Special Situations Investing

The Short Case on INVESTools

Instead of arguing over something that really isn't that important in the scheme of things, I will issue an updated article. This article will include a thorough analysis of the discount brokerage industry making use of the Five Forces Model, a value chain analysis, recent industry trends and company news releases, and will make use of a DCF that will incorporate 3 scenarios (Base Case, Bear Case, Bull Case) with sensitivity tables, an LBO model, comparable multiples, and comparable transactions. I will also look to value any imbedded real options within Investool shares to cover all the bases in my valuation framework. If I am missing anything, please let me know.

Best,

Paul Simenauer

The Short Case on INVESTools

Also, you can accuse me of being a sore loser all you want, but it can also be said that you're a sore winner. I clearly conceded the argument stating that I was incorrect, asked for positive feedback, and all you had to say was that you were wasting your time. Let's not have double standards, shall we?

The Short Case on INVESTools

Mr. Chungst, you may be the most negative person I have come across. It ceases to be a useful debate when Mr. Chungst has nothing positive to say whatsoever and clearly shows a complete lack of skill with the English language. Enjoy your misery!

To highlight more of your subtle writing skills, I came across this comment on Paul Kedrosky's article on Bill Miller:

In the Asset Management industry, rather than speculate if a perticular asset manager beat an index by luck or chance, the industry normal is to look at the fund's performance attribution over time.

Industry normal is incorrect. Industry standard is the correct phase. Go take some English lessons!

The Short Case on INVESTools

The aphorism you mentioned is an incomplete thought in the English language. I think you meant to put forth the following well quoted aphorism- Who's the more foolish? The fool or the fool who follows him?

Interestingly enough, Obi-Wan also quoted this aphorism in Star Wars Episode IV: A New Hope, right after the Millennium Falcon enters the Death Star. Why this is relevant is beyond me, but I hope you would find this amusing.

The Short Case on INVESTools

I'm not. I simply was trying to get you to comment, which you did. You crack me up! You need to relax a little.

The Short Case on INVESTools

Chungst, do you have any thoughts of the impact of possible customers who are dissatisfied with the Investools product and the affect it will have on future growth for Investools going forward? It seems that reviews for the product are mixed based on comments I have read on discussion boards, with some students very satisfied with the company's products, including yourself, while others haven't been as successful. The recurring revenue business model for Investools looks very favorable, and the DART stats are excellent to say the very least, giving management a good handle to manage growth and giving investors some good visibility. I'm trying to figure out what the downside risk is as I like to focus on this before even contemplating the upside. Again, thank you for helping me understand Investools business model.

See the following link to comments to the article published on joecit's website: joecit.com/2007/03/13/...

Morningstar: Stealth Growth Stock

WACC of 14%. All equity firms should have higher costs of capital. Model is available from me via e-mail at [e-mail]. Feel free to contact me.

The Short Case on INVESTools

I agree that I was dead wrong on SWIM and appreciate your help.

Prophet.net subscriptions:

Bronze- $35 a month/$350 a year.
Silver- $45 a month/$450 a year.
Gold- $65 a month/$650 a year.

Over 100,000 active subscribers to Investools Online, Prophet.net, and Investools FX as per 11/9 press release.

The Short Case on INVESTools

I took offense to the following comment: "his analysis comes across as something conceived and written in thirty minutes."

I still see INVESTools as a faddish product, distinct from ThinkOrSwim, which based on recent metrics is an excellent business. I also acknowledged the company's business model in my reply, showing that I do understand how the company makes money.

Thanks for your criticism as it has been helpful. Have a good Thanksgiving.

The Short Case on INVESTools

I welcome any intelligent debate, although do not appreciate how you begin your criticism with a personal attack, which is considered bad form in any argument. I concur that based on the facts you have laid out, their business model, with a significant amount of recurring revenue and ability to scale, is attractive. Furthermore, ThinkorSwim and Prophet.net enhance this value, which you correctly pointed out.

Still, my main concern is the product itself, as I don't see how helpful this product really is for the company's target audience of retail investors. Until I see some data that shows users outperforming the market, I will remain skeptical. Ultimately, one must ask if the customer is really better off for using INVESTools. In my opinion, the long term viability of INVESTools hinges on this fact.

On the other hand, you have mentioned that as a subscriber, and I would assume as an institutional investor (as you have your MBA and CFA), you appreciate their product as it provides timely financial information for a low cost of $50/month, especially Prophet.net, which is a lot less than Bloomberg and other types of information platforms. If this is the case, then perhaps the company should be focusing on institutional customers, as opposed to marketing their product to retail investors.

I appreciate your detailed commentary, as it was well informed and tells me that at least someone is reading my articles. If my writing invokes debate, all the better. Only through rigorous analysis and questioning of facts can we ultimately arrive at the truth.

The Solar Sector: Tomorrow’s Winners Today

The solar industry has serious polysilicon supply constraints, as their is a steep learning curve in polysilicon production, and high fixed investments in plant and equipment, creating high barriers to entry. Thus, the power in the industry is currently concentrated in the hands of polysilicon suppliers, including MEMC (WFR), and Wacker Chemie (WCH.F). Downstream names that are worth looking at are SPWR, STP, ESLR, FSLR, and ENER. My best advice for fast growing, emerging industries is to buy the suppliers. Solar machinery is made by Roth & Rau (R8R.F), while the afformentioned MEMC and Wacker Chemie are excellent plays on polysilicon and are making money hand over fist. For more information, go to solarbuzz.com, an excellent, free industry website.

Morningstar: Stealth Growth Stock

My site has been updated: simenauerbrothers.blog...

Morningstar: Stealth Growth Stock

8.1% was a mental error as I had not been getting much sleep at the time of publishing. Apologies. The model has been updated and I will release an update soon.

The Fed Panics and Cuts Rates

My thought is to look ahead five or ten years and think about some likely scenarios that will play out, as this too shall pass. Play defense for the time being by owning Pepsi, Coke, P&G, and Colgate, as well as high growth names, like HPQ, VDSI, and GRMN (look in the IBD 100 for more ideas here). True growth stocks have been ignored over the past several years and surely deserve higher multiples.

Going forward, I believe that further development of technology will continue to increase productivity, especially nanotechnology, which is an industry that is still in its infancy. Very few pure plays exist presently, but Harris & Harris (TINY) does come to mind. It would be better to own a field of these names, and Newbridge provides a pretty good list of nanotechnology names. Alternative energy, with strong government sponsorship (though hopefully this does not last forever), is another interesting area that attempts to address a serious and obvious problem. In the near term, the best plays here are the pic and ax stories that will supply the entire industry such as WFR, KDN, and Roth & Rau (R8R.F). Finally, infrastructure is decaying around the world as much of it was put in place decades ago and lots of spending is needed. As dull as this sounds, utilities will be the key benefactor of infrastructure development, with ITC, VE, and SZE as my favorite names.

Can Syntax-Brillian Compete With Vizio?

BRLC has a very risky business model with ~50% of sales coming from South China House of Technology, and most of their manufacturing work done by Kolin, which owns a significant stake in BRLC and at times has acted at less than arms length. There was excellent research written on this website regarding BRLC's use of reserves to lower their COGS. BRLC at this time is an excellent short candidate unless their business model is improved and they report their numbers more honestly. The electronics industry is too competitive to have a dishonest management team that is asleep at the wheel.