Transparency and Full Disclosure
The following is a lengthy description about me, Martin Svanda, some professional background and why I decided to start this Short Ideas blog. I also sound off on who I believe to be appropriate readers of the blog, and what I believe readers should be able to expect from me should they choose to become paying subscribers. I believe in transparency and full disclosure, and will do my utmost to maintain those standards for as long as I am able to maintain this blog.
The Obligatory Disclaimer
Nothing you read in this blog should be considered investment advice. No matter how many times I may point out how well some of the ideas I highlighted have performed over time, that is no guarantee that current and/or future ideas will behave similarly. I do get stuff wrong, and will likely continue getting stuff wrong.
After 30+ years, I am no longer in the investment business; I am now in the blogging business, so if you’re looking for any recommendations and/or investment advice, you should probably consult a real professional and go look elsewhere. I am maintaining this blog for my personal enjoyment and hopefully profit, and writing about and peeking under the hood of publicly traded companies is how I choose to spend my time. If you choose to make an investment decision based on the random scribblings of a former stock broker (that would be me), then that’s entirely on you.
What is “Short Ideas?”
As the tag line says, “Deeper Dives and Random Thoughts on select publicly traded companies.” I enjoy browsing through public company filings and pointing out things that make little sense to me but for some reason market participants either like or choose to ignore. The “Deeper Dives” typically signal that there are several things I find quite puzzling and can be somewhat lengthy (maybe 7-8 pages in a word document) while the “Random Thoughts” may only be a few explanatory lines followed by a chart. Regardless of length, I like to look for ideas that will severely underperform the market over the following 24 months or so.
Aside from tending to be early pointing things out, the thesis behind some ideas can often take some time to be realized, while sometimes the market immediately sees the absurdity and acts accordingly. As for style, focusing on companies with some suspected bad behavior can make even the most generous person at least a tad bit skeptical, especially after 25+ years, and it often manifests itself in my writing through my dry humor. My style might not be for everyone, but it is what it is.
Who do I believe to be my target audience?
I am directing this blog towards investment professionals and other accredited investors looking for short ideas, either currently managing client assets or having done so at some point in their careers and now only managing their own personal assets. With very few exceptions I don’t believe the practice of shorting stocks is something individual investors should pursue, though in this format I don’t really have any way of enforcing that. Over the years I have had the pleasure of counting dozens (if not hundreds) of investment professionals as my clients, and was looking for an avenue that would let me stay in touch while at the same time maintaining some type of exclusivity over the product. I am hoping this blog can satisfy both of my targets.
The three words you will NEVER see from me?
We are short… More on this later, but I will NEVER have a position (long or short) in any company that I choose to highlight. Therefore, I am NOT, nor will I ever be, an “activist” investor.
What’s your educational background?
Educationally, I am a product of UCLA’s school of applied mathematics followed a few years later by USC’s graduate school of business, the latter where I mainly studied financial accounting and investments. In between degrees I did some work in financial planning and earned a couple of certifications (CLU and ChFC granted by The American College), while during grad school I discovered and started participating in the 3-year CFA program and eventually earned the right to use that designation (the CFA Institute is very particular and protective about their designation so I hope I got that right). All this really means is that I’m not completely stupid, and hopefully that comes through in my work and analysis.
How about your work background?
I first became a FINRA-registered stock broker and investment advisor in 1990 and if you wish you can read all about the companies I worked for on the official FINRA broker-check web site (those numbers at the end of the link is my official CRD number). https://brokercheck.finra.org/individual/summary/2115645 Prior to graduating from USC in 1996, I started working at PaineWebber for a group of brokers managing around $200M in retail assets along with a neglected book of institutional contacts. Here I helped resuscitate those institutional contacts by focusing on finding, discovering, uncovering, and researching “short ideas” that these institutional (mostly Hedge Fund) investors could use to hedge the long portion of their portfolios, and I have been doing the same basic work ever since.
How often do you publish your “short ideas” and how many should I expect?
