THE TRAGIC TALE OF SOLAZYME (SZYM)
When the market tanks or current events ransack our portfolios and peace of mind, it’s good to step back and take a broader view in order to escape the stress. Getting lost in the past might be a nice distraction today.
So, with this in mind, I went back to the beginning of our board to scroll through posts. And one stock caught my eye. It stirred passions, had some wild swings and holds invaluable lessons about the board, our method and investing in general.
Before we start – cause I’m telling you up front this story will not end well – keep this mind: this post is not meant to troll. It’s meant to help us identify what not to do - lose money. It’s inspired by Charlie Munger’s passion for inversion, for figuring out how to do things by figuring out how not to do them. In other words, “Show me where I’m going to die so I won’t go there.”
This story will cover an entire year – 2014 – in the life of an extraordinary Saul stock. And I submit it knowing full well that had I been on the board then I no doubt would have lost my behind.
Alright, onto business and The Tragic Tale of Solazyme (SYZM) …
Our story begins on JANUARY 2, 2014
In the board’s very first thread, Saul explains the makeup of his port, which consists of 25 positions. The average size is roughly 4% but the range is roughly from 0.5% all the way up to a “very large” position of 7.5%. Of his first 25 stocks on the SID board, one is called, Solazyme, ticker symbol SZYM. According to Wikipedia…
Solazyme, Inc., was founded on 31 March 2003, with the mission of utilizing microalgae to create a renewable source of energy and transportation fuels Founders Jonathan S. Wolfson and Harrison Dillon, who met while attending Emory University, started the company in Wolfson’s garage. About their partnership, Dillon said: "Neither of us wanted to go work for some giant organization where we were a tiny cog in a huge wheel. We wanted to make a difference and create something that had never existed before.”
In his first mention of the stock on our board, Saul says, perhaps ominously,
SZYM is an exception to my policy of not buying money-losing startups.
On JANUARY 31, 2014 he posts….
When I listed the stocks in my portfolio, I wrote “SYZM is an exception to my policy of not buying money-losing startups.”
Well today they announced the beginning of commercial operations in two of their plants. This must have been what the market wanted to hear, as they are up an incredible 30.5% as I write.
The stock kicks off the year strong. It moves around between $10-$14 per share, with a market cap around the 700m mark.
On FEBRUARY 27, 2014 Saul posts …
I have always pointed out that SZYM is an exception to my not buying development level companies. Well they started commercial production in two large factories during the quarter. Analysts are raising target prices.
The future looks bright. But some posters are concerned…
A month later on MARCH 29, 2014 a Fool named gatorswamp asks if he’s missing something and notes…
On quick glance, This did not look like a Saul stock.
No earnings
P/S 18!
No revenue growth
increasing losses on operating income and FCF
Saul responds…
If you look back you’ll see that each time I listed my stocks, or gave my investing guidelines, I specified that SZYM was an exception to my principles. But it isn’t really, as I said I didn’t believe in companies that were going to have profits some time in the vague indefinite future (like early stage biotech’s, and WPRT). But SZYM already had little factories going, were selling product (Algenist) successfully, and had these two huge factories about to come online. (They just did).
It’ll take a while until it all settles out, but this looks like it’s going to be a big, successful company.
On MARCH 31, 2014 – in a post entitled “SYZM comments” a Fool named Mykiemon, shares a post from someone who goes by geosteam, who is an “apparent knowledgeable shareholder” who raves about Solazyme’s technology …
… A microscopic, hard shelled Encapso capsule, filled with lubricating oil, is added to drilling mud. Millions of these capsule begin their journey at near ambient temperature and pressure and then in a few milliseconds as the slurry passes through the drill rig’s mud pump the pressure is raised to perhaps 5,000 psi (mud pumps are driven by locomotive-sized engines - 2,000 hp is common)…
The technology is amazing enough, but for me even more astonishing is how the Solazyme researchers came to produce such a product at all. It is not an obvious usage. I doubt if a mud engineer called Solazyme and asked if their oils could help speed down hole drilling…
For me this suggests that company is extremely well managed, and after a couple of days of reflection, I conclude I have never owned a company which has been so well managed, that could develop such a unique product.
Geosteam breathlessly races to shovel money into the stock thrilled with the technology, management’s creativity and even applauds them for periodically addressing investors.
And this bizarre compliment to management, for doing what they should do, is a sign that emotions may be clouding sound judgment.
