Was I Wrong About Marin?

As always, be sure to read my disclosures / disclaimers below!

 

As usual, this will be a recap AND a lesson in proper investing. Let’s jump right in…

First, I’d like to thank those of you who expressed support for my research efforts on Friday. It’s much nicer to have a few thousand people who understand my method versus tens of thousands who don’t. I actually try to push the latter group away, because they are liable to get hurt by misusing my work (poor position sizing, panic buying, panic selling, etc).

That’s the segue for me to be clear about one thing — in an era of charts and day trading, I’m not someone to follow if you want to make “fast money”.

I’m more of a Warren Buffett disciple whose first idol was Peter Lynch.

Mom and pop investors love the allure of trading, but making millions is NOT about fast money. That’s NOT my opinion or idea. I LEARNED that lesson from the richest people alive. If you don’t believe me, just check it out for yourself.

Stocks are funny, because publicly-traded businesses are bigger than houses, but we don’t see homes traded like comic books on eBay. But stocks pretty much are… and that creates a disconnect in perception.

Mom and pop investors understand pictures (charts) better than they understand businesses, so instead of learning about business (which is what made Warren Buffett the richest man alive), they get into day trading (which has yet to produce a single billionaire that I could find — and there are over 2,000 billionaires in the world!).

Yes, there are billionaire “traders” (like Icahn, Soros, and Cohen… whose companies were clients of mine at different points of my career). However, they are NOT day traders (or even what I would consider “traders”). They’re doing something closer to what I do… which would be better dubbed “opportunistic investing”.

We are something in between Buffett and traders. We tend to have multi-month to multi-year time horizons and base our decisions by comparing fundamental value to stock price. When we see a big gap between value and price, we buy, then wait for the valuation gap to close, then close our position and move on.

It doesn’t always work out. Sometimes the valuation gap closes via a decrease in fundamental value. Either way, if the gap between value and stock price closes, it’s time to move on.

That is NOT what just happened to Marin Software.

Based on the after-hours action I witnessed, there were a lot of traders looking for a quick buck. It took me 10 hours (until 2AM) to complete my initial assessment on the quarter. There’s no human on Earth that could do it in 10 minutes (partly because the stock dropped on relatively low volume before the earnings call even started).

For some, that drop created the perception that MRIN has somehow “failed”.

Well, if you know anything about business, you know that a newly-released enterprise software product doesn’t start selling like hotcakes in days or weeks. The sales cycles in enterprise software are measured in quarters.

I didn’t buy Marin Software (MRIN) because the chart looked good. Nor did I buy it because I expected a good quarter (which they delivered). I bought Marin because its stock value (its enterprise value is currently $15 million) is among the lowest I’ve ever seen for a company with its fundamental prospects.

Those fundamental prospects will hopefully play out over in the coming month, quarters, and years. In the meantime, it is a Wait Time stock, which is inherently dangerous.

I’m not here to predict if/when things will turn… nor judge when people will see the value associated with whatever comes of MRIN’s efforts — only God can ascertain what thousands of people think and feel.

As a mortal, my only choice is to learn as much about valuing businesses as possible and using that knowledge to find stocks with big valuation gaps relative to what my research and math tells me. When I see a big gap between value and price, I buy, then wait for the valuation gap to close, then close my position and move on.

Sound familiar? If not, go back to paragraph one and start over.

To make a long story short, I bought a piece of a BUSINESS, not a number on a screen.

FYI, I’m NOT trying to defend the stock here. There’s nothing to defend. A stock price is based on supply and demand, NOT value. Again, I make money by finding stocks that are far from their proper value and waiting for that gap to close. In many cases, that gap gets wider before it closes. In fact, my first ten-bagger did exactly that.

If you read that story, you’ll know that you can’t judge an investment by its initial movement. Enough said.

As for Marin, I had a long talk with management on Friday after the market closed. I learned a few new details, but nothing so important as to change my opinion one way or the other. That came as no surprise to me, because I’ve been following this company for years.

