Trimming The Hedges

I’m very pleased with how the past week played out. My favorite stocks are down, but that only makes me like them more. Meanwhile, my shorts and hedges were also down (profitable for me).

With the big move (very apparent on the charts), it made sense to cut a lot of shorts and hedges out of the portfolio. I have NOT covered all of my shorts / hedges yet. One step at a time. Also, I did NOT use the cash from those moves to buy new stocks (or the ones I already have). Again, one step at a time. We’ll see if the dust has settled over the coming days before making another move. As it is, I’m now about 25% net long (up from zero a few days ago).

Just an FYI. I don’t feel comfortable saying more than that.

Other than that, I’ve enjoyed seeing CY, INTC, and LITE post good results. That should be good news for AEHR.

That’s all for now. Cheers!

Disclosure: I am long AEHR. I don’t encourage or recommend for anyone to hold this  or any other stock I own, since I may exit the entire position at any time without notice.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article.

The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.  I am not a financial advisor.  Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein.  Similarly, the disclosure above may state that I am long or short shares of the companies mentioned herein, but should not be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. That disclosure is true as of the time the article is placed in queue for publication, but it is possible (or even likely) that I might be buying and/or selling the stocks mentioned herein immediately thereafter or at any other time, regardless of (and possibly contrary to) the content of this article or this website’s timing of its release.  The disclosure will not be updated following submission of the article and may be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are.  I wrote this article myself and I receive no compensation for writing it.  All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

Long-time readers should note some significant changes in how I communicate in the public domain. The sole purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses. Accordingly, this document should not be construed as an endorsement of the companies or securities discussed herein. The disclosure below is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.

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30 thoughts on “Trimming The Hedges

  1. Mark,
    I’m one of the appreciative recipients of your gracious give back.

    5 yrs ago, the only thing I understood about stocks was put money in the 401 and watch it disappear, wait yrs to come back than happen all over again. I’m assuming like most of the financial illiterate participants.

    An unfortunate freak accident left me paralyzed at 55. Not being able to work or receive any assistance, I decided to learn about smarter Investing of what was left of my savings.

    I found Seeking alpha, mustered up some confidence to invest only to get caught up in some pump and dumps.
    Then I found you and GLUU. I finally started making money. Enough to justify a subscription. I didn’t know anything about your methodology so I didn’t know about proportion sizing. It was my theory to buy 10k shares of a stock @ $3 vs 300 shares @ $100. It was working for me until GT. I lost $60k. Everything I had gained plus some. The most important lesson I learned was to listen to your gut. I drove past GT’s factory in Mesa once a week. Nothing was ever happening. But I trusted the anulists.

    Slowly I’m learning.
    I’m sorry to admit that I don’t understand hedging and shorting. I know it’s an important strategy but I can’t afford to make anymore mistakes.

    The plunge in the market recently started a scary/sick feeling in my soul. I found myself searching the net for any reassuring words from you. And hoping not “red alert!! run for the hills.”
    I confess, I felt such comfort when your text showed up on my phone today. I fear for the day when you decide giving back is overrated.

    It’s with my deepest gratitude that I thank you for offering your wisdom to everyone.
    And shame on those who hold you accountable for their own mistakes.
    My heart hurts for you, for enduring all of this negativity and the judicial system

    Crystal

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    1. Crystal,

      I am overcome. Over the years, I have been blessed by the encouragement of strangers. However, I cannot recall reading words that left me with such a strong sense of another’s strength of courage and perseverance. Your story is an indescribable inspiration.

      The world teaches hard lessons. To be alive is an unmatched gift. Yet, being human among seven billion others presents equally unmatchable paradoxes.

      The seven deadly sins serve as a constant reminder of why none of us live forever. There is unspeakable greed and avarice in this world, born of the simple instinct to survive. It compels us to innocently gather rations, like squirrels before the frost. But that life-saving instinct often warps into something insidious — greed.

      Some cannot gather enough. Some stop at nothing to gather more.

      For that reason, it is too easy for even the most reverent of us to succumb to sinful ways. This is exacerbated by the uncanny existence of confirmation bias, which can make us believe virtually anything about ourselves, others, and/or the world around us. The cocktail can drunken even the most lucid minds to see good where there is evil and evil where there is good. It can also cause well-meaning people to be evil and somehow believe they are doing good.

      So, we as a society, protect and police ourselves. We make the mistake of believing that regulation and mistrust can cure a force of nature. I have learned that it cannot. I have felt both, the tug of greed and the sting of injustice. I know, if I am human, I must police myself carefully. I must mistrust myself, because there is no complete cure for confirmation bias.

      We are on Shutter Island, experiencing an inception in the matrix.

      Somehow, the past years’ storm set me down gently, leaving me grateful and humbled. However, I also now realize that caution is a prerequisite to charity, lest we risk the security of our futures… and more importantly, that of our loved ones.

      So, I beg your forgiveness if I cannot quite give with the unfettered courage you exude, not the brashness I once did. But hopefully the annoyance of my caution doesn’t drown out what I intend — to assist. As much as I can give back (without any risk of seeming tainted by ulterior motives), I will.

