Back Pain Results, page-18

“…just the sort of response one would expect from an ultra-conservative Aussie fund manager…”

I’m not sure where Aussie fund manager comes from, and as for “ultra-conservative”, ask any real “Aussie fund manager” what they think of stocks such as BOL, COF, ONT, PMP, SDI and they’ll tell you that they are highly risky investment propositions.
Yet I own them all.

So “ultra-conservative” is not an adjective I’d apply to myself.
Prudent, considered and patient, yes.

But when I find an investment that I think has definitive asymmetry on the upside versus the downside, they I buy with conviction.
Nothing conservative about that, methinks.


“Like you, I am a little bemused by the re-release of old data…”

Please refrain from mis-representing my posts.

There is no possible trace of bemusement in my phrasing of “…these results have been in the public domain for the better part of a year.” It’s a purely factual statement.

I certainly gave no inkling whatsoever of being bemused at the company presenting trial results at a major conference. (Quite the opposite, in fact: I am on the record at saying it was an eminently sensible thing to do.)

Any sense of bemusement, it seems, belongs to you (and one or two other posters, I recall).


As for the debate on executive incentivisation, I got the sense that a number of other MSB followers were becoming visibly irritated by the discussion, so I thought it best to leave it be, but since you insist on reviving the topic, here’s my rebuttal (with pre-emtpive apologies to HotCopper members who have a distaste for this particular subject…although I do happen to believe it to be a very important consideration when it comes to investing in publicly-listed companies):

I think that there is something fundamentally at odds with executives being able to exercise options at handsome profits when shareholders have seen the value of their shares fall by some 60% over a reasonably extensive timeframe.

Intuitively, it suggests that the options have been mispriced (Note: not intentionally, mind. But perhaps inadvertently. And that’s my entire point: option pricing theory, by its very inexact and hypothetical nature, can lead to distortions and mis-alignments such as I think we are see when an executive gets to exercise options at less than forty-five cents in the dollar while shareholders suffer material losses on the value of their investment.)

How someone doesn’t find such an Executive Profit versus Shareholder Loss outcome totally incongruous is something that, in fact, does bemuse me in its being not only devoid of best practice, but it appears unambiguously mis-aligned, by definitiion.

So, what better method, then, of executive alignment would I recommend?

Well, I concede that definitive financial metrics such as EPS growth or Return-on-Assets or Operating Margins, which are often used as metrics on which to base At-Risk executive remuneration in profitable enterprises, are clearly inappropriate for MSB given the point of the company’s evolution.

But Total Shareholder Return (TSR) metrics is one that I observe being increasingly used as a Long-Term Incentive, and I am most partial to this approach, because the performance of the share price over the longer-term (anything greater than 2 years) is the purest measure of the market’s assessment of the business. (And note that I’m not talking about absolute return, but relative to an appropriate representative index or basket or of shares, which serves to eliminate the effects of normal stock market cycle that occur over the longer term).

For a real-life example of TSR aligning executive rewards with shareholder interests, I refer you to the Ramsey Health Care Remuneration Report as contained in that company’s 2014 Annual Report.

As a long-time RHC shareholder, I feel quite content that if the share price goes down over time, Ramsey’s management team eel the pain as directly as I do (and vice versa).

That, I feel, is a better manifestation of alignment than the MSB situation where executives are locking in profits at a time that many shareholders are suffering losses.

It sits uneasy with me, and I can’t believe the majority of shareholders would have ambivalent feelings about it.


Finally, and I wasn’t going to raise it, but since you re-incarnated the subject, there’s the situation of the 288,000 options issued in 2010 at the issue price of 4.6 US cents (expiry date July 2015; if nothing changes between now and then, the exercise of this tranche will net its lucky owner a handsome $1.125m) and the 1.156m options issued at prices ranging from 30.5 US cents and 44.4 US cents.

I’m unsure of the genesis of this particular fortuitous situation, but its luxurious benefits are certainly not experienced throughout MSB’s broader investor base.

So I’m sorry you think my arguing – as I do with all my investee companies – for greater alignment of the interests of my the managers of my companies with my own boils down to “another extremely cunning plan up (my) sleeve.”

I merely see it as good, plain, old-fashioned common sense.