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Mimedx V Concordia. The Time It Takes To Cut Up The Jaguar.


I get nervous when the market moves heavily against a trade thesis, especially when I am short.

When looking at historical case studies, the time it took from beginning to end is often lost in hindsight. It is helpful to remind ourselves from time to time.

When vocal short side commentators such as Marc Cohodes [@AlderLaneeggs] was involved in shaking Concordia [CXR:CN] from the tree, how long did it take?

Here are some comparisons in terms of percentage share drop over a period of time. Jaguars don't fall overnight.

Living in Australia means I am mostly asleep by the time the US market opens, and often asleep past its close. I think this is a good thing, as you don't get caught up by the day to day emotion of how your positions are moving.

As long as stops are in place, I'm all good, as I take multi-month and year positions. 

I returned from the US yesterday so I am suffering from a bit of jetlag. As such, I woke at about 2.30am and thought I would see how the market was going. I got a rude shock to see that Mimedx [MDXG:US] was up about 20% (trading day of the 19th July 2018 in US). 

What the!

It seems that the announcement of a new compliance person has gotten the market all hot to trot. In my experience, a single role does nothing to solve an organization's problems, but it shows how much shareholders are holding out for anything positive.

Why would a company that is clearly going to be in a lot of pain for a long period of time rebound by 20% with over five times the normal daily volume? What have I missed? 

So, I looked at the 5-year chart of Concordia, one of the other companies Marc Cohodes was significantly involved in all the way down. It was his podcast, with my fellow countrymen, The Jolly Swagmen Podcast [@jollyswagmenpod], that I listened to him, and found the Mimedx story and his involvement in Concordia.

What I heard aligned with my investing approach, which I talk about later for those that are interested. 

Anyway here is Concordia (5-year timeline selected);

Whilst it looks like a swift fall, in reality, it took nearly two years to lose 95% of its value, and three years to lose 99%. 

Here is a table of rough numbers showing the days from the last peak, along with the approx. percentage drops on the way down. It also has the rebounds along the way to show the number of times the market got it wrong.

So a few things;

- It took around 350-400 days to lose 95% of its value. We are only at about day 174 for Mimedx (from last major peak).

- As it came down to a 95% loss over that period, it had rebounds of 19% to 35% on the way (about 4-5 easily visible on the timescale selected).

- Once at 95% loss, it rebounded 48% before heading to an overall 99.8% loss. 

Here are the approx. Mimedx numbers on the same basis (I have used the same 5-year timescale so I can get rough parity on the number swings);


So for Mimedx, we are only about 174 days into a rough like for like journey. -Insert the song "We've only just begun" from the Carpenters here-. 

In both cases, it had a 20%-30% fall before making a new high right before the fun started.

Their respective first major drops were about 62% to 64% and took about 68-70 days. 

Then, Concordia needed an approx further 330 days to lose 95% of its value. Having already lost 95% of its value, and having a few more rebounds here and there, it took about another 280-300 days to lose 99% of its value. 

Said another way, you could have joined the party on the short side at about 300 days after the party started, and still ridden another 90% drop in the price. It's like a gift that keeps giving. 

Now Concordia and Mimedx are different companies, and one needs to be careful comparing too much. For one the debt position of these two companies is vastly different. My only real purpose for this comparison is just to show how long it takes for a short thesis, such as this, to play out. 

Boil it down- don't get upset just because of a 20% rebound, even if a large volume of the market disagrees with you, demonstrated by the high volume of shares traded. 

If the company is going to near zero, it will get there irrelevant of what the market does today. Ensure you have appropriate risk management, and an investment approach that allows you to digest and analyze available information to make good decisions. 

Investment approach ideas

For those interested, here is part of my investment approach that may be of interest. None of this is advice. It is just sharing ideas and experience. 

I believe that whilst it may not be easy to see, a company's fate is generally sealed well in advance depending on the company's management, and their ability to make the right decisions and implement them.

Additionally, there are external market influences out of their control that predetermines fate as well, i.e. some management teams never have a chance even if they are exceptional because the external factors are too great. 

