A new stock write-up is in the works but I also feel the urge to jot down some ramblings. Combining the two would probably result in a mediocre stock pitch infused with an unhealthy amount of unrelated footnotes. That would be in nobody’s best interest so I decided to write two posts instead. Here are the unrelated footnotes. Feel free to skip if you are just interested in the mediocre stock pitch.
The grocery store
It’s been about four months since my last post. A lot has happened since then, but at the same time not much has happened. I operate my portfolio like a grocery store. Lots of different products are on the shelves; everything is for sale. There is always turnover but most of it is unexciting. Not much I did during the past few months is worth sharing 1. Small trades (I shared one or two tickers on Twitter), situations that have been written up elsewhere, stocks that I will probably forget in a few years. That’s how I like it. Don’t expect any grand ideas or oversized positions from me. Boring is good.
The grocery store will never generate insane returns. It is too conservative and too diversified for that. If anything you could accuse me of being perennially under-risked. The flip side is: I have never had a down year yet and always sleep like a baby. And I am quite content about my returns: over the past decade the IRR of my portfolio was about ~20% p.a. in EUR. I don’t expect that to be sustainable though.
We live in a fascinating time where influencers on FinTwit experiment with putting 100% of their portfolio in nail fungus stocks 2. Sure, your risk preferences depend on your age, net worth and job prospects but I still prefer the opposite approach. If you oversize positions and have no edge you risk going broke and going crazy. If you undersize positions and have no edge you risk achieving average returns.
With a grocery store portfolio you will get familiar with a wide range of companies and industries quickly, you will never get bored and it is easier to stay emotionally distant. Also, you generate a large sample size of investment decisions quickly, making it easier to ascertain whether you have an edge or not. In short: I highly recommend diversification.
Position updates
I sold my position in Five Point Holdings LLC. When I wrote it up I thought that the combination of all things I pointed out made it likely that a return of capital was in the cards. But two quarters later nothing happened on that front, with the CEO stating in the most recent conference call:
We ended the year with cash of $425 million and total liquidity of $643 million. Importantly, our balance sheet and liquidity provide us with exceptional flexibility around capital allocation, including the ability to engage growth opportunities, which I will discuss later, as well as the ability to potentially return capital to shareholders over time. To be clear, however, our first priority is to pursue our growth strategy as we seek to expand recurring revenues.
It looks to me like the CEO is paying lip service to the idea of returning capital while plowing all cash into transforming FPH into an asset manager. First the builders wanted to go asset-light and they got rid of their land. Now even the land banks want to go asset-light .. Frankly, it is probably not the worst idea in the world but it is not something I am comfortable with betting on. I am a simple man: I just want cash returned to shareholders. If you are really ‘exceptionally flexible around capital allocation’ I would think that you can reinvest in the business and return capital to shareholders at the same time, if your stock is in the gutter. And if FPH chooses not do that, what does that imply? Either the company has huge reinvestment plans, is not so flexible after all or management does not care about returning capital at current prices. Or I am missing something. I don’t like any of those options. No hard feelings though. The outcome was not what I hoped for but I am content with my process here. I might get back in at some point, still an interesting company.
Regarding Hookipa: The Gilead transaction closed last October and the company announced yesterday that it sold some oncology assets. No price was disclosed, probably a small deal. The buyer is an unknown vehicle. Perhaps insiders are cherry-picking some assets? I did not like to see that the company still has a ‘chief R&D officer’ at this point in time. Apart from those two updates Hookipa has been very quiet but that is par for the course if you invest in trash like this. I am content with owning the uncertainty while waiting for more news, my key assumption being that the distribution range in the proxy is still directionally correct. It is up quite a bit though, clearly less attractive than it was at the time of my write-up.
Galaxy Gaming is still in limbo. The merger is not closing but not breaking apart either. Part of me just wants to see this deal collapse: a timely close would yield the best IRR but a deal collapse would be so interesting. The main reason for the delay is that the Nevada Gaming Commission has not approved the merger yet. In fact, it has not even been on the agenda yet, presumably because the regulator is concerned about gambling in prohibited jurisdictions.
I could act outraged and surprised3 but the painful truth is that online gambling is a “wild west industry” where the chances of stepping in a turd are higher than average. On the flip side, when I bought GLXZ I was not blindly banking on the merger closing as expected. Unfortunately, the past few months have been disappointing as well fundamentally with underperformance compared to both 2024 and the 2025 projections in the proxy statement. And the possible regulatory crackdown on shady overseas practices could be bad news as the company generates quite a bit of revenue outside of the US.
I think the odds of the deal closing have gone down and the company is fundamentally less attractive on top of that. I still hold a small position to see how things work out but am not too thrilled about it. Its only redeeming feature is the undemanding valuation.
Rambling
A few months ago I told you that I like the format of Clark Street Value’s blog4. No nonsense, only concise stock pitches. Yet here I am rambling about a grocery store.
I would love to write more stock pitches but it is very hard to write one that adds value. In fact, I am not even sure if I am capable of doing that consistently, if at all. The market is very efficient and there are thousands of investors out there writing up every single stock you have ever glanced at. As per the grocery store approach my positions are usually small and low-conviction. Often I have nothing to add to write-ups that are already out there and even if I do those stocks are often too illiquid to write about5.
Even worse, I do not think I am a great analyst. And no, that is not me being humble. I have a background in high frequency trading. My specialty is sifting through all the noise out there, copying the occasional good idea and staying rational most of the time. I can work with numbers and odds pretty well but I have no clue about the competitive landscape in the chemicals industry or whether Satya Nadella is steering Microsoft in the right direction. My biggest fuck-ups are usually those where the numbers look good but I underestimate the qualitative aspects (I hope Galaxy Gaming does not end up in that category).
In any case, I like writing so I am probably going to continue doing that but I am still unsure about what, when and how to publish. A first step is that I have added a section named ‘ramblings’ to the website. I first opted for ‘principles’ but I am not as pompous nor as rich as Ray Dalio. I will collect my tangential thoughts about investing there so they do not interfere with any write-ups. You can opt out of that section if you just want stock pitches. Let me know if you like (or dislike) me rambling about grocery stores. Cheers!
Or at least not much that I’m willing to share. I am not trying to be mysterious here but I dabble in a lot of illiquid stuff and in general I like to keep those ideas close to my chest. I’m not interested in sharing anything that could adversely impact my future returns.
The default FinTwit response if regulators block a merger.
Check out his recent post on GDOT. I like that idea and own some shares.
As you should have noticed by now I really love illiquidity.
I enjoy your ramblings….coming from an operator of a flea market portfolio.
I enjoyed the ramblings. Also like your investment style and the rational honesty about selling FPH (cutting on the thesis break instead of sticking around because cheap!) and re-underwriting the r/r at GLXZ.