I’ll preface the answer here with a quick story: Once upon a time I would get a frantic phone call at the end of each month from a fellow who ran a short-oriented service. He promised his subscribers an idea at the start of every month, and come hell or high water he was going to give them an idea at the start of every month. Well, I don’t do that. If I can’t get my arms or mind around how and why something should work based on the work I have done, then I simply don’t put anything out. That said, on average, I typically manage to find anywhere between 10 and 15 “spiel-worthy” ideas each and every year (I don’t publish “reports,” I refer to them as “spiels”). I also occasionally update past ideas should something interesting present itself (normally, but not always, around an earnings release, presentation, published story, or conference call) or especially if the idea doesn’t work and the craziness (unjustifiably, in my mind at least) continues (I have had clients in the past who wouldn’t look at anything until I had complained about the stupidity at least a few times). So on average, I tend to post something maybe 2 to 4 times each month. Now that I am out from under the foot of the regulatory agencies and all of the impediments they place on registered personnel I hope to increase my output somewhat, but no promises. Yes, there are people out there who manage to post items daily or even multiple items daily; that has just never been me.
What types of ideas do you normally choose to focus on?
My very first “short idea” was on a company called National Media. They were an infomercial company, and at the time, they had the hottest product on the market called the “Ab-Roller.” You can still find upgraded versions of this product at many health clubs today. Next came Solv-Ex, an oil-sands play in the far reaches of Alberta, Canada, and that was followed by Cityscape Financial, a lender in what back then was an extremely hot subprime market. Though all 3 companies are in different industries, they all have something in common, which is that they no longer exist; bankruptcy claimed them all. Faddish products (National Media), bad actors in the management (Solv-Ex), puzzling financial statements (Cityscape Financial), and unsupportable business models tend to be areas where I concentrate my focus, regardless of industry. There are some people who frown on a generalist approach, but I prefer to consider myself and others like me as nimble and able to adjust to a constantly changing and evolving market. Looking back on my track record, I have spieled on a company in practically every industry with its own SIC code. The free spiels I have made available are a flattering cross-section of what I have done in the past, and in no way does it predict performance or where my focus may lie in the future. As always, I do get stuff wrong.
Any other company characteristics?
I tend to avoid huge, house-hold type names where there are 50 analysts posting their thoughts on a daily basis. In those circumstances, other than perhaps bringing a slightly different perspective (the lone cautionary voice in the crowd), odds are slim that I will be able to add much actual value to the discussion. What else is there about KO or AAPL that everybody doesn’t already know? So the majority of my ideas are typically between $500M to $10B in size; a range where coverage tends to be rather sparse and where I feel I can make at least some small difference. I also tend to avoid anything smaller for size and liquidity issues, and low-priced stocks (under $5) are generally avoided as well. Oh, and I also tend to avoid names where the short interest is above maybe 5%; above that and I figure there either must be a story already out there or the problems at the company are generally well-known. While I have strayed on all sides of these parameters, especially when I have some past history with either the company or its management, things are unlikely to change much in the future.
What type of work do you do?
The source material for pretty much everything you will find in any of my ideas can be traced back to publicly available information, either through a company’s SEC filings or through various news articles that are linked in the ideas. Any spreadsheets I post are usually constructed by me and typically derived from a company’s public filings that I copy and manipulate into a format that I prefer for viewing. Comments on any “primary” research I may do, ranging from site visits to channel checks, are typically kept to a minimum and rather are used to buttress my own conviction of any particular thesis. I don’t hire private investigators to snoop on a company’s facilities, or count the number of cars or trucks entering or exiting their parking lots, either. Having received my share of disgruntled phone calls from CEO’s and CFO’s and intimidation from attorneys (and been party to a couple of lawsuits), I like to keep my analysis glued to easily obtainable and publicly available information rather than being asked to produce records of something more ephemeral.
Does valuation matter?
Absolutely, but it can never be the main reason behind an idea. Quite a few companies can maintain high Price to Sales/EPS/ or “adjusted” EBITDA multiples for years, and there is nothing to say that it won’t continue for many more years to come (as the saying goes, valuations can stay stretched longer than a hedge fund can stay solvent). Quite a few times in the past I have made the mistake of having valuation as a primary reason only to watch as the company slowly grew into its valuation over the span of many years. I will always choose the faddish, money-losing wannabe-technology play run by a CEO with a clouded operating history over a high 50x+ EPS multiple slow-growing technology stock any day.