      With the inspiration of kind people like you, I don’t see how anyone could do otherwise.

      I thank and wish you well,

      Mark G.

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  2. Well I can’t top that, but I do have a boring question. I have been looking into AEHR lately and one thing I noticed was a continuous stream of insider selling of shares over the past several months and actually going back several years, although I don’t worry too much about old sales. That said, there may be a logical reason that I just haven’t found as of yet (selling to pay taxes on stock grants, etc.). Do you happen to know? If not, I will keep looking. Thanks.

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    1. Funny you should mention that, because I actually did an EXTENSIVE analysis of this a couple months ago and released the results via my Seeking Alpha blog. However, when my partnership with SA was severed, I pulled all but two of my blog posts from their site.

      In short, while there are many insider transactions, the actually dollar amount of selling is minor. I investigated the reasons on a seller-by-seller basis and came away unconcerned. For the most part, none of these guys are rich, have the vast majority of their wealth in AEHR, and feel the need to diversify their risk.

      I subsequently bought a large position and haven’t sold a share since (disclaimer: I might choose to sell every share immediately after posting this). The selling is annoying (especially Hendrickson, who will probably keep selling 5,000 shares every two weeks, but I honestly believe (as evidenced by my purchase) that it’s no reflection on the company and has even less bearing on AEHR’s true value. As always, I believe that the appropriate valuation will manifest itself in due course.

      Hope that helps. Cheers.

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      1. Yes that helps and I can understand that actually. If you are not rich already and you depend on a company’s continued success for your salary/bonus and at the same time have a chunk of your wealth tied up in that company’s stock, that is a lot of eggs in one basket. I would sell too (and have many times) in that same situation. No company’s stock is safe. Ask the many AIG employees who held stock awards for years only to see it evaporate in 2008. To this day it’s worth maybe 6% of what it was earlier that year.

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        1. Yep. I concur. If AEHR is everything it appears to be, they’ll be kicking themselves later, but it really is smart to secure your family’s future first and THEN swing for the fences.

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      2. They might be kicking themselves. In my case, 2 of the 2 companies I worked for that gave me stock awards, it turned out to be the right decision to sell my shares.

        Full disclosure: I opened small position today in AEHR @2.40 per share. I feel like I got a really good price and may add more as I continue to look at it.

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  3. Mark – any theory on the recent decline in the 2 small companies you seem to like lately Smsi and Aehr? Both are under followed and under loved – typical for a micro and nano cap and technically look horrible. I love these little turn around but surprised they are a source of funds in this sell off.

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    1. Randy, you answered your own question!

      As far as being a source of funds in the selloff, it is most common for under followed small caps to get hit. Stocks that are well followed are followed by professionals, who only get excited when the price goes lower. Individual investors don’t have that level of knowledge and therefore lack the confidence to hold (or buy more).

      Personally, I’m waiting to see capitulation before jumping in to buy more. If people want to sell and panic, I’m going to let them do it until all the week hands are shaken out. No sense in paying more than I have to (no matter how attractive they look!).

      Cheers

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  4. Hello Mark,

    I wonder who is selling all the shares as of late? Would be interesting to know if they are some of the players in the last secondary? They would be taking a steep haircut if that were the case. Personally, I like AEHR better than SMSI mainly because I see it as a safer investment due their cash on hand and they appear to be on track to at least break even or post a profit for the next several quarters. I’ve also noticed from their conference calls that they have used some of the money they raised to build up inventory. I believe they’ve also hired an additional director of sales and operations director so they must have verified the need for filling these positions .

    Lastly, given the recent fear driven by the markets, I’m thinking that the market will price AEHR price at 1 X earnings so we may have a bit more of a sell off to go if they don’t announce any meaningful orders soon. I have not placed a huge investment on AEHR as of yet so I have lots of dry powder:-)

    Liked by 1 person

  5. Just filed today, this is adding insult to injury:
    http://archive.fast-edgar.com//20180207/AU2ZI22CZ2229222222O2232GWSDZD222NA2/

    On a positive note, the major players with the company already have a lot of shares. They seem to either not care or don’t realize that a thinly traded stock like this can be punished severely when they sell their shares, regardless if they are part of a planned program. I imagine those who participated in the secondary just below $4 back last April are not pleased with the insider trades. The secondary participants could be voting with their pocketbook despite incurring heavy losses.

    You could get your capitulation price soon based upon these actions by insiders….

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  6. All kinds of HMNY news, rumors, etc. swirling around the past few days including rumors of a confidential filing for IPO, upcoming road shows, possible deals with Amazon, Netflix, and others. Hard to keep up with anything else if you try to follow this one.

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    1. That’s part of the reason why I backed away from tight coverage. I know what they are trying to do and monitoring the progress with the normal eye… not a microscope or a telescope.

      Personally, I didn’t think Mitch’s interview was incrementally bullish. I’ll try to write a post on many things soon. Been a busy boy this week!

