Morgan Housel: What other industries teach us about investing

January 23, 2018 Leave a comment

This is a really good presentation from Morgan Housel about lesson we can take from other industries and apply to investing. Morgan has an incredible talent in distilling the key points and presenting it.

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Categories: Uncategorized

2017 Performance

January 4, 2018 10 comments

2017 was a crazy year. The S&P500 index has been on a tear the last 8 years. And 2017 wasn’t any different. The market ended the year up 19.41%. For the last 9 years, the index has been averaging 14.13% annual. Historically the index has returned approximately 10% annual since 1928 to 2014. So the last 9 years have been extremely bullish. We don’t expect the index to give this type of return going forward but with the low interest rates and herd mentality, I don’t expect things to correct anytime soon.

My portfolio returned 139.91% in 2017. The year was largely impacted by 5 very large returns. The knew these companies were cheap but we didn’t expect this type of return in a short time period. The big winners were HemaCare (215% return), Bewhere Holdings (300%), Petro River Oil (268%), Total  Telcom (110%), and Valeura Energy (253%). Out of these 5 holdings, we sold out of all except Valeura.

We ended the year with 3 position on our portfolio. We sold out of all other positions as I believe these 3 positions have huge upside potential in 2017. It was hard selling some of our holdings (HemaCare and Schmitt) but I think the current positions have huge short-term  catalyst.

Current holdings:

Valeura Energy (VLE): This is our biggest position. The company’s first test well with the Statoil partnership has been a success. The results from the well are much better than management had expected. The market rewarded the stock price by moving it up more than 7x in the last 2 months. But I think this is just the beginning. The main reason is institutions still haven’t started buying up the shares. Also even after the 7x run-up, the company is still valued very cheaply. The company will have a resource update in late January, which should be a major catalyst to get other aware of the company and the asset they own. I think the most likely outcome for this company is a buyout and it is likely to happen in 2018.

Unidentified company #1: This is a company that we became aware of by looking at insider buys. It is very rare that I see the type of buying from the CEO that I saw for this company. After digging around on the company, I initially didn’t find much that would shed a light on why the CEO is buying. But then following the press releases the company put out it started to become clear the company has some special assets that is making the insider buy. Digging around online it is easy to see which asset it is. This is a sub-$6M market cap company with an asset that is likely worth in the billions. From the press releases it seems clear the company is likely to sell these assets. Again we see this as a short-term catalyst that should have great rewards for shareholders.

Grande West Transportation (BUS): This company I’ve followed for the last 2 years. I knew the story but never got that excited by the valuation. But in late 2017, I noticed couple of things that lined up perfectly and made me build an initial position. The insider buying on this one is huge. Over a year ago, insiders had buying when it was selling at fraction of the current price. Even after going up multiples, insiders didn’t stop buying. The constant insider buying and that too multiple different directors, made it very appealing. The company also has been a huge success in Canada and has recently entered US market. The upside from the US market is huge and they have the right product to win this market. If successful, the company can easily be worth multiples. Also I expect the orders from US to start coming in early 2018. Finally, in late 2017 the stock dropped from $3.45 to $2. This created a great opportunity to start a position. (Recently I sold out of BUS. I wanted the capital to allocate to VLE due to the recent pull back in VLE).

 

Although I’m concentrated in 2 plays (VLE and Unidentified #1), I feel that the risk is extremely low that I can lose. I think both of these companies are extremely cheap and once the market becomes aware of what is happening, the stock will be worth multiples. Also, I think the catalyst is in place for the market to wake up in early 2018. I feel like the biggest risk is me doing something stupid, like selling too early. Although 2017 has been good, I think 2018 is likely to be even better.

 

 

Categories: Performance

Moats

December 21, 2017 Leave a comment

This is a fascinating look at moat that Google Map has created over Apple (or any other mapping software).

Categories: Uncategorized

VLE: Successful 3rd flow test

December 19, 2017 Leave a comment

So far VLE had been 2 for 2 on their first test deep well. The company recently announced that their 3rd flow test has been a success. The results are similar to what the first and second (2nd test results were hurt by a mechanical issue) test.

Over the final 24 hours of stable flow, the well was produced at an average restricted rate of approximately 0.9 million cubic feet per day (“MMcf/d“) of natural gas. This rate compares to the final 24-hour rate of 0.8 MMcf/d in both Test #1 and Test #2.