If the only precursor to success was a good product, sufficient capital, and good leadership, then there would far more successful companies. And successful companies would be successful for far longer periods of time. Other things get in the way, and I concentrate on those other things to try and create an investing edge. 

These ideas make sense to me because I've built and run private and public companies, and today I consult with companies across a range of industries in different parts of the world. I've had successes, and also significant failures. It was not a lack of capital or a good idea that caused the failures. It was also not just good ideas with sufficient capital that created the success. 

To find new investing ideas, I follow various market commentators. For Mimedx it has been people such as Marc Cohodes [@Alderlaneeggs], Chris Irons from Quoth The Raven Research [@QTRResearch], Viceroy Research [@viceroyresearch] and Donut Shorts [@DonutShorts]. For others, it includes names such as Montana Skeptic [@MontanaSkeptic1] (found through QTR) and Muddy Waters Research [@muddywatersre].

They provide ideas and places to go do some research, but I don't just invest based on what they say. Bill Ackman's screw ups with Valiant Pharmaceuticals [BHC] on the long side, and Herbalife [HLF]  on the short side show that gurus, with great track records, and more information than I can dream of, get things wrong. 

Once I find an investment idea somewhere, I use the Organisational Lifecycle concepts developed by Dr Ichak Adizes, founder of the Adizes Insititute (where I consult), to look at taking a position. 

I am short Mimedx, not because of the muck the commentators have dredged up (although it sounds compelling). I am short because everything that is happening is predictable under the Adizes Lifecycle model and associated concepts. 

If people are interested (leave a comment if you are) I can write about how to use the concepts to compliment your investing approach (compliment- not replace). 

The secret to success of any organization

One concept is "integration". How integrated is the company? How together are they? How much do their staff and customers love them?

Analyse success and it mostly comes when integrated ecosystems combine with ideas and resources. Integration means they can take the ideas and resources and do something with them.

The opposite of integration is DIS-integration. Disintegration is destructive and takes energy away from opportunities and success. You can take the best idea, with the most resources, but if you have a disintegrated ecosystem, failure is the most likely option.

In the world we live in, energy is fixed at any point in time. 100% is 100%. There is no 150%.

Energy is also predictably allocated and consumed. It first goes to the "negative" so to speak. It first goes to feeding the disintegration, and only what is left over can support integration to achieve success. For example, before there is movement, friction and inertia must be overcome.

Success is a function of energy first lost to disintegration, and what's left is allocated to integration. 

Companies like Mimedx have had massive disintegration "bombs" dropped on them. And they are not one-off, with the likes of Cahodes throwing bombs on a daily basis.

The disintegration occurring in Mimedx ecosystem will be incredible. There will be destructive conflicts all over the place between values, perceptions, problem-solving styles, interests, definitions and roles all banging against each other.

Energy that used to go outside to attack the market, drive sales, build the pipeline, etc, irrelevant on whether was good or legal or not, will now not be available. All the energy will be firefighting rather than building. 

It will be sucked up into court cases, staffing problems, client problems, supplier problems, regulators etc. This is a difficult time to survive. 

So I am riding Mimedx far lower in my humble opinion as we have not seen the full extent of disintegration play out, given the market cap is still close to US$450mil.

I was late to the party, but it doesn't mean I have missed it completely as Concordia showed. 

Applying Adizes Organizational Lifecycle Model

There is a phase called "Adolescence" which is another interesting phase to use in an investing context. Like the human lifecycle, it is a difficult period.

Mimedx is now starting this phase. Parker is out, and a new gun for hire is in (on $1000 per hour no-less, quite extraordinary and hardly "integrated" with shareholder's interests).

It will be a rebirth of sorts, where the organization has to get its own controls, mission, and structure away from the former parent. 

Just like the human lifecycle, the Adolocensense phase is difficult and comes with a lot of angst and conflicts. Whilst humans generally come out of this phase, the majority of companies don't. They bring in people from much older phases of the lifecycle who put too many systems and controls in place too early. The pendulum goes too far to the other side.

The company loses its ability to respond and it dies. Sometimes quick, sometimes fast. A small percentage survive and go onto great things. By the looks of things, the research done by the commentators I mentioned earlier seems to show Mimedx don't even have a tested and true product lineup, so it's going to be even more difficult to survive this. 