On APRIL 12 Saul writes in his post, “My choices for Best Buy Now” ….
SZYM – Everything is going right with this company which could turn out to be a very major company as all its factories come on line. It’s down $4.00 from its high of $14.70 four weeks ago to $10.70 now. I’d consider it high priority.
On MAY 2 MykieMon posts a link to a Unilever post (now gone) presumably about the multinationals’ intention to use a tremendous amount of Solazyme’s products. Says Mikiemon,
I bring the above info from Unilever to the adults that can control their disappointment should we NOT have a wonderful bit of news from SZYM on the 5th and an equally important announcement by BUNGE on May 1st … I’ve never seen a company with such great products and so well researched and seemingly accepted by the caliber of partners these guys are lining up. The sinking share price is exciting to me. Truly, if the news is as good as I think, the jump up will be all the more dynamic.
That same day, Saul adds…
I wonder if completion of product validation trials and recently completed manufacturing trial says anything about Moema being open, or just refers to Unilever’s manufacturing. It being on-shelf in Brazil makes me wonder.
I agree that partnerships with companies like Unilever is much more important than whether the factory is up and running a month or two sooner or later. This is going to become a great company. Two or three years from now we may look back on $10 price for this stock the way Tesla owners look at $30 for their stock.
JMHO (I added a tiny bit yesterday).
There’s unity on the board, this stock has extraordinary potential, elite partners to validate the product and is starting execute on its vision. The potential is extraordinary.
On MAY 22, 2014 Saul compliments…
A presentation Mykie posted with the following commentary by Mykie…
Bunge factory opening but more importantly, you can get a clear vision of the size of the opportunity this company is facing. There’s a lot that can go wrong but for my money, this is worth the wait.
http://wsw.com/webcast/baird38/SZYM/
PS towards the end he gets misty eyed when talking about the size of the opportunity so I suggest listening to it all.
Saul copied the above from Mykie’s post and adds…
Great presentation Mykie. It should be a must for anyone thinking about SZYM. He really gives a picture of the history of the company, where it is now, and where it’s going in the future.
Again, a warning sign in all the optimism, as Mykie notes, “there’s a lot that can go wrong” that was perhaps lost in the excitement of technology that is so exciting it brought mist to the eyes of the presenter.
On May 29, 2014 Saul writes…
This is big news for them. A lot of people were worried about delays in the plant starting up. Clearly there is nothing wrong.
And shares a snippet from an article…
Announced that its joint venture with Bunge has successfully produced its first commercially saleable products on full-scale production lines, including the 625,000L fermentation tanks, at the Solazyme Bunge Renewable Oils plant in Brazil. Both oil and encapsulated lubricant, Encapso, products have been manufactured; production is continuing and is expected to reach nameplate capacity within the next 12-18 months.
The company appears to be firing on all cylinders.
On JUNE 1, 2014 Saul links to a Seeking Alpha article entitled…
What A Successful Moema Launch Means For Solazyme
https://seekingalpha.com/article/2247403-what-a-successful-m…
The article begins…
Renewable oils and bioproducts producer, Solazyme (SZYM), is in the business of using biotechnology to solve some of society’s largest problems with some of the world’s smallest organisms. The heterotrophic algae producer uses a controlled fermentation process to transform the world’s abundance of carbohydrates into large volumes of uniquely customized oil profiles. In doing so, the company’s technology appears capable of alleviating our reliance on crude oil, of increasing the world’s food supply, of providing alternatives to the factors leading to deforestation, and of improving the nutrition profile for the foods we eat.
Holy moly! And if all that’s not enough they also have, I kid you not, a cosmetics division.
The author of his article is a writer named Kevin Quon who writes frequently about the stock on Seekin Alpha and who is extremely bullish. In fact, as you’ll see later in this story, he will take his bullishness to heights that could reasonably be called madness. And note, though, that he is no dummy but a highly regarded financial blogger who will, over the next few years, earn a very high ranking on the site, Tip Ranks.
At some point this Summer the market hit a very rough patch and several posters note that Saul accurately called the bottom. Saul notes his call was just luck but, regardless, his assurance the world was not ending is one he’ll continue making until this very day.
Through June all Saul’s mentions of Solazyme are positive and he feels the stock is well on its way to “becoming a behemoth.”