Condensate production in the range of 20 to 30 barrels per MMcf was observed in Test #3. The condensate measurement is subject to considerable uncertainty given the nature of the testing protocol and the short duration of the testing.

So far VLE has shown production of 2.5 MMcf/d of natural gas at the restricted rate. Cormark recently made a comment that on a production well the company could easily show 10-30 MMcf/d. Now these are absurd numbers and the valuation for VLE just looks stupid cheap (even after a recent 5x+ in a month).

At production of 10 MMcf/d and gas prices at $7 mcf in Turkey, the annual revenue from one well could $25M+. And the cost per well should be around $6-8M. Clearly the ROI on this asset is superb for anyone to deal with the low country risk.

 

 

Categories: Updates Tags:

Interview w/ Mark Cuban

December 14, 2017 Leave a comment

This is a great interview w/ Mark Cuban. He might be brash and out-spoken but he is really sharp as a business man. Great stuff on his discuss about AI, Federal Banks, and raising kids.

Watching this video, I can’ imagine how the US would be doing if he had run for president and beaten Trump.

Categories: Uncategorized

VLE: Update on 2nd flow test

December 12, 2017 Leave a comment

The good news from VLE keeps flowing, like the gas from their first test well. VLE announced the 2nd flow test from their test well. The results from the 2nd flow test were as good, and likely better, than the first test.

Over the final 24 hours of the test the well was produced at an average restricted rate of approximately 0.8 million cubic feet per day (“MMcf/d“) of natural gas. A similar final 24-hour natural gas rate was achieved in Test #1.

The initial production rate for several hours from Test #2 was higher than the initial rate measured in Test #1. However, surface pressure measurements suggest that several hours into Test #2, there was a failure of downhole equipment that appears to have obstructed production for the remainder of the test period, including the final 24-hour test rate noted above.  Condensate production in the range of 30 to 40 barrels per MMcf was observed in this test. The condensate measurement is subject to considerable uncertainty given the nature of the testing protocol and the short duration of the testing.

Although the average rate is similar to Test #1, the key is the results were actually much higher than Test #1. There was an equipment failure (the plug for Test #1 came off) that obstructed the production.

The other important aspect is the condensate production. This is a huge surprise as it was never expected to find condensate. This is a nice upside and, again, the flow rates are likely much higher than what the company is reporting.

As Hydra Capital mentions:

Given that Cormark analyst Garret Ursu had previously pegged an aggregate rate of 0.5 mmcf/d as the “technical success” hurdle for the whole well, to see another zone match/exceed that rate from a single zone is impressive indeed.

The flow rates from these test results are extremely good. Even the expectation that the lone analyst was expecting, 0.5 mmcf/d for the whole well, has been completely blown away.

We now have 2 more flow test remaining. I think we see results from one before the end of 2017. After that the economic resource estimate will be published in mid-to-late Jan. This will be a huge catalyst for the stock and will likely start the buyout conversations.

Feels like Xmas came early for the VLE holders.

 

Categories: Updates

Valeura Energy: A major discovery

December 6, 2017 Leave a comment

Valeura Energy provided an update on the first deep exploration well.  The company has 4 planned production tests for this well and they announced the first test results. The positive results were superb and build a case for a very large find.

Over the final 24 hours of the test the well was produced at an average restricted rate of approximately 0.8 million cubic feet per day (“MMcf/d”) of natural gas and 60 to 70 barrels per day of 56o API gravity condensate (70 to 80 barrels per MMcf). At the end of the test, the well was still cleaning up.

Although the Corporation had previously advised that aggregate test results would be disclosed at the end of the test program after all four planned production tests were completed, these interim production test results have exceeded expectations and are viewed as material to the Corporation. The results are also encouraging given that this first production test was in the deepest and lowest porosity test interval. Additionally, the test only accessed approximately 10% of the planned total net pay to be production tested in the well. The condensate content of the gas was also much higher than expected and is a significant value addition to any future on-stream sales.

The huge news is the company wasn’t planning on releasing any of the test well results until mid-Jan, when the testing would be completed. But the initial results were superb.

The key thing now is to wait until mid-to-late Jan when the company will release the resource update. At that point we will really see institutions wake up to the upside on this play and the valuation will reflect the potential sale price of the company.

You can read more about the test results and some valuation comparisons here.

I tripled my position in VLE once the initial test results came out.

Categories: Updates