I have been reflecting on the back and forth between
@stockrock on the one hand and a group I will describe as the 'positives' eg Doc, Whytee, Fleish, and Bill Gates et al.
All of us here are gazing into our individual crystal balls trying to predict the future so as to make money (and avoid losses). We share our thoughts to get others to agree with us or maybe so others can point out any glaring errors in what we imagine we see in that crystal ball. (excluding shorters - assumed to be anyone with a lazy or eternal criticisms).
The problem is each of us (apologies for mixing metaphors) are also wearing a pair of glasses that colours what we see when we look into that crystal ball-rosy or blue. Not only are we biased by our own strengths/experience eg financial analysis or medical ability but we are also (more strongly?) biased by habits of mind for example our most
recent experiences where we give more weight to those recent events.
It seems to me that each 'side' are taking different perspectives (and talking at cross purposes). One is looking into the crystal ball trying to decided what will happen in the near future and the other in the distant future. This is partly because of how they have experienced and then interpret the recent drop in the share price - because it has affected people very differently. For Stockrock he is focused on short term performance (under 12 months say); whereas for the 'positives' it is longer term (more than 12 months lets say). I am making assumptions so please try not to be offended if I am wrong.
Stockrock is sitting on almost 45% losses since his purchase (an earlier post he notes he bought in at 1.80). Whereas i suspect that the 'positives' group all bought in perhaps years earlier and are probably
anchored to recent strong gains in the share price and hold the belief that with time those highs (and more) will return - ie they are not sitting on (paper) losses. (And the drop in price is temporary and of little significance when compared to their initial purchase). Stockrock never got to experience the pleasure of seeing his investment decision rewarded. It may seem silly but the pain of loss and the euphoria of making say 10/20 times your investment (at the ATH) are very strong rewards/punishments that colour how we see future possibilities and analyse the present. Both types of emotional rushes cause us to lose our objectivity and the ability to see the business coolly and clearly.
we are typically / usually unaware of these mental tendencies and they can influence what we focus on. I know i am guilty of it. I find returning to the words of Buffett and other value investors pretty helpful.
I think stockrock is doing battle with himself, on the one hand there is the rational questions...'what was my original belief?'; 'is it still valid?' - he is simply doing it in public. He is sharing his 'process' of analysis. On the other hand, doubt is strong and clouds cool objectivity because the pain of his losses is tangible - chemicals in the brain got released. i try to recall the words of Buffett when i am reassessing when a company has taken a big hit: what was my original rationale for investing and if it still holds then to paraphrase Buffett 'if you liked the stock at 1.80 you should love it at 1.00' - assuming nothing fundamentally has changed. well has there been any fundamental change (positive or negative)?
The question could be - is the share price performance due to (mis)management or is it unrelated?
It appears to me your doubts are centered on the ability of management to make sound business decisions. For me this is probably the biggest issue I have with every company. This is our 'leap of faith' - do we trust management - both to be competent and ethical. The 'positives' eg Doc, Whytee et al are very confident in the ability (and ethics?) of management. They look at the decisions over the last few years and have decided they are competent and trustworthy. This is an advantage of being invested and following a company for a long time - you get to see management / BOD over a long period of time. Of course, they also enjoy the 'high' of seeing their initial investment compounding and it is easy to attribute that to their brilliance - leading to over confidence and the halo effect - the management is brilliant, the product is brilliant etc.
If i may be so presumptuous: Stockrock put aside the numbers for a bit and think about the management. Can you trust them? Do you want to invest alongside them. I understand the financial points you are making, i simply feel your analysis is being overly coloured by the personal pain of (unrealised) losses. It feels like you are going around in circles, looking for some clarity. The reality is we only ever see the smallest % of management decisions - eg how many hired and when, selling a property. We don't see all the decisions that goes into that final call - 'lets hire 40 rather than 10 because....' we never get to hear the 'because'. That is the faith we have to place in management; or not.
It is very possible the share price will go down further due to factors outside the control of the company. And yes there may be a cash crunch for the next few months (or longer). The fundamental question to ask yourself - is management able to clearly see an increasing number of hospitals and surgeons buying what PNV is selling (at a profitable price point). Or is management merely hoping their 'gamble' will pay off and risk getting caught short - and if they are what is the consequence, can they borrow, CR, will the share price collapse (permanently)?
Maybe there is another (better) way to distil the decision to buy or sell - anyone with suggestions?
Sorry if this is overly preachy or personal.
In my experience, every company that has failed is due to management - either competency or ethics. I think skin in the game (shares and not options for some KPI they cooked up with their BOD) and their history are very important criteria. Charlie Munger talks about the power of incentives as being one of the most powerful forces determining a persons behaviour.
On a personal note to point out just 2 of my many investment failings: My biggest recent losses have been in companies that on reflection have poor management/BOD - MSB and A2M. (Hence the focus of this note- management - sharing my 'learning' i guess). Without going off on too much of a tangent I like the products for each company and their potential but have slowly come to the realisation that in each case management is poor (for me they are either unethical or incompetent or both - focused more on themselves than the company; yet i am still in both - so that is just one of my cognitive biases!!) Because MSB is a 'potential' product and not an actual product (ignoring Japan) management is even more important.
In contrast, DDR has got to be one of the best run businesses in ANZ and if the price were to collapse for some irrelevant reason (including the death of David) i would buy again. Even though it is a pretty average business with small margins and no sustainable competitive advantage (outside its culture), these guys run the business ethically and competently and manage to be very profitable (a bit like how Charlie loves Costco - DDR is of course no Costco).
(you will note my position in PNV is not held- i may pull the trigger this week - for me it is an opportunity cost decision).
If this post is over sharing let me know...
(20min delay)