In one post, MykieMon details the bull case but includes one of the funnier footnotes to a post I’ve ever read. Says Mykie…
Please do your own research however, since I am known to miss lots of facts, be inaccurate at times, misinterpret, confuse and glom on to the wrong points at the wrong times.
At this point, there is some worry that anti-GMO (Genetically Modified Oragnism) factions will cause trouble for Solazyme. And GauchoChris causes a bit of a ruckus when he insults the brainpower of these folks. I won’t detail this little battle, but just point out that like with Fastly, some stocks simply provoke more intense emotions than others and SZYM was one.
Here, another solid writer, the Fool’s own Maxx Chatsko tackles myths surrounding SYZM head on, dissecting and eviscerating each one here…
7 Busted Myths About Solazyme’s Renewable Oils
Let’s set the facts straight before misinformation takes hold
https://www.fool.com/investing/general/2014/06/17/7-busted-m…
Note how strong the bull case looks at this point: analysts at the Fool, Seeking Alpha, tech savvy Fools like Geosteam and on our board’s top investors buy the story. The company is moving the plan forward and the potential is massive. Is the dreaded “GroupThink” settling in, distorting judgment? Is this just something that happens in a dynamic, ever changing market – things look great until they don’t? Or does this investment thesis have structural flaws that doomed it from the start? More evidence for this last point appears in another article by Kevin Quon…
“Did Solazyme Just Patent a Treatment for Diabetes?”
http://seekingalpha.com/article/2270273 ?
From a straight-up Narrative point of view, things are getting outright silly. If something is too good to be true, 99.9% of the time it’s too good to be true. They are going to revolutionize fuel, food, cosmetics and now add on top of all that a cure for one of the deadliest diseases. Even uber-bull Quon notes,
“Solazyme has never been an easy company to understand. The company has its hands in a wide variety of markets through its business partners.”
This high degree of complexity is a red flag and something you certainly don’t see in any of our current list of most popular stocks. Zoom does video communication. Crowdstrike thwarts computer attacks. Docusing manages digital contracts. Peloton helps people get and stay fit.
At the END OF JULY Saul’s position is seven percent.
Some posters question the large number of insider sales but, as always, this is dismissed as irrelevant as insiders still own tons of shares. And sell for many reasons.
On JULY 30, 2014 Gaucho writes…
SZYM announced financial results for Q2 2014. Non-GAAP loss was $32M. I think the earnings not the most important thing right now. What’s more important is that SZYM make progress on finding customers for their capacity and that they’re capacity continues to come on line without major issues.
I listened to the conference call. The key takeaway for me was that they have 75 potential customers evaluating their manufacturing facility in Clinton/Galva. That certainly sounds impressive. I would think that a potential customer must have a fairly high minimum supply need for SZYM to expend resources on letting them evaluate SZYM production capabilities. The CEO also said that many of these customers do not allow SZYM to identify them at this stage.
What stands out here is “potential customers evaluating” and it’s interesting that there are 75 unknown customers who presumably have big needsd for the Solazyme’s products, but we can’t know who they are.
On AUGUST 1, 2014 Saul provides some “Thoughts on SZYM 2nd Q results”…
https://boards.fool.com/thoughts-on-szym-2nd-q-results-31351…
I thought the SZYM results were everything I could have wished for. They accomplished everything they needed to and more, and in a year or two, no one will even remember that the Bunge factory started production in late May instead of mid April of 2014, or that the revenues this quarter were below some analysts estimate.
In his END OF AUGUST REVIEW Saul writes, “SZYM – You know the story. No profits yet but they are doing everything right.”
On SEP 4, 2014 someone asks about a big drop in the price of the stock, and another poster notes someone sold 50,000 shares that “appears to have cascaded into a small sell off” but no one seems to care about this post at all.
On SEP 13, 2014 At the time, Saul stocks as a whole are taking a shellacking. Of SZYM he says, “an average plus position. SZYM is proving to me once again that buying story stocks that are not yet profitable is damn risky. Sorry, the news isn’t at all bad, but the stock action is.”
Doubt creeps in. Note that “Story” stocks is used as a pejorative to denote a great story in the classic sense – high on emotion, drama, excitement, etc. This is, again, very different than a great stock story which is all about how easy it will be for the stock to massively appreciate in value.