To be clear, they might fail to gain traction and end up acquired by a larger entity (like Google) for a disappointing valuation… but they also might gain traction and re-achieve the multi-hundred million dollar valuation they once garnered.

It won’t take much traction for the latter to come true. If it does, a 2x revenue multiple will translate into about $20 per share. 3x will equal $30, etc.

I don’t say that to hype the stock or create a price target. I don’t make public price targets. What I presented is just simple realistic math. On the flip side, some catastrophe could occur to Marin, sending the stock to zero. However, in my professional opinion, the odds of the first scenario is greater than the second…

…so, if you don’t want to learn about business, the simple gambler way of looking at MRIN is that it’s a coin flip that takes away $4 in it comes up heads but should pay something closer to $24 if it comes up tails.

The problem with this bet is that it could take a year or two for the coin to land.

That’s the game I play, write about, and invest my money into. Having played it for 20+ years, I can tell you that Friday’s six-figure “loss” (yes, six figures) didn’t bother me because my stake in the company didn’t change… nor did my perception of its true value.

Accordingly, I didn’t panic out — I bought more, a trade which will hopefully cut the losses on my core position.

If you don’t like that game, there’s nothing wrong with choosing not to play (especially if you have your own method for beating the market).

I’ll probably go live on my YouTube channel soon to recap the earnings call (and my call with management). However, I may not put it on the schedule in advance. I don’t want people gaming the timing of my broadcasts, so we’ll see if the change helps to accomplish that goal.

Cheers.

 

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Disclosures / Disclaimers: I am long MRIN. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore 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. 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.

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.

The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

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157 thoughts on “Was I Wrong About Marin?

  1. I’m sure you are correct in that deals with a major financial impact must be disclosed but if the customer places a restriction on any announcement, that is outside the control of the company. I recall them announcing Comcast which had a major financial implication generating $1m in one quarter but they didn’t announce it until they had to when this represented more than 10% of quarterly revenues at the time. So, in summary, I’m sure you are correct in that any transaction having a major financial impact must be disclosed but only if that announcement is fully within the control of the company.

    Mark may be more familiar with SEC disclosure regulations.

    Like

  2. Hi, Mark & WKF:
    I’ve sold a few HEAR 2020 Jan. $12.5 puts around $4.10. From its recent quarter results and guidance, what do you think between July and September 2019? I know from your past remark that the Christmas season would be very good for HEAR. I’d like to hear about the next two quarter performance for HEAR.
    Thanks,

    Like

  3. Hey Mark, did you attend the Roth conference 10 days ago? Just wondering if you know whether there were a lot of institutions attending 1-on-1 meetings with GAIA’s management?

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  4. Hey Mark, Safe & Found has just gotten over 500,000+ downloads on Google today. I guess this also shows that the download estimates have been a bit high. S&F seems to be growing fine even without a sunset – which is a very strong development. At the rate this is going (assuming it continues) – the eventual sunset may not even matter materially.

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    1. No offense, but anyone asking a question about Safe & Found’s rating hasn’t been paying attention to my research. We answered this question at least a dozen times, starting many quarters ago 😉

      Like

  5. Why does Mark short companies like UPS when there are objectively far worse companies around. Is the main reason due to these smaller cap stocks not having enough shares to borrow in order to fully hedge your positions? Also, I’d be learn why you wouldn’t consider certain Bitcoin proxy stocks for your list, in terms of being a more attractive short than UPS.

    Like

    1. Because of access to experts and expertise. I have contacts regarding UPS, KR, and others.

      If you’re putting 6- / 7-figures behind an idea, you have to have surety… common sense just isn’t enough. 👍🏼

      Like

  6. Hey Mark, regarding the “book recommendations” that you’re internally testing before recommending – am I right in guessing that’s it’s actually not just books but includes some kind of online training course?

    Like

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