent Investorā€.

Iā€™ll quote him at length below, where he cuts the Gordian knot:

Benjamin Graham

ā€œWhy is it that insiders may have no interest of their own in following policies designed to provide an adequate dividend return and an adequate average market price? It is strange how little this point is understood. Insiders do not depend on dividends and market quotations to establish the practical value of their holdings. The value to them is measured by what they can do with the business when and if they want to do it. If they need a higher dividend to establish this value, they can raise the dividend. If the value is to be established by selling the business to some other company, or by recapitalising it, or by withdrawing unneeded cash assets, or by dissolving it as a holding concern, they can do any of these things at a time appropriate to themselves.

ā€œInsiders never suffer loss from an unduly low market price which it is in their power to correct. If by any chance they should want to sell, they can and will always correct the situation first. In the meantime they may benefit from the opportunity to acquire more shares at a bargain level, or to pay gift (and prospective estate) taxes on a small valuation, or to save heavy surtaxes on larger dividend payments, which for them (sic)Ā would mean only transferring money from one place where they control it into another.ā€

A global stock market crash is coming

Those of you tempted to believe that this weekā€™s ā€˜Black Mondayā€™ was an aberration should note that a huge, global stock market crash is likely to be with us pretty soon.

China is exporting a tidal wave ofĀ deflation to the US (an economy already in trouble) and as it hits things are going to get very bad indeed.

Forget the market soothsayers employed to talk up the prospects of the stock markets. Their analysis is wanting, their predictive powers non-existent.

Youā€™d be better off following the analysis of the three menĀ below. Compared to the vast majority of commentators they are market oracles. The message they have to impart is sobering.

Professor Steve Keen

No less a figure than economist Professor Steve Keen, who predicted the 2008-09 Great Recession, explained in an interview last year that the US was headed for a long period of stagnation. It is due to the build up of private debt (among both corporates and the general public).

Economies across the globe haveĀ been fuelled by the growth of private debt and,Ā given the already high levels of debt,Ā further growth cannot beĀ sustained for very long. That is why the ‘recoveries’ in the US and UK are below trend and stop start.

Because of this reducing private debt not public debt is the issue that should be concentrating the minds of our politicians and economists. Hence QE for the people, which reduces this burden makes a lot more sense than QE for the banks.

Until now, all QE for the banks has done is:

  • encourage banksĀ to continue speculating with cheap money from tax payers
  • created asset bubbles in areas such as property, stock marketsĀ andĀ bonds whereĀ this money has been invested
  • encouraged ordinary investors to take on excessive risks in order to get decent returns
  • blinded the public to the way they are being fleeced by the political-financial elite that rule over us and finance this Ponzi scheme.

It is a pity that until the arrival of Jeremy Corbyn the Labour Party leadership failed to explain that the bank-bail out was the real reason the UK public debt ballooned.Ā 

In any case, austerity in the present economic climate is madness, the wrong medicine at the wrong time.

Mitch Feierstein

Mitch Fierstein is the author of Planet Ponzi and a hedge fund manager. He knows the system from the inside out and is one of the sharpest commentators on the manipulation at the heart of our financial system. At the very least you should follow his twitter feed. The insights fly out of him like sparks from a Catherine Wheel.

Often only when going over his comments in detail do you become aware of the really deep knowledge he is imparting. For example, the most recent revision to US second quarter GDP, indicates that the US economy is doing fine growing fine with an annualised rate of growth of 3.7% revised up from 2.3%.

However, as Feierstein pointed out in a tweet yesterday (August 27th) US Gross Domestic Income (GDI) increased at an annual rate of just 0.6%.

This is what Shadowstats had to say on the matter in a note published yesterday: ā€œNot only was that revision unbelievable, it also ran counter to the indication of stagnant economic activity seen in the initial estimate of second-quarter 2015 Gross Domestic Income (GDI), the theoretical and a practical equivalent to the GDP. The pattern of GDI stagnation for first-half 2015ā€”not the faux surge in second-quarter GDPā€”is consistent with better quality monthly reporting seen in series such as industrial production and real retail sales.ā€

Albert Edwards

Heā€™s been labelled a ā€˜bearā€™ by many bulls. Yet he accurately predicted that Chinese devaluation was coming months ago and that it would lead to a tidal wave of deflation heading West.

When it hits the US, it wonā€™t be pretty. Forget cheaper gasoline prices and commodities. They arenā€™t much use when youā€™re out of a job because your economy has gone back into recession.

Okay, the US wonā€™t raise interest rates. When it becomes clear that it is falling back into recession, QE4 may be unleashed. However, more bank bailouts (which is what QE is all about) wonā€™t save the US economy from turning Japanese and stagnating.

This week, in a note published on August 27th, Edwards explained: ā€œDespite deflation fears washing westward and US implied inflation expectations diving to levels not seen since the 2008 Great Recession, there remains a touching faith that the US is resilient enough to withstand further renminbi devaluation. And if it isnā€™t, why worry anyway, because QE4 will be around the corner. But let me be as clear as I can: the US authorities CANNOT eliminate the business cycle, however many QE helicopters they send up. The idea that developed economies will decouple from emerging market turmoil is as ridiculous as was the reverse in the first half of 2008. Remember Emerging Market and commodities had then de-coupled from the wests woes until they too also crashed. ā€œ

He also stated that we are already in a bear market. ā€œWhile equities rebound investors are hoping things are quickly returning to normal. One of the many lessons from equity investing during Japanā€™s Lost Decade is that in a secular bear market hope is a killer. In a secular bear market hope should only be flirted with briefly during cyclical upturns, but it must be ruthlessly rejected as the cycle turns. In a secular bear market being wedded to hope destroys portfolios as the bear slashes to ribbons the hard-fought gains of the previous bull market. Gains that have taken years to accumulate are gone in months. One key measure we monitor informs us conclusively: we are now in a bear market.ā€

Time to be fearful

When men as smart as the 3 oracles above tell you that things are turning nasty it is time to listen. Far from being greedy it is now time to be fearful.

Certainly, it is time to take profits/hedge your winnings. Avoid leverage and take all money you need for the short term out of the market.

Even in a bearish environment physical gold and silver should do well and probably selective, innovative, small caps.

P.S. Please BBC put on a show like RTā€™s The Keiser Report and interview these 3 people. Their deep knowledge is desperately needed by a mainstream audience fed incoherent nonsense until now.