On SEPTEMBER 26, 2014 as he’s done many, many times since founding this board, Saul titles a post “End of the world?” and reminds Fools the world is in fact notending…
“I suspect everyone is shell-shocked from the pounding they’ve been getting from the market the last couple of weeks. Well, I think that the chances that the world is coming to an end in the next week are vastly overrated. As Mark Twain said “The reports of my death have been greatly exaggerated”.”
I believe that here the worry was something to do with the Chinese housing market causing some type of global financial contagion that would end world finance.
On SEPTEMBER 30, 2014 Saul responds to a poster wondering why the SZYM stock price is falling with, “I see nothing except lack of news that is making the stock go down. In their last quarterly report they seemed to be doing everything that I could ask for, although perhaps slightly slower than I would prefer.
Note here that in 2020, several times Saul has treated mysterious drops in the price of a stock with respect, wondering if it is possible the Market knows something we don’t.
Another poster, mview writes,
… SZYM has long been a development company and is just now transitioning to a commercial/manufacturing company. They are starting up two large plants. Setbacks are expected and understandable. So far nothing that has happened has changed long-term investment thesis in my opinion. The potential Szym had to offer when its stock price was at $14 is still intact today with its stock price below $8. What is different is that irrational exuberance is replaced with irrational despair. Its a buy opportunity to me if I didn’t already have a fairly large position.
It will take about 12 to 18 months to ramp up the plant volume. We need to watch closely how it progresses in that front.
Though the stock price drops, the company faces tough challenges and a long way to go, the poster makes excuses. “Setbacks are expected and understandable.” The poster notes the long-term thesis is intact. And claims the stock is every bit as good at $8 as it was at $14. And yet again, claims this is another “buy opportunity.” But this is a very odd line, “What is different is that irrational exuberance is replaced with irrational despair”. So, the original excitement, for a company that can revolutionize so many industries with massive potential is irrational? And now that the company is hitting turbulence, and the stock price is falling hard, despair is irrational? What it seems to be with the haughty arrogance of hindsight is the cracks in the façade of this investment are getting bigger and this is being covered up with excuses.
On OCTOBER 9, 2014 a poster asks “SZYM anyone?” …
With the stock now down to about $6.00 a share worry amps up.
Poster mview says, accurately that the stock’s drop can’t be simply dismissed as part of broader market drop and offers reasons weakness in the company’s execution could be the reason the price is dropping, then asks the big question, “Is it possible there has been a lack of customer response to their products?”
GauchoChris suggests people may be taking tax losses.
And after one poster expresses frustration with the falling stock price, another poster chimes in with a detail-free, almost cliché-ridden recitation of the bull case…
“Personally I feel Solazyme has a lot of long term potential with a virtually limitless long term market opportunity. They are disrupting several existing markets with a superior and more sustainable product. I am taking advantage of the fire sale on shares to bring down my average cost. Long term I could be wrong but that is a risk we take as investors.
Saul compliments the long-term thinker and adds his take,
”I recently said I’d wait and see on this, but in the low six dollar range I couldn’t help myself, and added a truly tiny amount to my position. It may be throwing good money after bad, but at six dollars and change…?”
Large price drops are often dismissed as a “fire sale” and are always accompanied by someone, without insight or depth, declares themselves a long-term investor.
Also, there is a very important point to be made here about the difference between a change in the narrative and a broken narrative. The narrative changes when the company becomes more or less likely to succeed. Stock stories are always changing as new information comes out. Too many investors mistakenly claim a story has not changed when what they really mean is the story is not broken. A broken narrative is when the entire thesis collapses – for example, a single-product biotech announces their product does not work. The danger to investors is casually dismissing meaningful changes to the odds of success merely because there is still hope.
Later that day, Solazyme issues a press release which basically says that one of their plants is performing well but “… downstream processes at Moema require further optimization” and also that their president/COO is returning to an advisory role.
There are three bad things here. 1. There’s trouble. 2. The trouble is being glossed over with horse **** corporate speak of a need for “further optimization” and there is high-level management changes afoot. None of this is good.
Investor mview posts all kinds of questions about this and notes that his/her concerns are being validated and speculates on what it all means. Note that here mview and others have already put a lot of time, energy and genuine heart into this supposedly world-changing company. Recall that not long ago there were “misty” eyes. Another Fool jumps in – yet again - to declare the thesis unchanged and declares this is yet another buying opportunity.
