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Marc Gerstein  

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  • Just One Stock: The Biopharma Veteran Facing a Landmark Stem Cell Trial [View article]
    At the end, you assert that if the company's trials don't produce substantive clinical results, they "better not come back, hat in hand, anytime soon or I'd view that as troubling."

    I'm a bit perplexed.

    As you say, cash is about $100 million and the burn rate has been about $50 million. There is no serious day to day revenue-producing business, so for all practical purposes, this is a publicly-funded R&D shop. Thar's OK as long as investors understand this.

    That being the case, how can they possibly avoid coming back to the market, probably several more times, regardless of clinical progress? What impact night the launch of HESC trials increase the burn rate? How long might it take, even if all goes well, for their efforts with HESC or telomerase to produce revenues and operating profit? Is there any other potential source of revenue/operating profit on the near-term horizon?

    Frankly, I find this stock idea intriguing (though I find it hard to see it as a just-one-stock sort of thing). But if I were going to own it, I think I'd have no choice but to understand that it is, as noted, a publicly-funded R&D shop and I'd have to accept and get comfortable with that, and this would involve accepting and getting comfortable with the fact that there is probably going to have to be a truckload of new funding coming down the pike regardless of the pace of progress.

    Also, I think I'd need a more realistic attitude toward timing. Asking this management for a timetable is not like asking Wal Mart to project sales in the next quarter. Does this CEO even know the difference between a debit and credit or the difference between a revenue and an expense? You can't impose a Wall Street timetable on an activity that, in a more ideal world, might better be consigned to a foundation or government or university funded lab.

    I suspect a major risk factor here is the possibility that investors, analysts, and even hedge funds who had unrealistic ideas about what they were getting into, may harass management to the point of distracting them from being as effective as they should be in doing what they're supposed to be doing. The company wouldn't be blameless; having chosen to get public money, they now have to live with the consequences. Either way, I see this as a very substantial risk factor.

    I'm not in this stock, but if I were, there's no way in heck I'd have the chutzpah to whine about more funding or dilution regardless of how much progress the company has shown at the time of funding. Anyone who can't or won't embrace that has no business being in a stock like this.
    Jan 29, 2011. 08:18 AM | 6 Likes Like |Link to Comment
  • 10 Overvalued Stocks Analyzed by Discounted Future Cash Flows [View article]
    "I completely agree with you on almost all of your points... However, I do find it far more absurd to assume companies will grow earnings at 4% or 3% infinitely."

    Right . . . that, too, is absurd. My point was that ANY assumed infinite growth rate is absurd.

    "I am more of a PE, PB, PFCF guy myself... "

    Cool. Those are the typical tools. None of them are perfect (if any were, we'd all be gazillionaires). But those are the kinds of things that can be evaluated, debated, etc. Infinite growth rates . . . oy; I have no idea what anybody outside a classroom can do with those.
    Jan 20, 2011. 07:47 PM | Likes Like |Link to Comment
  • 10 Overvalued Stocks Analyzed by Discounted Future Cash Flows [View article]
    This is why I hate discounted cash flow, net present value or whatever else anyone wants to call it. Heck I'm old enough to remember the days when respectable observers thought Apple was terminally ill, and so are you. (Graham and Dodd Investor and I know each other quite well in real life!)

    Some great investment opportunities can be found in companies with growth rates of 0% or less; that's where you can find tremendous value, or as some say, cigar-butt value. Of course I'm not talking about an infinite growth rate of 0% or less; I'm talking about 0% or less for a particular time interval. (I expect we can agree on this.)

    The idea of pointing to any company anyplace any time and trying to suggest it should have a 0% or less growth assumption stretching out to infinity is something that's incredibly easy to do in an Excel spreadsheet, or a web-based valuation interface such as the author linked to in his article. But assuming such an assumption has real-world meaning . . . I find that absurd. Never underestimate the ability to life to throw surprises our way, surprises that are far more substantial than anything that can be accommodated by so called margin-of-safety or things like that.
    Jan 20, 2011. 03:49 PM | Likes Like |Link to Comment
  • Is the iPad Cannibalizing PC Sales? [View article]
    "1) iPads and netbooks are content consumers."

    That's not necessarily true. For around $400, I have a Lenovo Netbook with 2G memory on which I installed all the software I use including office, enabling me to be 100% functional for my business, which was the case recently for about a month when I stayed away from my office due to construction/renovation. So it's wrong to characterize the netbook as a mere content consumption device.

