When I was in 8th grade, I lost $20 playing three card monte outside of Grand Central Terminal, an experience I'd be ashamed to admit were it not for the lesson I gained in the process: It's important to know what you're getting into before you lay out the cash.
That tidy conclusion would be a nice segue for the topic at hand, but in full disclosure, it's worth mentioning the rest of the story. I had no train fare! The shivering realization of consequence frightened me and I started to freak out. I didn't know the game was rigged, but I knew I had no way of getting home and I was in a panic.
To make me go away, the crew (3 cm is always a crew) gave me back $4 for the ride home. Though lighter by $16, i'd gained a further education in managing risk; make sure your mistakes don't leave you stranded.
I imagine the inexperience of youth forms the foundation of so many of our future endeavors, but I had no idea then how proximate mine would become. Years later, here I am, running an investment management firm dedicated to fundamental research and downside risk management.
I've been thinking about this following recent news on Bloomberg that Goldman Sachs is the new customer on the INS CoreCard platform. Close readers know that back in December, when I presented on Intelsys for MOI, I mentioned the scuttlebutt that Goldman was the large customer driving customization revenues for a license due to close in early 2019.
Where did I learn that information? Nobody at the company told me. It's not available in financial filings. But the basis of the work I've been doing since college, as a writer, factchecker, PI and in institutional equity research, is trying to figure things out. Information is the foundation of fundamental analysis.
Information, for the fundamental analyst, is the air we breathe, and it always starts with some independent variable that can be tested and assessed, like historical financial statements. Not charts. Not trading patterns. Not analyst reports. Not forecasts based on imaginary futures. Not hot tips. Not whisper numbers.
Then (if you like what you see) the fun begins; figuring out what you don't know and where you can find it. I find this often takes time, and like any creative pursuit, emanates sometimes from intense focus or sometimes from intense distraction. Either way, the goal is to understand - qualitatively - what led to the quantitative information in the filings, how sustainable it is, and what, if anything, is changing.
Sources of information can come from reading news or industry rags, sometimes through the public filing of a non-financial document, sometimes as a passing comment at an industry conference, sometimes as a note passed over the transom, sometimes it's simply shared by another investor.
The key is that experienced observers - from investors to fishermen to mechanics - can identify information based on tell-tale signals that appear as noise to most everyone else.
The information that I see around INS isn't limited to this one specific piece of news now reported by Bloomberg, but on the company as a whole, which to mine eyes is different, unique and unusual.
To name a few: It is an owner / operator company run by the same CEO for +30 years who owns 25% of the company with limited dilution. This isn't his first rodeo in payment processing, and he's focused on building a strong, durable and flexible platform that now offers processing as well as licensing. That's recurring revenue in a business with a huge TAM. And he's just signed one of the premier customers in the space.
CoreCard has been funded over the last 15 years through cash generated by another operating company that Intelsys has since sold, to the frustration of shareholders. Now the company is growing, profitable and cf+ (and only spends 200 bps on marketing). I could go on and on... but if the news reported by Bloomberg is true, kudos for landing such a large contract. IMHO, the ingredients exist for continued success.