Tag Archives: BSQR

2015 Year in Review

My winning streaks (of both positive returns and beating the averages) came to an end in 2015. I was down 34% in 2015, compared to the S&P 500 which was down around 2%.  Yet I feel better about the risk/reward of my portfolio going forward than I ever have.

I entered 2015 with positions in AA, GTIM, SFM, HABT and YELP, with around 12.5% cash.

My first move of 2015 was to sell YELP in mid January for around a 7% loss. I had just bought YELP near the very end of 2014, but was starting to become nervous about the overall markets and wanted to raise cash, and YELP was my smallest and lowest conviction idea.

2015-yelp1

In mid February I sold my entire position in AA, largely because I thought other ideas had better risk/reward. I made around 35% on AA. I put some of the proceeds into more GTIM and raised my cash position some more as I continued to grow concerned about the overall markets.

2015-aa1

In early May I sold my entire position in SFM. SFM had been a core position for awhile, but by the time I sold I had become convinced that the story had fundamentally changed for the worse. I put some of the proceeds into RAVE, and raised my cash levels yet again.

2015-sfm1

At the end of May I sold my entire position in HABT, and I added another new position, BSQR. Despite adding a few new positions which I thought had attractive risk/reward, I was still worried about the overall markets and so wanted to maintain alot of cash. So that led to my opting to sell HABT. I made around 15% on HABT.

2015-habt1

Near the end of July I sold my entire positions in RAVE and BSQR. I continued to grow concerned about the overall markets and wanted to pare back to my highest conviction ideas. I lost around 7% on BSQR and 4% on RAVE. This also marked the high point for my cash levels on the year at around 40%.

2015-rave1

2015-bsqr1

In August I bought and sold a position in GM-B warrants. Despite my concern about the overall markets I thought the risk/reward warranted a position, but I shortly afterwards had a few ideas I liked better, so I sold. I lost around 5% on the GM-B warrants.

2015-gm1

Near the end of August I established a position in a new stock, NEWM, and in early September I bought an unnamed nano-cap stock. By mid September concern about overall markets caused me to want to pare back to my highest conviction ideas again so I sold both positions. I broke even on NEWM and lost 5% on the unnamed nano-cap.

2015-newm1

At the beginning of October I bought positions in BABA, BIDU, and HABT. Despite my concerns about overall market conditions, I felt the long term prospects of these companies were sound and their sell-offs were overdone. I sold all three positions a few weeks later for 10-20% gains.

2015-baba1

2015-bidu1

2015-habt2

The only stock I never sold was GTIM. In fact I added to it as I was selling my other positions. I added to GTIM in July, August, and November. GTIM is my only current position.

2015-gtim1

2015 was largely about managing the portfolio to weather growing concerns I had about overall market conditions while still trying to find ideas I felt had attractive risk/reward profiles. So I tried a few new positions while selling off others. Ultimately I could not gain enough conviction in those ideas and my market concerns caused me to concentrate in the only idea I did have strong conviction in – GTIM.

Overall I think I had the right idea, but my execution was slightly off. I feel if I had I executed slightly better it would have made a significant impact on my performance for the year. I feel good about closing out the positions I entered the year with when I did. YELP, AA, SFM, and HABT were all significantly lower after I sold them. Likewise I was happy closing out most of my new ideas when I did. In some cases the fundamental stories had deteriorated or were not as strong as I originally thought, and in other cases they were not the types of holdings I wanted going into what I thought would be worsening market conditions. All the positions I sold saved me from significant losses.

GTIM, the one position I held on to, was the major negative contributor to my performance for the year. I maintained my GTIM position, and even added to it, because I felt the long term risk/reward was very attractive. Even at $10, I thought GTIM could still be a 5-10 bagger in the long run, and the downside risk was limited to perhaps 50% at worst. Although I was prepared for GTIM to decline 50%, I wasn’t really expecting it to drop that far, which is partially why I did not sell any at $10. Attempting to avoid a potential 20% decline did not seem worth taking the tax hit. And when GTIM did fall 20% from its high, I only saw downside risk of about another 20%, not an additional 50%. So selling again did not seem worth it for tax reasons. Instead I decided to start adding to my position, as the long term risk/reward had only gotten better.  I saw the worsening technicals but thought fundamentals would win out. If I had it to do over, I would have paid more heed to the technicals. I probably still would have started adding too early, but I would have added more shares around the $4 level when GTIM had started to base.

Besides making my average cost on GTIM more attractive, another benefit would have been having more cash available for the few trades I did have strong conviction – my purchases of BABA, BIDU and HABT in October. Not only could I have made those positions larger, but with larger positions I might have held at least a portion of them longer into their rallies, both of which would have significantly improved my performance for the year.

As it stands, I was down 34% for 2015, compared to the S&P 500 which was down about 2%. The main lesson I take from 2015 is respecting technicals, no matter my level of fundamental conviction in an idea. Had I done that my performance for the year would have been much closer to the S&P 500, and my upside would be that much greater.

