Speculation is back

I introduced my three buckets of investing about 2 years ago it was a major step forward for refining my investment strategy. I have stuck to it since, focusing mainly on my long term holdings and from time to time jump into Opportunistic or Speculative holdings. Overall the Opportunistic investments have done very well, whereas the Speculative ones have not added any value. I will now make another stab at introducing a number of speculative holdings to the portfolio.

This goes for all my investments, do your own due diligence, do not see this as investment advice. But for these investments I want to be extra clear, these are high risk illiquid companies. As of Friday close I take the following positions

Irisity – 2% holding

This was something I previously held as a sizable speculative position. My patients ended when the company didn’t deliver and I sold. Now G4S has signed an intention to roll out their product in multiple markets. Although no larger orders have been made, this is the breakthrough the company has been looking for. If things progress as Irisity hopes over the coming 5 years, this is stock is a 10 bagger.

See my previous post where I commented on Irisity: Link

McEwen Mining – 2% holding

Gold is almost touching on 2000 USD per ounce. This is a ugly duckling gold producer with insanely high production costs which is attempting a bit of a “turn around”. That is exactly what I’m looking for. The stock is a cheap call option if gold price continues higher or stays around these levels, as long as they don’t mess up production further. Bonus upside if they actually manage a turn around in their production. What I do like is the founder and large shareholder Rob McEwen who the company is named after. Most mining companies are filled with crooks, with the poor performance of McEwen’s operations I’m sure there a lot of rotten apples in it’s organisation as well. But I do believe my and McEwen’s interest are aligned.

If golds goes up another 20% from here this stock should at lest double, if not triple given it’s leverage to the gold price.

Neonode – 1% holding

This is a company with a long history, recently reviewed by new management and with a new massive tailwind from Corona virus. They enable a touch technology which is used in several automotive applications. The big upside though is to expand into other areas like elevators, where the technology can be used in combination with holographic technology.

Spark Networks – 1% holding

With Match Group stock flying high I do think this dating network competitor is also a very cheap competitor. As with most social platforms network effects are important in one sense, since more users means more dating matches. But many users also get bored with the same old platforms and often try something else, which might be more niche and suit them better.

For example Spark has a page called SilverSingles for 50+ dating. They also acquired Zoosk about a year ago which has a larger userbase. The stock has bottomed after a significant draw-down and momentum looks much better now to enter into a position.

5 thoughts to “Speculation is back”

  1. Interesting exploration. Good luck.

    Personally, I would not dare for a number of reasons: (1) I was educated (and still believe) that I had to earn my gains. (2) Speculating is, to a good extent, gambling. (3) I won’t pretend I have an edge over the market.

    I feel more comfortable getting into good companies, excellent if possible, that do their work and they are rewarded for it.

    1. I believe taking risky bets is definitely earning your gains, more so than low risk bets! You bring up the correct point, do I have an edge doing these investments? Given how small and unnoticed these stocks are I believe I do, but that is yet to be determined. My intention is to evaluate my skill in these 3 styles of investing over time. If I find one investing style really isnt working out, I need to stop it and focus on what works..

      1. GSP, I like the approach towards the speculative names and I like the narrative on each of the names you have picked I am going to have a good look at each of them. I have tended to focus my speculative positions in to one or two areas, specifically niche industrial products/services and medical devices. I like business that are at or near profitability but maybe stepping out a new product.

        Here are 2 names to have a look at.

        Cogstate (CGS AU) – They are market leaders in providing clinically validated cognitive assessments. Typically these have been done with a pencil and paper and required a trained professional to be administered properly. They have moved all of this online. There tests are currently used in clinical trials both as a efficacy (think Alzheimers) end point and as a safety endpoint (think any drugs that can cross the blood brain barrier and effect the brain). They are also the market leader in assessing concussion injury in professional sport. On the basis of this business they will be profitable next year (high single/low double digit). But the bit to get excited about is the use of these tests as a triage tool for identifying people with early Alzheimers. Biogen on Friday had Aducanumab taken up by the FDA for a priority review. If this or another disease modifying drug is approved doctors all over the world we need to start objectively measuring AD. They will charge per test so say at US$ 7.50 per test with huge gross margins you can see how this would quickly transform the company. There is 2 or 3 validated competitors but Cogstate are the market leaders and this does not need to be a winner take all market.

        Intelligent Ultrasound (MED LN) – They are currently the market leaders in ultrasound training equipment and on this basis alone the company should reach breakeven next year. However, the really exciting part is that they are also leaders in applying Ultrasound based AI in to clinical practice. They have signed a deal with a large global OEM of prenatal screening ultrasound machines and starting next year, they will put their chips in all new machines sold. These chips will ensure that a doctor doing the scan gets all of the necessary images that are required by law in each jurisdiction at the 20 week check up. When the machine has a good image it will automatically capture it and store it. It acts as essentially and audit check on the doctor or nurse conducting the ultrasound exam. If the hospital or clinic wants to turn on this feature they will pay a licence fee and will then be given a code. Typically machines are replaced every 3 or 4 years. They will not say who the OEM is yet, but have said they sell @12k to 15k of these machines each year and they would expect the feature to be “turned on” in between 40% to 60% of those sold. In addition they have programs under development for similar products in prostate, lung, liver and for some specialist uses. They are very confident of reaching profitability next year. They are on single digit FY2022 PE based on my forecasts.

        On a different note, were you happy with the DFI results ? I was very happy, food is on the mend in a big way, the problems with Mannings and Maxims are Covid related and will pass. If you normalise these two aspects the results were really good. Meadows is proving to be fantastic and the new YUU loyalty program seems to have got off to a flying start, although I wish they would stop playing that bloody jingle for it on loop in my local store, a huge and rather annoying ear worm. I am off to look at Irisity. ATB

        1. Thank you for a great reply, I will take a look at your two speculative ideas, especially the second one sounds very interesting!

        2. The Dairy Farm results were pretty much in line with my expectations. When covid is over I expect a strong rebound in Mannings and Maxims and hopefully a better established profit margin level for the grocery segment. This should mean that Dairy Farm is going back to trade around 10 SGD per share over the coming 2-3 years

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