There are many examples of how to use the adolescent phase to complement your investing. What happened to Apple when Skully took over and Jobs left? Apple had products that their target market loved, but organizationally they suffered issues for a long while. 

What happened to GE after the "worlds greatest" leader Jack Welsh left? I bet if you do some research on either founders, or professional executives that essentially controlled the organization like a founder does, you'll see some pretty strong patterns that the Adizes model explains and predicts. 

The majority of organizations don't understand this, and the company becomes less effective with the loss of the "parent", or worse case, dies altogether. In the case of Mimedx where it seems the parent has been presiding over some bad behaviors, it's going to be an even more challenging time. 

A recent example of the transition to Adolescence and subsequent disintegration events in Australia is Blue Sky Alternative [BLA: ASX] Investments. I'm not sure we'll see a chart like that anytime soon. 

To summarise- adolescence is a risky time to be long. I can't say "absolutely don't be long during adolescence", as there are other factors. Understand, however, behind the scenes there are new machinations and conflicts manifesting that will soon flow out into the financials. 


Another example that may be of interest is Tesla. 

I have never bet against Telsa and Musk because whilst financially it looks like a basket case, it seemed highly "integrated". The Adizes model has the phase of "Go-Go" which Musk and associated companies show all the normal signs. I don't bet against Go-Go, even if the financials look a bit tight, and some people don't believe the story. 

I only bet against Go-Go once abnormal problems start to manifest and disintegration becomes apparent. 

In the context of Musk, it is funny that one of the sayings for describing this phase is "Go-Go is like space syndrome, expanding at the edges, collapsing at the core". This is Musk and Tesla through and through. It was Solar City as well, until Musk orchestrated a highly dubious bailout by Tesla. 

I was always going to wait until Adolescence started properly before even considering a short position. I thought this would be when Musk got bored and wanted to focus on Space X. Musk looked like a genius that wouldn't be captured by the Adizes Model, but now he is my biggest marketing asset in sharing these ideas. 

He is now showing all the abnormal problems of Go-Go, which then leads to Adolescence, in time. Let's look at the abnormal problems that get companies and people like Musk into trouble;

- Arrogant and overconfident. Check. 

- Total lack of focus. #dildosub, flint water, flamethrower, etc. Check.

- No controls. Where to start. Check

- Reliance on miracles. Sustained Model 3 production target achievement without raising capital this year. Check. 

- Premature profit focus. The arbitrary investor pleasing target for Q3 that will drive bad behaviors. Check

- Repeated Go-Go. Not yet. 

Meatloaf said 2 out of 3 ain't bad, so I think he would also say 5 out of 6 is pretty good. But this is not enough alone. Have these factors created disintegration that will, in turn, lead to performance problems? 

If you look at his behavior, he is a 'disintegration making machine' at the moment (I summarise Trump as the ultimate disintegration machine). Musk and his antics are soaking up his own and the company's energy from solving its problems and capitalizing on its opportunities. 

There are a range of advance signs of disintegration, and one of them is executive resignations, and the other is picking useless fights or targeting projects that have no relevance to the underlying business (#dildosub).

Entrepreneurs usually behave like this when there are underlying issues in their business. They can't admit it to themselves or others and think they will push through it by getting more aggressive. Investors that trust the words of an entrepreneur that is currently behaving like this are in for a rude shock. 

Then add to the insane market cap and debt load increasing.......

So only now have I taken a short position in Telsa, although it is very small, as I fear he is going to use all sorts of tricks to get a good Q3 that make things look like problems are solved.

The real fun may only start in Q4 or later. But you have to be in it win it. I'll build my position as the months go on, depending on what information comes to light.

I am also willing "to bet a signed dollar bill", that they manipulate the Q3 numbers, and close to the end of Q4 Musk says "job done" and announces a "managed" transition out of the CEO role into Executive Chairman role under the guise of "time to professionalize", Musk then moves more to Space X, and the newly appointed CEO is left with the mess.


Maybe there are some ideas for you to add and complement your investing strategy. Leave a comment with any questions you would like answered. 

Disclosure: I am/we are short TSLA, MDXG.