As I stated at the beginning of this post, I feel as good about the risk/reward of my portfolio as I ever have, and am comfortable holding just GTIM going into 2016. I will review my current thinking on GTIM and what else I have on my radar in another post.

portfolio changes

I sold BSQR and RAVE this week. Concern about the overall markets, some stocks on my radar starting to look interesting, and company specific issues  combined to cause me to decide to sell.

I know I have been expressing my concern about the overall markets for awhile. However market leadership seems to have narrowed considerably of late, while various metrics such as market cap to gdp ratio and margin debt have continued further into concerning territory. At such times I like to pare back to my strongest conviction ideas and maintain a larger cash cushion. At the same time some stocks on my radar are starting to look interesting, so I wanted to have more cash ready to deploy in an instant.

I didn’t like the way BSQR was acting so I did some more research to see if I could understand the story a little better. One of the main potential catalysts I thought existed for BSQR was growth of their proprietary software sales. Proprietary software is their highest margin division by far, and last quarter saw a huge jump up in those sales. Management cautioned that proprietary software sales were lumpy and should not be extrapolated to the full year, however I thought it could still signify the beginning of an important trend. Only upon reading the 10q however did I discover that the jump in proprietary software sales was due mainly to unexpectedly large sales of legacy product in the quarter. In other words, it was not due to increased sales of their newer products, and so I felt it was way less likely to be the beginning of a sustainable trend. BSQR was already my lowest conviction idea, and since it was near my mental stop limit I decided to sell and cut my losses short on this one, at around 7%.

BSQR was my smallest position and I wanted to raise more cash so I took a harder look at RAVE. While I still think RAVE is attractive, I ultimately felt GTIM was clearly the better longer term play. RAVE’s sales per square foot on its two concepts, Pizza Inn and Pie Five are considerably less than those on GTIM’s two concepts, Good Times and Bad Daddy’s. I also felt GTIM was more attractively valued after figuring in their recent acquisition of entire ownership of Bad Daddy’s and the North Carolina locations, which will be partially reflected in GTIM’s results starting with the upcoming June quarter earnings report.  I ended up losing around 4% on RAVE.

I added a little GTIM under $8 but most of the cash I raised from the sale of BSQR and RAVE remains, so I am now at around 40% cash.

New Position

This week I established a new long position in BSquare (BSQR). I want to say right up front that this one is outside my sphere of competence. However I will go over why I decided to establish the position anyways.

BSquare describes itself as a provider of smart, connected, systems software solutions. They do some interesting stuff, for example it says they are the lead systems integrator for those Coca Cola Freestyle machines (the ones where you can create your own custom flavors). Like I said, I’m no expert in this field, so it is best if you just check out their latest investor presentation on their investor relations page.

So why did I establish a position when I felt it was out of my sphere of competence? I felt BSQR had the ‘low risk, high uncertainty’ kind of profile I like to invest in. BSQR is a micro-cap stock with a roughly $80 million market cap. BSQR has roughly $27 million in cash and short term investments, and no debt, so a very strong balance sheet. BSQR has also been profitable on a cash basis the past several years. So all that is why I felt BSQR was relatively low risk.

Now how about the high uncertainty part? BSQR has been working on a new product offering for the internet of things called DataV. Management has been pretty tight lipped about it, not providing much info on revenue potential. However they have said that 1) they expect to start recording revenue from it later in 2015, 2) it has initially been gaining attention among manufacturers and operators of mission critical industrial equipment, and 3) it is a scalable product, which they are exploring offering on either a sale and support basis or on a software as a service basis. The Internet of Things (IoT) has been much hyped by many companies of late. As I said, I have no clue how well BSQR’s offering will compare to everyone else’s. It could fail completely or if it gained traction the potential could be huge. With BSQR’s tiny market cap even modest progress could have a meaningful impact on the share price. So this is why I believe BSQR has high uncertainty.

Although I am unqualified to evaluate BSQR’s products, I do think I see some indications of positive momentum. As I mentioned, BSQR has already been working with some high profile customers, such as Coca Cola. BSQR mentioned a new ‘global 100 customer’. Partly due to this new customer BSQR projected margins in their services segment to increase in the second half of the year. BSQR’s profitability in Q1 reached a high for the past several quarters, and BSQR has said in its filings that Q1 is usually the seasonally weakest. Insiders have been buying shares recently, as high as around $4.80.

So overall I figured I could hold BSQR for 6-12 months, and if their IoT initiative doesn’t gain any traction then maybe I lose $2, whereas if it does the upside could be 10x that. Low risk, high uncertainty.

This is the same reasoning behind my other micro-cap investments, GTIM and RAVE. Tiny market caps with strong balance sheets and at least around break-even profitability meant low risk. New concepts/products in a huge market meant high uncertainty. BSQR also shared the qualities of low analyst coverage, low institutional ownership, low number of shares outstanding that GTIM and RAVE have.

I established a half position this week and would add the other half if BSQR drifted back down to the $5 range.