board answers from conference call, page-17

Monhawks,

The question ‘lessons to be learned’ is not an easy one to answer, and one that no one individual can answer with any degree of completeness. Also there are many different lessons at play here.

Speaking purely personally, I think the absolutely key lesson for everyone who traded this stock is ALWAYS set a worst-case stoploss, and get out no-matter what if this is violated. I trade foreign-exchange professionally (I’m the co-founder of Zone Capital, which is a fully automated f/x fund manager), and we turnover approximately US$1 billion every month. Nonetheless, each-and-every position has a worst-case stoploss, and this (because we can) is placed in the market on opening the trade. If the price moves there, we are out. On balance, this costs us money most of the time, but it always preserves capital to trade another day. We then do not re-enter the trade until 1) at least a week has past and 2) there is strong evidence that the market has recovered.

Equities are no different from f/x in that they are a capital intensive trading venture, and without capital, you are out-of-the-game. Now certainly I trade f/x multiple times-a-day and equities far less often, so this effects the worst-case stop-loss and the sitting-out timeframe, but the principal should never be violated. The trouble with stops is primarily they are ego-bruising. This is wrong thinking – they are protecting capital for tomorrow. You can always get back in if the story becomes compelling enough again, and it is far easier to think clearly about a holding from the outside.

Leaving aside the screamingly obvious, I had an additional problem with SBN. Probably for the last 2 years or so, (and quite likely well before that) the real story of SBN was revenue (or the lack of it) and the true cost to shareholders of raising additional capital. Rather like I’ve just done in another thread when I looked objectivity at how long SBN has got on current cash reserves, I could not see how SBN could possibly avoid another devastating capital raising, even assuming the eventual success with China. Also I found I was in a position that threatened my number one golden rule above, because there was simply insufficient volume in the stock to liquidate my position should I want too. These two things I found untenable, and I got out at the first opportunity thereafter.

Let’s now look at some other issues. Collectively we humans seem to love charismatic leaders, but we seem to forget that they are frequently wrong, and historically have lead thousands to their deaths. There’s been GSW (who remains a good friend), Vintage, Dirty Harry, Sputnik, etc., all of whom obviously truly believed in the story, told their friends and supported their thoughts with their own money and glowing tales of wonder. Nothing really wrong with that, yet this forum reminded me of the extreme right in the US under George W Bush. Any word of disagreement was greeted by ridicule (I’m not saying necessarily by those I’ve named), and this forum became (extending the analogy) Fox-8 News – completely and utterly biased. Put simply, where we should have had an open forum discussing the pros and cons of this investment, it became a hideously biased one-sided club, and any dissenters were ridiculed and ostracised. That alone should set off all sorts of alarm bells.

Diversification - this is a good one. Many here proudly said this was their sole equity holding, yet all the books say diversify, diversify, diversify. Personally I continue to disagree with the books, and fully understand where the ‘sole-holders’ are coming from. ‘Put all your eggs in one basket, and watch the basket like a hawk’ works better for me, but the crucial part is the last bit – don’t fall asleep or ignore what’s going on around you! As I say, it’s a question of what you choose to take away with you.

Management! What can I say? I was appalled at Peter King’s attitude at the AGM (another red flag), and accountants simply do not make good (effectively) CEO’s. Jim Hallam undoubted bought the company (at great expense to shareholders) an extra year or so, but beyond that there was demonstrably no leadership, and no hope.

Charts: I’m really a quantitative analyst, not a technical analyst, but there is nothing, anywhere in SBN’s chart that has ever said buy for more than a couple of days. Anyone can do this – look at a chart from six feet away for 5 seconds. What does it say? Even a five-year-old wouldn’t buy this stock after this exercise – it’s that intuitive.

I could probably go on, but I’ll leave it here for now. Being an investor in SBN has on balance been beneficial to me, and I hope to some of those reading. Ignoring the bias, there’s been a lot of interesting discourse on this forum; aside from the SBN story itself there’s been discussions of ASX listing requirements, directors obligations, etc., etc. There’s even been a discussion on insider trading, and this all helps in mastering the craft. We also have all had a ring side seat on seeing just what can go wrong, and hopefully we can all take-away something positive for next time.

Good trading!