GauchoChris posts,
The main worry that is still unresolved is whether SZYM can create enough demand for the capacity that they are generating. Until we see continued orders/contracts for high margin and large quantities this concern will remain unaddressed and remain part of the “potential” and the “story”. For this reason, I agree with Saul and am not adding to my position. (Of note I did not see Saul post about not adding. Again, he’s got 25 stocks at this point and is undoubtedly not losing a ton of sleep over one of them not playing out.)
AND THEN MOLEY HOSES!
Ebola bursts into the news. I’m not going to pull us away from the riveting tale of SZYM but it’s a great reminder that big events are part of life, that they happen all the time – always have and always will – and that what is epic and life changing today, in time, becomes forgotten. Saul notes the potential horrific scenario that could play out – and his take bears a striking resemblance to what’s actually happened with Covid. But ever-the-investor, Saul has both a fully human response and asks if anyone know of a company they should invest in that has a lead in making an Ebola vaccine.
Back to our story…
On OCTOBER 26, 2014 Saul issues his End of October update and of SZYM only mentions it in a list of his smaller positions. My guess is at this point it is about 3% of his port.
This is very important. Saul is a human being and a righteous soul. He is not afraid to express actual emotions – hope, excitement, passion, etc. It is important not to read too much into this. Solazyme was a legitimately exciting stock. But Saul is comfortable changing his mind without guilt, shame or worry about looking Foolish. Like the great Johnny Carson used to make a certain face when a joke clearly bombed, mistakes happen. The intense love one has for a company on Monday may disappear just as quickly on Tuesday.
And then the bottom falls out…
On NOVEMBER 6, 2014 Solazyme misses earnings and the stock tanks a jaw-dropping-and-butt-rattling FOURTY-SEVEN PERCENT.
Yowch.
While some analyze the company’s latest machinations, note changes in strategy, struggles with execution, management shuffles, etc. and while others express commitment to holding the stock, while others bail, and emotions run high, Saul says simply and with minimal emotion,
as I’ve said before, it’s pretty clear that I should have applied my principles about not investing in money-losing development stocks to SZYM as well, and I shouldn’t have made an exception for SZYM. My error.
No. Big. Deal.
On NOVEMBER 7, 2014 Saul writes,
In post 4101 Banjr posted a link to an excellent MF Article on the SZYM quarterly report, by Maxx Chatsko (who is very reputable). I had been ambivalent but after reading Maxx’s article I decided to close my position, which I did at between $3.75 and $3.40.
Let’s just say (pure speculation) that Saul is down 80% or so from the stock’s high of $14. And let’s say he saw $100,000 to go $20,000. His decision is to save that $20,000 and start building it up with better stocks, which is a very different decision than the one Kevin Quon made.
On NOVEMBER 10 Mykie posts that Quon has written about the stock to which Saul responds that he thinks Quon is tyring to stay positive but is clearly discouraged, and Saul reiterates that he is glad to have sold.
A few days later Mykie posts that both he and Quon have decided to focus on the massive potential of the company. In an email exchange Quon shared some thoughts with Mykie that are interestingly riddled with errors and odd syntax…
“If at the end of the decade, I’ve made a company that is on the path to becoming a fundamental industry giant that has helped improve the world, should I the company be willing to endure a few harsh critics?”
This is an interesting bit of re-framing. Despite overwhelming evidence that the stock is dead and that he will lose the rest of his investment, Quon sees himself as nobly enduring harsh criticism to maintain faith in a company’s effort to elevate humankind.
On DECEMBER 31, 2014 Saul posts “Year End #6: SZYM Where did I go wrong?”
Back then Saul’s annual reviews were by individual stock. I’ll put the post in quotes instead of italics so to leave Saul’s italics/bold in tact. Here’s his post in its entirety…
“Solazyme was a disaster. I knew better than to buy a development company which was losing money, but they promised that they were close, VERY close, to large-scale production and profitability.
I started buying SZYM in Jan of 2013 at $7.30 in very small amounts and added gradually at $8, at $9, at $10, at $11 and even, heaven forgive me, at over $12 as the story got better and better. They promised their US plant would open in the first quarter of 2014, and that their huge, many times larger plant in Brazil would not only be open, but actually pretty close to running full bore by the end of the second quarter. They announced Encapso, which made drilling more efficient. This all would change them from a small money-losing development company, to a large scale, commercial production company, no longer money-losing and soon profitable, and even very profitable. This was going to become a huge, multiproduct company with products from the food industry to cosmetics, to industrial oils!