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    2. Never heard of a “confidential” filing for an IPO, ALL filings with SEC are open for public view, one can have side conversations with potential investors on a “hypothetical” basis if that’s what you mean

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      1. Yes, that I’m aware, can’t sell shares in a NEW (private) co. without having a roadshow and telling the story to potential institutional investors, however, roadshows are private in the sense that joe citizen isn’t invited, but I don’t think that pertains to a secondary offering as at that point everything relevant to the co. is legally supposed to be public. Anyhow kind of moot now..thx

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  7. Reading the comments about AEHR – I think AEHR is getting hit with the sector right now. Unfortunate b/c they got hit before and longer than the big guys so its getting a bit ridiculous, but looking at larger players like Lam or AMAT or even mid-players like ICHR or UCTT its pretty ugly. All these guys are kinda tied to one another. AEHR actually might not be if you believe Erickson and how they are so new they are outside the cycle, but the market probably doesnt care about that in the short term. Maybe the best news for AEHR right now is that AMAT and LRCX put in reversals today.

    Liked by 1 person

    1. Agreed. Plus, look at last year’s chart. It bottomed right around this time (coincident with their slowest period of the year for orders AND Erickson’s regularly scheduled 10b5-1 based stock sale). It freaks people out, but last Feb was the same deal and turned out to be a great buying opportunity. We shall see… 😉

      Liked by 1 person

  8. Regarding AEHR insider sales, if you look at the latest DEF 14A, as a group they own over 20% of the shares outstanding. Hard to find many companies with more insider ownership than that so any minor sales of shares doesn’t worry me, yet anyhow. The cash level is very good thanks to the secondary offering. Looking at my list of concerns below, maybe I shouldn’t own it, but I decided to give it another go recently with a pretty good sized position.

    1. 2 years ago, the salvation was going to be 3D NAND devices from Micron or Intel, etc.
    2. 1 year ago, the salvation was going to be automotive devices.
    3. 6 months ago, it was going to be Apple’s new iPhone X
    4. Now it’s going to be silicon photonics. At some point, we need to ask ourselves the XP is still a solution looking for a problem to solve. Hopefully, real demand will surface soon.
    5. Seems like ASPs have been dropping on recent XP orders.
    6. AEHR may not have enough engineering resources to satisfy the major companies that they need to sell product to.
    7. The ABTS burn-in boxes will have a low profit margin even if the volume is high. This could impact our hopes for big profits on revenues over the breakeven level of $28M
    8. The QVT convertible bonds have a conversion price of $2.30 per share with a due date of April 2019. Unless the share price recovers, or the debt is modified, AEHR will have to use a fair amount of their cash stash ($0.75 per share?) to pay off that debt.

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    1. For the bond you mention:

      The QVT convertible bonds have a conversion price of $2.30 per share with a due date of April 2019.

      Is their a CUSIP or specific name of issuer so I can look up on FINRA? Thx

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      1. A private issue with QVT. From the last 10Q:

        13. LONG-TERM DEBT

        On April 10, 2015, the Company entered into a Convertible Note Purchase and Credit Facility Agreement (the “Purchase Agreement”) with QVT Fund LP and Quintessence Fund L.P. (the “Purchasers”) providing for (a) the Company’s sale to the Purchasers of $4,110,000 in aggregate principal amount of 9.0% Convertible Secured Notes due 2017 (the “Convertible Notes”) and (b) a secured revolving loan facility (the “Credit Facility”) in an aggregate principal amount of up to $2,000,000. On August 22, 2016 the Purchase Agreement was amended to extend the maturity date of the Convertible Notes to April 10, 2019, decrease the conversion price from $2.65 per share to $2.30 per share, decrease the forced conversion price from $7.50 per share to $6.51 per share, and allow for additional equity awards.

        The Convertible Notes bear interest at an annual rate of 9.0% and will mature on April 10, 2019 unless repurchased or converted prior to that date. Interest is payable quarterly on March 1, June 1, September 1 and December 1 of each year. Debt issuance costs of $356,000, which were accreted over the term of the original loan using the effective interest rate method, were offset against the loan balance.

        The conversion price for the Convertible Notes is $2.30 per share and is subject to adjustment upon the occurrence of certain specified events. Holders may convert all or any part of the principal amount of their Convertible Notes in integrals of $10,000 at any time prior to the maturity date. Upon conversion, the Company will deliver shares of its common stock to the holder of Convertible Notes electing such conversion. The Company may not redeem the Convertible Notes prior to maturity.

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  9. Mark,

    I went looking for your write up on MRIN, and I didn’t find it. Would it be possible to post it on WordPress? I guess that is if you still think the same way you did when your wrote it….I purchased shares on 11/15/17 due to your write up and then sold them for a profit later. Looking at the chart it has made a short term low again and was going to revisit your write up and due some more digging to see if these prices warrant another position.

    Thank you for what you do!

    Like

    1. Wedge, as you may have noticed, many last articles were permanently removed as part of my separation from Seeking Alpha. I don’t believe I still have the original file, but I’ll look for it. Thanks for the kudos. Cheers.

      Like

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