    "2) Price points between iPads and high-end netbooks are similar"

    Again, this is not true. My full-use business netbook cost a heck of about $100 less than the cheapest iPad, has a hard-drive comparable to the highest-cost iPad, and involves no extra internet payments since I can use any available WiFi or the unlimited Verizon tethering I had since before before I got the netbook.
    Jan 20, 2011. 11:20 AM | Likes Like |Link to Comment
  • A Look at Valuations of Google, Apple, Microsoft and Intel [View article]
    "If you apply traditional valuation metrics to technology stocks, you're likely to get creamed. Plus, everyone on Wall St has already crunched the numbers on these companies anyway."

    I think this is a bit of a cop out. I never suggested you apply "traditional" valuation metrics. And besides, if you ask 100 traditional value investors to explain traditional valuation metrics, you're likely to get at least 100 different answers. As to the fact that numbers are already crunched, that's true. But everyone can evaluate those numbers in their own way and you have not done that.

    Ultimately, my objection is that you considered no valuation metrics at all, traditional or otherwise, despite claiming to have presented an article on valuation.

    If you don't want to use valuation to assess these stocks, that's your prerogative. But then, don't purport to tell us which tech stocks are overvalued. Instead, tell us which tech stocks fare poorly on whatever other criteria you prefer to use.
    Jan 20, 2011. 10:51 AM | 1 Like Like |Link to Comment
  • 10 Overvalued Stocks Analyzed by Discounted Future Cash Flows [View article]
    A few thoughts:

    1. AMZN has been overvalued by pretty-much any reasonable measure almost the entire time its been public. Yet for pretty much that entire time, it has turned out that observers have seriously underestimated the company's earnings power which, ultimately, meant that the valuations weren't really what we thought they were. So I think one who wants to argue overvaluation today needs to focus very heavily on earnings prospects. If the expectations are again too low, then the valuations would not really be as high as they appear. (Forget the ratios; these are easily visible on line so you accomplish nothing by repeating them. Discuss the cloud prospects, pro or con, more seriously as well as other business issues.)

    2. With SPG, you can't really consider earnings, cash flows, etc. For REITs, which are trusts and, hence truly different from corporate entities, the appropriate measure is Funds From Operations. How does SPG measure up here? With a 3.2% yield, unless you are prepared to argue that the dividend is likely to be reduced (i.e. that it can't be supported by Funds From Operations), it's hard to make a case for overvaluation. I wouldn't necessarily argue for undervaluation, but the yield tells me to use neutrality as a starting point if I want to do further analysis.

    3. I'm not a fan of discounted cash flow because terminal valuations tend to have a big impact and can't really be reliably estimated. The 11% discount rate and 1% terminal growth rate sound prudent at first glance, but that's not really the case. Imagine we're in Akron Ohio a few years back and we're watching a mother bring her young son to a basketball tryout. In the interest of conservatism, she has the kid wear ten pound weights around each ankle and five pound weights around each wrist. The child can't overcome the handicaps and performs badly. The coach shakes his head and says: "I'm sorry Ms. James. You son LeBron has no talent for basketball. Perhaps he should consider another sport." Yes, we want margin of safety. Yes we want to be conservative. But when we do so in a doctrinaire, rather than analytical manner, we accomplish nothing and possibly steer ourselves 180 degrees in the wrong direction. I wonder if that's what your 1% and 11% assumptions are doing. I'm curious as to how heavily the DCF component of your work figures in the results, and what a sensitivity analysis would look like. Bear in mind, too, that your suggestion that these might be used as hedge vehicles (i.e. go short) raises the stakes.

    For many value investors, the only penalty for being too quick to assume overvaluation is an "opportunity loss" (i.e. they watch from the sidelines as others make money). So it's no big deal if they say "overvalued" 100 times on stocks that turn out to rise. With you, though, there could be a real dollars-and-cents loss from a short position. So DCF assumptions that reflect doctrinaire, rather than analytic, conservatism, take on a danger value investors are not typically accustomed to facing. any erroneous overvaluation labels would be every bit as painful as an erroneous undervalution or reasonable valuation label.
    Jan 19, 2011. 07:47 AM | 5 Likes Like |Link to Comment
  • A Look at Valuations of Google, Apple, Microsoft and Intel [View article]
    "let's map out the rough prospects for the tech stalwarts of today going forward,"

    OK. The article did that.