The time line I’m giving you is just from memory, but the US plant opened on schedule and started producing on a small-scale basis. Just a teaser, though. What mattered was the huge Brazil plant. The first warnings of trouble were when they didn’t get it opened on time. They assured everyone that they were having no technical problems with their process. Just a problem in getting consistent electricity from their partner. And the problem continued and continued.
The price started dropping, and with all their reassurances it looked like a bargain at $8 when it had recently been at $12. On October 17 of this year I decided to cut my risk at $6.40 and sold half my position, and foolishly kept the rest, not wanting to give up. On Nov 5, after the close, they announced their 3rd quarter results – AND an entire reformulation of their business:
In the broader commodity markets, pricing is challenged for the semi-commodity oils that most of our first-generation oil products compete with, such as enhanced palm kernel oil. So, to cite a specific example, palm kernel oil was selling for about $907 per metric ton as of last week versus about $2,000 just a few years ago, and our overall input costs have not dropped commensurately over this period.
Consideration of these factors has led us to make some adjustments in our strategies to drive capital efficiency and commercial success. We will narrow our production focus to smaller volumes of higher-value products at both Moema and Clinton/Galva. We will prioritize cash management and product margin over a rapid capacity ramp. We, therefore, no longer plan to produce at nameplate capacity within 12 to 18 months.
We believe this is economically prudent in the short term while better positioning us for long-term opportunities. This will enable us to better manage our capital as we ramp production at the plants, descend the cost curve and continue commercializing and driving increased demand for high-margin products such as Encapso and specialty food oils.
Basically they were abandoning any hope of large-scale commercialization at least for 18 months, and with no time line after that. They were going to remain a small money-losing development company, which was going to try to cut its losses by firing workforce, cutting salaries, focusing on small scale high margin products. They were going to be carrying their two plants half or more empty, which would greatly increase their cost of goods sold, and reduce margins. They’d obviously need more money raises, if they could find buyers, which would dilute the shares further.
This wasn’t the hypothesis that I, or many others signed on for. The next morning they opened at about $3.75, and I sold out the other half of my position there. It closed that day at $3.14, and closed today at $2.58. (It’s been as low as $2.16).
They started Jan 1st of 2014 at $11.19. I got out at an average price of about $5.00, so this was a significant loss for my portfolio for the year. Where did I go wrong? It’s easy. This was still a development company, which hadn’t got a real business going yet when I bought in. I never should have done that. I should have waited until Moema was up and running, and the company was profitable, even if I paid a lot more. The message is clear: Avoid development companies that are just starting out, no matter how good the story! Nuf said.”
There are more hardcore lessons here for investors than one could get in a Harvard MBA program. If you think of your original investment thesis like firing an arrow, you have to be certain every single thing is right. If the foundation is not solid you will misfire and the longer the arrow travels, the further off target it goes. Saul started in January concerned about violating one of his own principles. And ended up a year later paying the price. The gift we have here at the Fool, which is so awesome to preserve our history, is that we can avoid all these mistakes which others suffered so greatly in making. What can’t happen if we’re to get as filthy rich as we hope, is to make stupid, avoidable mistakes that have already been made.
So what became of Solazyme?
In March of 2016 the company changed it’s name to TerraVia Holdings Inc, which perma-bull, Kevin Quon described as an “Evolution” in this Seeking Alpha post,
Solazyme Evolves Into TerraVia To Focus On Sustainable And Healthy Food And Nutrition
https://seekingalpha.com/article/3957942-solazyme-evolves-te…
Now, seriously, get a load of this …
In one of the more stunning things I have read in my 20+ years of investing, Quon actually remains bullish in an August 2, 2017 post entitled, TerraVia Files for Chapter 11 And Enters Into A Competitive Bidding Process…
He wrote, with a strange combination of honorable acceptance of his error and epic denial…
Over the past few years, there has been little doubt that I have served this investment community on Seeking Alpha as one of the most vocal bulls in support of this company’s proprietary technology. Even today, that has not changed.
WOW! Quon continues…
Nevertheless, I write this article in the face of expected criticism in order to humbly eat crow before you rather than to simply walk away. There is no doubt that I was wrong with this company as a viable investment opportunity. I want to thank all of my readers who have blessed me so richly with their collective research, support, opinions, and overall enthusiasm for our shared ambition in the hope that this company would have succeeded.
