INTENSIVE CARE - Skyepharma 2006 :

I've just read Maudlin's weekly e-mail (2 days late I know but Christmas got in the way) - this isn't about SkyePharma but the sentiment just about sums up my views (even if the math doesn't! - roll on 2009:

I own one stock I call my stupid stock. There is a story here. In the late '90s I sometimes invested along with a hedge fund I knew that invested in PIPEs, or Private Investments in Public Equities. Back then, you could make 20-25% or so in 4-6 months. There were risks, of course, but it seemed so easy for a few years. Times have changed, and the returns from such investments are no longer near the old days (not even close!), but it was fun for awhile. I must also confess that I invested too much in some of the deals. I have since become more cautious in my old age.

It was easy until one of those easy lay-ups showed me the risk. The management of the company in which I invested (along with a number of people and funds) had a "stupid" problem getting their offering registered with the SEC. One month, then two months, then half a year and then a year went by. I forget now how long it took, but when it was finally registered and we could get our stock, the bear market had already started.

The shares of this stock have pulled back sharply in recent months, plunging nearly -70% from their highs to recent lows of around $3.30 per share. Bargin hunters now have a rare opportunity to pick up one of the world's most recognizable and dominant companies at a 44% discount below our estimated fair value.

Now this was a health services firm that was trying to convert itself into a dotcom. Like a lot of companies, they looked at all the money being thrown at dotcom ventures and decide they would go for it. Bad timing for the company and investors. And bad business model, as it turned out. When I finally got my shares, the price had been driven down by the various funds and people (legitimately) selling. I spent some time with the management of the company and realized the value of the real estate the company owned was greater than the market cap of the company, which was by now a very micro-cap bulletin board company. The stock was "stupidly" priced. I was stupid to have made the original investment. Thus it became my stupid stock.

But it was also now a deep-value company, or at least I thought it was. I decided to hold. Management went back to what they knew how to do, which was run a health services company. And they have grown the company very well over the last five years. Each year, earnings go up, as well as revenues. Value investor Peter Lynch bought a bunch of shares. The stock is up over five times from my original strike price. I have sold enough to get a lot more than my original investment, and still have about a double left.

The stock is up about 25% again this year. Again, I can't tell you the name of the stock, as I will sell more of it as it goes up, and don't want to "tout" a stock that I am selling. I expect it to get close to my target in the not too distant future, and then I will be gone, a very satisfied customer. As I sell, I will take the proceeds and put them into various money managers and alternative funds.