    "to see where potential values (and overvalues) may lie"

    Am I the only one who failed to see any value discussion at all?

    Value investors can and do fight tooth and nail as to how, exactly, to assess value. But one way or another, it all comes back to some sort of effort to link a stock price to a measure of per-share financial performance. I saw none of that here.
    Jan 18, 2011. 07:37 PM | 6 Likes Like |Link to Comment
  • Just How Big Is the Kindle Revolution? [View article]
    "As recently as the past few months otherwise smart observers were opining that the iPad would cut seriously into the Kindle market, but instead what we have seen is that the iPad and its competitors have become Kindle content delivery devices at a pretty significant level."

    This is a remark I think most observers today would accept as being pretty accurate. But it just occurred to me that it may actually harbor the seed of a potentially explosive issue going forward.

    Those who are interested in media have long hear the phrase "content is king," meaning that however great it may be to own or control delivery mechanisms, ultimately, it's better to own or control that which is being delivered.

    Lately, it hasn't always appeared that this was holding up. Apple's iTunes seemed to have turned things upside down with music providers kicking, screaming, yelling, threatening, etc. but ultimately coming to terms with Apple's new delivery mechanism. So it looks a bit as if content has been dethroned. Music was the early battleground and it took a while for music publishers, not always quickest on the uptake if you get my drift, to recognize how the customers (the ones who really drive things) wanted to take delivery.

    Books may be round 2.

    It seems to me that Apple thought it could gain power here as it did with music. But Jeff Bezos is not cut from the same mold as the music people. He is a completely different sort of competitor who tries to build the future rather than run away from it. It looks to me, like the iPad-book situation is righting the ship; restoring content back to its traditional role as king. (Amazon isn't actually the king of books; it too is a delivery mechanism. But amazon is more akin to the ideal Prime Minister, the one who does the real work and runs things on behalf of the king freeing up the latter for ceremonial stuff and almost leading others to treat him as if he were the king.)

    It will be interesting to see how other content providers (those who own movies, TV, music, etc.) react. Will they join Prime Minister Bezos in restoring and solidifying the natural order. Where will Apple be in five years? Will it still be worshiped by so many as it is today, or will we be just as bored with it as we already with so many other hardware producers fighting brutal competitive battles to scratch for thin and diminishing margins?

    These Kindle/Nook apps really seem to take the Trojan Horse to a whole new level. Perhaps Jeff Bezos was Odysseus in a previous incarnation. :-)
    Jan 15, 2011. 03:52 PM | Likes Like |Link to Comment
  • Just How Big Is the Kindle Revolution? [View article]
    That's an impressive amount of analysis. But I wonder; is the existence of a massive Kindle revolution all that controversial?

    It's not as if this is an iPad type controversy. That's a device that can and does inspire a lot of contrary opinions re: it's cost and capabilities. Kindle might have done likewise back at the beginning, but by now, cost of e-reading is way down and the world pretty much knows what it's about.

    It would seem to me that the controversies lie elsewhere: Kindle vs Nook/Sony/et. al. (i.s. Amazon eco-system vs. B&N et. al, ecosystem); dedicated e-reading vs versatile devices (i.e. Kindle/Nook vs Kindle/Nook apps); specialty devices like pure e-readers versus convergence-oriented devices like NOOKColor; etc.

