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Afam Edozie

 
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  • NQ's U.S. Veneer: Withholding Facts, Conned Men And A Convicted Racketeer [View article]
    1. Much of NQ growth is acquisition related.
    2. High growth is not proof of a competitive advantage - an early mover in a growing market is another example of a fast growing firm that may not necessarily have a competitive advantage (again look closely at NQs businesses)
    3. To spell out the bear argument - margins are falling BECAUSE it has no competitive advantage (though this is an argument with many facets), falling RoA is to be expected from a company with no comp. adv.
    4. I am merely presenting the main arguments from the bull and bear side (as I interpret their arguments). Rather than passing judgement as to who is right and who is wrong.
    5. For the record I am currently betting with the bulls. My own personal opinion is Quality: Fair, Growth/Growth Prospects: Excellent, Valuation: Excellent
    Nov 15 04:32 PM | 1 Like Like |Link to Comment
  • The Muddy Waters NQ Mobile Report Card [View article]
    Don't be shy. Focus on valuation and a margin of safety. And be patient to wait for MW events and 1 cent earnings misses.
    Nov 14 04:00 PM | 1 Like Like |Link to Comment
  • NQ's U.S. Veneer: Withholding Facts, Conned Men And A Convicted Racketeer [View article]
    The bull thesis
    1. 3 year average revenue growth 159%,
    2. Last year revenue growth 125%
    3. Current quarter revenue growth 107%
    4. Company transitioned from a loss making early stage company into a profitable company in 2012
    5. NQ has by organic growth in its security business and by acquisitions in the gaming and apps areas become a leading mobile player in one of the fastest growing smartphone markets in the world (i.e. even more growth opportunity ahead).

    The bear thesis (excluding MW allegations)
    1. Margins have been declining
    2. NQ has six formidable competitors fighting for the same space (i.e. margins will likely continue to decline)
    3. NQ has no competitive advantage in any of its businesses.
    Nov 14 03:28 PM | Likes Like |Link to Comment
  • NQ's U.S. Veneer: Withholding Facts, Conned Men And A Convicted Racketeer [View article]
    I thought your investment thesis was (this is what counts rather than not Mathew Mathisons background):

    NQ is a massive fraud. We believe it is a "Zero."
    1. At least 72% of NQ's purported 2012 China security revenue is fictitious. NQ's largest customer by far is really NQ.
    2. Our research estimates that NQ's real market share in China is only about 1.5%, versus the approximately 55% it reports.
    3. We estimate that its China paying user base is less than 250,000, versus the six million NQ claims.
    4. NQ's Antivirus 7.0 is unsafe for sale to consumers, and we consider it to be spyware that makes users' phones vulnerable to cyber attack. MW engaged top-flight security software engineers to analyze this product.
    5. NQ's purported international revenue of $36.5 million is likely less real than its PRC revenue. NQ claims to generate international revenue in obscure markets, and through mysterious counterparties that seem to seldom pay.
    6. NQ's acquisitions are highly likely to be corrupt.
    7. NQ's cash balances are highly likely to not be real. . . . We therefore believe the term deposits are likely forgeries.

    The company and 3rd party investors who have had access to the data claim that this thesis is false and have presented evidence that appears to indicate that the cash is real, NQs market share is significantly higher than 1.5%, that the user base runs into the millions and that its revenues are not fictitious - i.e. it is not a fraud worth near zero.

    Given the evidence presented, do you stand by your thesis? If not, where did you go wrong?
    Nov 12 12:06 PM | 8 Likes Like |Link to Comment
  • The Muddy Waters NQ Mobile Report Card [View article]
    Following his early home run MWs track record has been weak, yet his opinion still moves markets.

    Unfortunately, my position is too small to warrant travelling to China to do my own DD (my favourite device is the stop loss order), but I wonder, if Toro's analysis is accurate, what would be MWs long term game plan, is he incompetent or just out to make a quick buck.

    PS: Good article
    Nov 11 04:03 PM | 1 Like Like |Link to Comment
  • If You Believe In Yidatong (NQ's Largest Purported Revenue Source), You'll Believe In Santa Claus [View article]
    I don't know if NQ is a fraud or not, despite any evidence in their favour (or against them) no one can know for sure except for insiders (not Mr Carson, not you, not me).

    Overall I would say that odds are against it being a fraud. Though odds are high that they have overstated their revenue.

    MW would have shorted between 20 and 25 (anyone not satisfied with a 50% gain over one week has trading issues), so I would doubt if he is nervous. In all likelihood he would have covered a good portion of his position by now.

    Truth is that many people have lost money and will attribute it to the proximate cause (MW research), in reality anyone who designs a portfolio that includes young Chinese companies and does not design it to be able to accommodate at least one total wipe out would need to share a bigger proportion of the blame.
    Nov 6 03:55 PM | 2 Likes Like |Link to Comment
  • NQ Mobile: A Neutral Observer's Take [View article]
    Are investors remunerated by their reputations or returns. I don't think CBs reputation is relevant
    Nov 5 03:57 PM | 1 Like Like |Link to Comment
  • NQ Mobile: A Neutral Observer's Take [View article]
    Three rules:

    1. Never get emotional about stocks! - Gordon Gecko. Once you do, you lose your objectivity, it clouds your judgement and are likely to get kicked.

    2. Always know the bulls and the bears thesis as well as them before going in. Then you can properly asses the odds and more importantly will never be surprised (read rule number 1) once you're in the game.

    3. No one knows jack about the future (or the future prices of securities). Not you, not me, not Muddy Waters, the best you can do is understand the probabilities. The people who pretend to know - Gypsies, Voodoo Doctors and Quants - are no fun to hangout with, seldom have any money and always need you to pay them.