While the chapter of whether or not the underlying technology will ultimately thrive has yet to be written, one thing that is clear is that under the current guidance it will not happen under TerraVia’s independent oversight. The company will be acquired, and when the dust settles its debtholders will likely be paid off first while the company’s shareholders are likely to receive little in return for their investment efforts.
However, hope springs eternal. Even now.
To this day, that article sits there with a “bullish” rating on a stock that’s gone bust. To quote the cartoon villain, Bomb Voyage, “in cray a bluh.”
Conclusion
Every stock is its own story and you cannot blindly go through a checklist to be sure of success or failure.
In my own journey as a person and writer I am trying hard to be more curious, introspective, open and less binary, hyperbolic, aggressive. There are exceptions to every rule, and we must always approach our investments with humility and a fierce commitment to rational thought. With this in mind, I submit the following list of attributes that are likely to appear in failing stocks on our board:
- The stock is picked despite failing to meet all of our criteria
- The TAM is so large it blinds investors to challenges of execution
- The technology is so exciting it too blinds us to challenges with execution
- Management has no track record of meaningful success
- Management plays heavily to emotions and the uplifting of humankind
- The story of the stock is too good to be true
- The story is complex and involves multiple industries, products
- The company requires massive capex
- High level management changes occur
- The stock has not yet moved into hypergrowth mode
- Blind assumption big partners, tech savvy investors, buy story so it must be true
- Doubts about execution are dismissed by criticizing other’s ability to buy/hold
- True believers insist story has not changed though it has; rarely do stories break completely
- Rising short interest, falling stock price and analyst downgrades are casually dismissed
- Big drops are applauded as a “fire sale” even when the drop is company specific
There will be exceptions to every rule. But I hope this post helps you better understand the decision-making process of top Fools here. When you see the sheer love of craft that’s inherent in top Fools like Saul and GauchoChris, and note their emotional control, ability to drop a stock they once “loved” realize that they have built up a massive collection of data and are not only using purely rational thought but intuitions that come from years, decades even, of pattern matching.
Sure, in the ideal world, you want to do your own totally independent thinking and bring your own flavor to the gumbo of investing. But what we have here is a fantastic system, fueled by consistently elite investors who have earned a certain degree of respect. I personally consider it an honor to be allowed to post here and work hard to earn the privilege. Like everything else, this board will not be here forever.
And I want to say, yet again, from the very bottom of my heart, how grateful I am to the Fool at large, to Saul, to posters like Gaucho, Bear, Stock Novice, Muji, Poleeko Cowboy, Ethan and others too numerous to mention. In an age of anger and media that seems determined to amplify the worst in us, it’s important to note what we have here – the very, very best that human beings have to offer each other.
Fool On,
Broadway Dan
Post Script:
This post was originally 25 pages in Word. I got it down to a “lean” 15 but here’s some
Additional notes, interesting posts, observations…
In case anyone wants to keep reading…
A shout out to an incredible Fool. This Fool, named Rick, who went by hobiecat52, took the time to fill out his Foolish profile but ultimately only made one post in his entire Foolish career. In the Motley Fool Stock Advisor Member Suggestions, he posted this short grammatically disastrous but prescient post on SZYM…
“I reccomend not buying this stock. It missed its estimates on Revenue and earnings. Its. Revenue is almost non existent and there is not forseeable hope of earnings. It looks like another Solyndra to me. I doubt it can compete without government subdidies.”
My new rapper name is subdidies.
I found this from June 5, 2014 - TMF Jebbo asks Saul how many hours per week he puts into his picks. To this Saul responds,
Hi Jeb, It’s pretty well a regular job for me and I must spend at least 12 hours a week at it, but I’ve never actually counted. I said a “job”, meaning I take it seriously, but it’s actually fun for me and I miss it on the days the market is closed.
Do what you love. And note that what you love is not what you say you love but what you actually spend the most time choosing to do.
In this post from June 13, 2014, Saul applauds Mykie for posting an article ….
https://boards.fool.com/interesting-quotes-from-an-interesti…
And highlights two key elements of vintage Saul style…
“Quality is systematically underpriced by markets over long time periods.”
"More profitable companies today tend to be more profitable companies tomorrow.”
I think he said these are from Buffett but they express a critical component of Saul style that has never changed in the 6+ years of the board’s history. Like in sports, the greats - Gretzky, LeBron, Messi, Brady, Brees - tend to stay great.