    I don't think anyone doubts the e-reading revolution, but there's still a wide variety of opinion on what shape it will take as we go forward. (For the record, I started intrigued by B&N because they were out first with a Blackberry app, but by the time I was ready to buy a device, I came to see Amazon as preferable; I've been thrilled with my Kindle, and have no interest in a converged device.)
    Jan 14, 2011. 08:38 PM | Likes Like |Link to Comment
  • Just One Stock: The Small Manufacturer Dominating the Rescue Hoist Market [View article]
    On taking another look, I notice that my thoughts were bouncing back and forth between the stock Vanasek wrote about now and the prior one. Both bear exceptional and unusual risks that I believe warrant special consideration in the context of the 12/08 Weinstein article, but they aren't identical between the two stocks. The first one, BRBMF.PK, involves the penny-stock-like liquidity problems. The liquidity problems for BZC, the current selection, are merely horrible but not as much so as BRBMF.PK. Even so, BZC, the $7.00-and-change stock, would still fail the liquidity test I use for my under $3.00 newsletter. There's also the issue of the potential reverse split. That would, in this case, send the stock to the pink sheets and probably decimate what limited liquidity there is today. Also there's the issue of the firm going dark, in which case it may or may not choose to informally inform shareholders of future financials. Vansek suggests it will, but if it doesn't turn out that way . . . that could get incredibly ugly for any shareholder wanting to sell. In other words, the reader who commented here that he put in a limit order may get execution on the Buy, but it may be a one-way ticket; it's not clear he'll be able to do likewise when he wants to sell. Maybe shareholders will be rescued by a buyout. Maybe not. I'm not expressing an opinion one way or another on the probabilites. I'm just raising a flag to the effect that i've seen Seeking Alpha editors express discomfort with liquidity risks of this nature.

    So despite the miscues in my prior post about which stocks was being talked about at which point in time, the fact remains that this feature is putting before Seeking Alpha readers a situation like this. And it's not isolated: In addition to Vanasek's year-ago interview, there's also a June 2010 interview with Kerrisdale Partners, another hedge fund, that talked about a stock it owned in an Australia-based payday lender penny-stock wasn't even tradeable on the pink sheets; there, you had to trade on the Toronto Venture Exchange.

    I beleive Seeking Alpha readers and contributors need a bit more clarity on current ground rules.

    Jan 14, 2011. 12:10 AM | Likes Like |Link to Comment
  • Just One Stock: The Small Manufacturer Dominating the Rescue Hoist Market [View article]

    Thank you for your response. As you can see, my thoughts are expressed in a comment above. I don't really have any questions about Breeze-Eastern per se because I don't do pink-sheet stocks and would not consider a stock that is or could go dark. It's not what I do.
    Jan 13, 2011. 04:42 PM | Likes Like |Link to Comment
  • Just One Stock: The Small Manufacturer Dominating the Rescue Hoist Market [View article]
    Thank you for your response Jason. I may have occasion to further message you privately, but I want to address an important area of concern in this context since Mick Weinstein, when he was still with Seeking Alpha, had already made the issue public and expressed a hope for community input. I'm referring specifically to the article he posted on 12/3/08 entitled "Reconsidering Penny Stocks" (

    Note: I'm well aware that the price of the stock presented in this interview is way above $.01, but it is a pink-sheet stock with risks akin to what you find as you move toward down below $1, so I think it's fair game to raise the matter -- I'll get to it later.

    What you may not realize is that I was the catalyst for Weinstein's "Reconsidering Penny Stocks" posting. Back in the day, I submitted an article entitled "Taking Penny Stocks Seriously" wherein I discussed the challenges of investing in that area, presented a primarily-fundamental screen aimed at identifying credible ideas in that group, and discussing seven names that struck me as worthy of consideration for a Seeking Alpha audience. The article did not appear in the usual course. After several days, I contacted editorial and was told that there was a blanket policy of rejecting all penny stocks but that the editors were analyzing my submission and re-considering the policy. The Weinstein article is the result of those deliberations. (By the time it came through, my piece had gone stale and I didn't bother to re-write it.)

    This particular fund-manager interview, and some others that have caught my eye, suggest to me that the policy may need to be discussed anew.

    The focus of the old editorial policy and the Weinstein article involved price levels below $1.00. Actually, though, that may be something a huge distraction. Ironically, most of the stocks I discussed in the original article traded above $1.00; my screen used $3.00 as a top threshold. (My "error" may have been in using the phrase "penny stocks" in the title.) The real concern, as evident from the Weinstein piece, was the potential for sketchy occurrences in that end of the market and as we see, the $1.00 price threshold may not be the best measurement. The concerns were liquidity, tradability, the potential for trading abuse, etc. Weinstein correctly used SIRI among others to demonstrate that there can be situations where these problems are not too threatening even if the price is below $1.00. In my opinion, this interview is an example of a situation where the concerns addressed by Weinstein can be resent even with a stock price way above $1.00.