    I am long NQ since last week, I didn't catch it at 8 or even at 9, but I'm still happy that I caught it when there was still blood on the paper. I don't know if its a fraud or not (in all fairness, Muddy Waters can't know either), but the odds are in favour of it not being a fraud. And just in case it is (or its not and the price still goes down) I set a stop loss. Because the only thing anyone knows for sure is that you nothing.
    Nov 4 11:27 AM | 3 Likes Like |Link to Comment
  • Questcor tumbles as NY Attorney's Office joins Pennsylvania investigation [View news story]
    In the short run the market is a voting machine, in the long run a weighing machine.

    Stock has more than doubled for the year. I'm still a happy camper (though less happy than yesterday). My expectation is that the stock will trade in the 54 to 70 range for the rest of the year. If it drops and stays below 54, I will take my profits and wait to see where it hits bottom.

    Otherwise I will rest easy. I suspect today is a good buy opportunity, but I'm already fully weighted and I'm trying not to be stupid, particularly since the market is already very high.
    Oct 30 01:18 PM | Likes Like |Link to Comment
  • NQ Mobile: Behind Smoke And Mirrors Lies The Truth, Part 1 [View article]
    Free speech, is their protection.

    In addition, long analysts take positions and then publish their research all the time (whether it is right or wrong). Look at Warren Buffet's investment in Goldman during the meltdown.

    Is this an ethical way to make money (assuming MW is wrong and they knew they were wrong before they published). I would say no. Is it illegal, probably not.

    There is much about the markets and money that brings out the worst in people. Is it ethical when a market maker seeing high demand for a companies stock, but with bad news on the screen, decides to open the price down, searching for peoples stop orders and/or just trying to scare the less confident investors, in order to increase his spread on his big paper orders.

    It is only in the markets and the courtroom where you can legally spread lies and use emotional manipulation to deliberately hurt others. Does this make markets and courts immoral?
    Oct 30 08:47 AM | 2 Likes Like |Link to Comment
  • Fraud Or No Fraud, NQ Mobile Is A Gamble [View article]
    Also insiders (market makers) have 3 days to settle all trades, they can buy and sell shares they don't own (or don't even exist) in trying to keep an orderly market.

    Though whether or not NQs market was orderly over the past few days could well be debated.
    Oct 30 07:08 AM | Likes Like |Link to Comment
  • Fraud Or No Fraud, NQ Mobile Is A Gamble [View article]
    Your puts were bought by Muddy Waters and friends of Muddy Waters who were tipped off on the attack ahead of time.

    This is the way the game is played. Muddy Waters will likely come out on top whether the company is a fraud or not. They are probably covering at least half of their position as we speak with a 50% profit (assuming they went short at an average of 22) maybe more.

    Then the rest they will hold whilst they proclaim that they are doing a public service as they take the victory lap.
    Oct 28 07:45 AM | 1 Like Like |Link to Comment
  • Fraud Or No Fraud, NQ Mobile Is A Gamble [View article]
    Good article.

    I was stopped out of NQ turning a tidy profit into a small loss. However, I'm interested in knowing what will be the outcome.

    The market share argument is similar to the one Einhorn used against Herbalife.

    The company has published its cash deposits to refute the allegation that they are fictitious.

    The arguments about the quality of its products are again similar to Einhorn's allegations at Herbalife.

    I don't think its possible to know the outcome of this in advance. MWs motives and track record make up part of the knowable information. The rest is unknowable (at least to me) at this stage,

    I hope trading is resumed soon, at these prices, it may well be worth the risk. Though the trading suspension may make it more difficult to control the risk.


    YY, QiHoo, and SFUN were all down today. I was stopped out of YY (3 quarters of my position), but have just bought it back, now it has quietened down around its 50 day moving average. Hope I don't get stopped out again.
    Oct 25 01:06 PM | 2 Likes Like |Link to Comment
  • iRobot: Good Prospects For The Price To Double [View article]
    Yes IRBT and BIDU have been good. I try not to think of taxes when investing, given that for many stocks I buy a 30% swing is normal.

    Bidu we are still in even though it has hit our fair value estimate of $160 (good growth stocks frequently exceed fair value by 20% to 30% - and we tend to use a steep discount rate which is probably higher than most institutional investors who are able to do deeper analysis and have lower cost of capital).

    I think (and hope) it should get up to $180 or $190.

    We are also in YY, though this is a more risky bet than BIDU or IRBT, given the uncertainty around the real quality and stickiness of their service/customers. But for now they are doing well.
    Oct 23 09:21 AM | Likes Like |Link to Comment
  • Warren Buffett's 10 Points Of Light To Determine If He'd Invest In Verizon [View article]
    For the value investor (and the growth investor for that matter) not much has changed between now and back then.

    Investors get spooked and start selling good companies at cheap prices (looking at 2008), those with good understanding, who are well prepared and have emotional control and step in (in Buffett's words 'load up for bear') and subsequently sell them off when they again reach fair value.

    Buffett's outperformance came from arbitrage and solid value grinding (look at Berkshire Hathaway - a textile mill (declining industry in US) selling at below book value). Investors were right to be spooked in this case. If not for Buffett's skilful management of their balance sheet and redeployment of their capital into insurance, they would have shut their doors like most of their peers.)

    Both arbitrage and value investing (as well as Buffett's more recent strategy 'quality at a fair price') are no more difficult now than they were then.

    There really is no excuse for anyone who can't do over 15% over the long term (unless of course you have mega assets), with modest drawdowns. And +20% is achievable by the more experienced value practitioner.
    Oct 1 11:00 AM | Likes Like |Link to Comment
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