Do I take positions in any of the names I comment on? i.e. do I “front-run” my ideas?
Contrary to the business models of many of the current blogs, independent research providers, SeekingAlpha contributors, Twitter personalities, activists, or myriad other services that built a business model on taking positions prior to publishing a report (condescendingly called “smash and grab”), I have not and will not ever take a position in any of the names I follow. Though you may not know it, “front-running” by FINRA-licensed registered representatives is highly discouraged (to say the least) by both FINRA and the SEC, and anyone caught doing so is liable to lose their licenses, any ill-gotten gains, and likely their freedom, so it’s just something that I have never done. Though I am no longer affiliated with any FINRA-regulated entity, I will continue to operate as though I were.
In other words, you have no “skin in the game,” right?
That is correct. There are arguments to be made both for and against that particular practice, and it’s up to you to decide if you believe or trust somebody more (or less) because they have (or don’t have) a position in any particular company. “Talking their book” is an actual thing and pretty much every guest on “bubblevision” and similar shows and networks are engaged in it, which is why they always make a point to flash those disclaimers on the screen during and after each interview. Well, other than not providing anybody with investment advice, there will be no other disclaimers from me.
How do you publicize your ideas?
Pretty much solely through this blog, though I may slowly expand into other media, but never at the expense of my paying subscribers. Due to my prior status as an SEC-registered individual, publishing a blog or writing for something like SeekingAlpha or even a short blurb via Twitter (X) or LinkedIn was completely unthinkable; everything was considered a form of client communication which had to be controlled, approved, and archived or risk serious fines and sanctions, and nobody in management was ever willing to allow that practice. So while I may decide to publish a tweet or a story on another service, it will always show up in this space first and not until the story has worked itself out to my satisfaction.
Any plans to limit the size of your distribution?
Stocks can react wildly to any piece of news, especially when market capitalization and liquidity are potential issues. Having primarily focused on “SMID cap” companies throughout my career, and for the good of my clients, I chose to limit my distribution in the past and have plans to limit my distribution once again (the success of this blogging effort being the determinant) in the future. For anyone to find value in something there has to be the chance that they have the opportunity to act on an idea should they see fit to pursue it. Unfortunately, that can prove difficult if thousands of other people are privy to the same information and coming to the same conclusion. Most of the services out there publishing ideas want the widest distribution possible, since their own capital stands to benefit from any move in the market. My business model has always run counter to that philosophy.
My pricing philosophy.
As I mentioned at the beginning, and keeping with my career focus, my target market for this effort are current or former hedge fund managers and other professional investors. This is also my first foray into the blogging business, and though I have received some signs of support from my current client base, I am taking nothing for granted. During my entire brokerage career, my institutional client base would “pay” me varying amounts, entirely at their own discretion, but usually based on a combination of factors including the size of the fund, how often they would find useful ideas, and naturally the performance of those ideas. That typically led to a rather wide range of payments, and attempting to reconstruct something like that through this medium is simply not possible. Thus I am starting the subscription at what I consider to be a palatable $100/mo. for the basic subscription plan or $1,000 on an annual basis. In my stock brokerage days, that’s the equivalent to a 2,000 share order paying me 5 cents a share, which should be a level even the smallest hedge funds or former managers should be able to afford. On the other side I have the “Founder’s” plan, which is $10,000 a year, an aspirational level for larger funds or individuals who would like direct access to me and to maintain more exclusivity over the idea flow. The Founder’s subscribers will also be privy to the occasional idea that is outside of my usual stated parameters, so some exclusive content is anticipated. I am also giving new or former clients/subscribers the option of being invoiced by me directly for whatever amount they feel is appropriate. As mentioned in the prior post, should this effort prove successful, I will be limiting the subscriber base, but at the moment I am undecided on exactly where that level will be or how that will play itself out. Should I ever manage to get up to, say, 100 paying subscribers, then I will certainly update these thoughts.
Support the effort.
Finding compelling short ideas that have yet to be uncovered by the rest of the investment world is what I spend my days trying to do. Being first sometimes means being very early, but at least you will have a much better chance of securing that elusive borrow before it vanishes with the coming crowd.