    This Just-One-Stock/ETF interview series looks to be taken very seriously by Seeking Alpha readers. We see one reader in this discussion area saying he's actually trying to buy BZC and another asking the sort of questions consistent with one who is seriously considering doing likewise. Should this be a concern? Even though these interviews aren't Buy recommendations, per se, it's hard to ignore the prospect of readers using the article as a basis for purchase decisions. Mr. Vanasek understands this, having expressed a belief in his reply "that the Seeking Alpha editors feel that people who read the article might be sparked to do some further research on the name, and possibly invest in the company."

    So I wonder if the policy set forth in the Weinstein article needs to be refreshed. Forget the $1.00 threshold. The issues are trading risk and legitimacy, regardless of the price threshold.

    I'd be happy to discuss this further (I, together with Forbes, publish a low-priced stock newsletter and have accordingly put a lot of thought into this topic), but private messaging may be the appropriate setting for more detail, at least for starters. Or if there's interest, I'd be fine doing it publicly, though I'm not sure it pays to stretch the discussion further as a comment thread for this specific interview.

    Jan 13, 2011. 04:33 PM | Likes Like |Link to Comment
  • Is the Ultra Silver ETF a Dud? [View article]
    " 'By the way, we all know leveraged ETFs shouldn’t be held for more than a day.'

    This is 'tongue in cheek' or in jest, me thinks."

    It's not at all tongue and cheek nor a jest. This is a fascinating topic and one I treated in depth nearly two years ago. Here's the link: This is one of several articles I wrote in earl 2009 to respond to widespread bashing of leveraged ETFs as being toxic disasters. Subsequent research I've done since then confirms what I originally found.

    I just didn't want to rehash the whole thing at this particular time, especially since it seems to me that the investment community has figured out what these are all about and seems less prone to get flustered by the fear-mongers. Perhaps I should have included that link in the article.
    Jan 13, 2011. 02:20 PM | Likes Like |Link to Comment
  • What Warren Buffett Is Missing [View article]
    "The point of science isn't to prove things wrong, but to find things that reliably work better than random chance. I was suggesting you engage in some science to improve your returns, not join a religion. "

    Like other Seeking Alpha contributors, I hope my articles motivate readers to check my profile and engage the commercial products/services we offer. This isn't a secret. Seeking Alpha, particularly trough its excellent contributor relations department, works hard to help us do this. But I've never really thought of making a commercial plug in the context of a community discussion. I don't see it done much and it does feel a bit odd. That said, considering the nature of this discussion, I really do think a plug is needed.

    Charlie and anyone else, if you want to "engage in science to improve your returns" or even to dispel other ideas, you can do it quite easily. Check out (my company!). This is a very sophisticated stock screener and most important in the context of the discussion here, you can seamlessly combine fundamental and technical criteria and perhaps even more important, you can backtest your results as far back as 3/31/01. Portfolio123, our main product is priced for professionals, but we launched StockScreen123 for the specific purpose of being accessible to individuals ($15 per month).

    I'm sorry if some feel put off by a commercial plug in the context of community discussion, as opposed to an article. But there is so much that's been said in this thread about value investing, combining it with other things what works and what doesn't, what can work and what can't, that I think it really is important to point out that it is very much possible to substitute objective study for back-and-forth argument.

    OK . . . end of plug.
    Jan 13, 2011. 11:32 AM | Likes Like |Link to Comment
  • What Warren Buffett Is Missing [View article]
    Yes, these points are all valid and they all defy easy answer.

    I suspect mutual funds and institutional investors may be more likely to be fundamentally motivated although not quite in the same way we see for many individuals. More likely, they may fine tune positions upward or downward as they follow developments (often relating to earnings guidance) in efforts to squeeze a bit more performance. I don't know that this is the greatest way to do things (those who succeed probably work with more in-depth analysis of analyst data such as the models used by StarMine or Zachs), but whatever the case, I can see technical tools helping to tune into activity on these fronts.

    Index funds may be a second-had way to capture these trends, and also individual sentiment. Fundamentals are irrelevant to these managers. They necessarily buy and sell as money comes in and goes out, so we'd need to look through to get a sense of how money is likely to flow.

    Trading desks are the hardest to figure out, especially those that make heavy use of algorithmic protocols.

    Anyway, the fact that, as you correctly point out "what happens to individual companies may have nothing to do with their fundamentals," probably enhances to case for investors, even value investors, broadening their idea palate.
    Jan 13, 2011. 11:14 AM | Likes Like |Link to Comment