On August 8, 2014 Saul issued a sincere apology …
I feel that I really made a big mistake in recommending the three little penny stocks that I was playing with (KRED, CTSO and AEYE). While I tried for the most part to make it very clear that I was only taking tiny to small positions in them, I’m afraid that some less experienced people on the board got carried away and bought larger positions of these very volatile and early stage stocks. It was poor judgment and unforgivably stupid on my part to even mention them on this board. I really am sorry.
Though haters always love to come on and troll when we’re down and are shamed by Saul’s performance he has never claimed to be perfect nor been carried away by ego and is quick to note others have beaten his performance. One thing that I find fascinating, as I am a cynical, gnarly-minded New Yorker, is how much trust Saul places in management. I was taught growing up in Brooklyn that everyone has an angle, that every is full of (expletive for poo) and to distrust all. This has hurt me in my career and sometimes in friendships where I infused a friend’s mistake with evil intentions that were not there. To be an investor, to be a citizen, requires faith in other people. I’m not saying blind faith, a la Kevin Quon’s love for SZYM, but some faith is required to do this. We must accept that sometimes that faith will not be rewarded. What I see in Saul is an appropriate and intelligent faith.
On September 29, 2014 Saul wrote something he continues believing to this day …
“I often see people refer to price/sales ratios (P/S) as a estimate of value, but it makes no sense to me.”
On October 3, 2014 Saul notes that stocks in a popular Fool service were taking a beating and wrote,
What struck me about the list is that every one of their top 10 losers, except SINA, were stocks that I had been in at one time or another, in at least a test position, and subsequently sold out of. I’m not sure what the significance is, except that sometimes it pays to get out of a position that doesn’t feel right.
Sometimes you simply have to trust your gut, which, again, I believe is not irrational but an intuition that comes from years of experience. Since there is so much information to digest, process and store, it’s inevitable that important bits of data will linger in the subconscious and not be able to be called up for fully rational analysis. My feeling is trust it. Or at least fully confront the doubt. Our board is great for exploring these feelings. When in doubt get out.
On Nov 3, 2014 Saul posts about envy and another poster doing better than he is doing and shares a message that would make the Buddha himself nod in approval …
You can think of possessions the same way. There will always be someone with more money, a bigger and better house, a nicer wedding ring, a more exciting vacation, whatever. Don’t sweat it. It doesn’t matter. Happiness isn’t getting what you think you want. Happiness is being content with what you have - on the way to possibly getting what you think you want. It’s today you want to be happy, not in the future. The future never gets here. It’s always today. And it’s guaranteed, if you get the biggest and best house around, the next week you’ll discover someone with a bigger and better house.
Though of course societal factors and ill fate impact people, I believe that, generally speaking there is a deep-seated connection between our internal state of mind and external reality. In my life when I have been racked by anxiety/anger/envy/fear my results have suffered accordingly as those things blind sound judgment.
And lastly, get a load of this …
On November 29, 2014 a poster mocks the board in a post entitled, “little sauls”…
https://boards.fool.com/little-sauls-31518212.asp
The poster scolds the board for being overconfident and following Saul like he’s a cult leader, stating…
“Saul’s investment style is clearly opposite to what the motley fool is all about. His style is more short time oriented. And that’s fine. In fact, it’s not Saul I’m taking aim at, but at all of his ‘followers’. It’s seems as if Saul has become this kind of divine entity that does no wrong.”
Sound familiar?
I would guess if this poster compared his results over the next six years, from 2014-2020 to those of our board, he’d regret focusing on the board’s independent thought over mastering our methodology. I am speculating here but these posters remind me of young guns who want to ride into town to challenge the legends. I believe they are driven more by ego and desire to make an impact than a true desire to add value. It’s almost certainly some Freudian desire to take out the father figure, rather than humble oneself before them. It’s about adrenaline, desire to lead more than it is about taking the time – years, decades – to become a master in one’s own right. These types have been here since the board began and I suspect they’ll be here til the end.
Lastly, note we are called the MOTLEY Fool. Though LTBH is very popular here and espoused by David and Tom it is not the only game in town. There is, or has been, an options newsletter! And all views, ideas, styles are welcome. The Motley Fool is “all about” helping each other get richer, smarter and happier. And no company that I’m aware of has ever – not even close – done a better job of living up to their mission. I love this place and take it personally when its insulted.
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