Monday, March 04, 2013 3:05:31 AM
A Real Investor's Viewpoint on Everything "GNIN"
PREFACE:
By no means am I saying that everyone else is not a "real" investor or that I am somehow better than anyone else, but investing in companies is what I do for a living. 100% of my income comes from return on equity passed through to me by way of either dividends or capital gains. Many of the companies I invest in are considered "start-up" or "angel" investments, so I believe I have a unique perspective on the issue at hand.
THE ISSUE:
Is Green Innovations Ltd. a good investment?
THE DISCLAIMER:
Many of these points reflect my own opinion. Some of these opinions may differ from you, but are grounded in facts I have discovered over the course of my due diligence.
Unlike many, I welcome controversy. I will embrace any new information. I respect anyone with a different opinion, so long as they care about the truth of the matter more than their own personal agenda.
ON A PERSONAL NOTE:
Ego and emotional attachment is something that I still struggle with, but is ultimately the best mindset to have. When you don't get "emotionally" attached to something: you can make clearer investment decisions. Investing is a lot like trading, you need to stay detached so you can buy when undervalued and sell when overvalued according to your model. The only thing you want to be emotionally attached to is the truth, to the facts, no matter if they conflict with your preconceived notions or "gut feeling". Any experienced trader or investor will tell you, trading on "gut" is the quickest way to losses. That’s why every day I continue to strive to be focused on one thing: reality.
NOT FINANCIAL ADVICE:
This part is very important. None of the information I am about to write or every write is to be considered financial advice. Even if I claimed to be giving financial advice, I would be out of my mind to tell someone to buy a stock or sell a stock without knowing their personal situation. Everyone is different. Someone who is investing beer money while going to college has a much higher risk tolerance than someone who is looking for income and capital preservation in retirement years. Good financial advice has to consider tax implications, structured risk assessments, lifestyle, family, your current investment strategy and where you are currently diversified, any hedge strategies (if anyone is into arbitrage or straddles) and many more factors and points that are way beyond the scope of this post. Even I use a good financial advisor and I suggest you do too.
At the very least, as the best piece of advice for anyone reading things on the internet: do not trust anyone. Even someone like myself. No one is perfect, I could be right 99% of the time and then be wrong with just one sentence and that could be the sentence that you base an investment decision off. Just don't. Trust yourself. Only yourself. Double check every single bit of information for yourself. Not only will you be "playing it safe" by confirming everything (and confirm things with proper sources: SEC filings, direct company press releases, reputable journalists) but you will also learn a hell of a lot about how to find and confirm information for yourself. You are the most important word in investing. Invest in yourself and the skills to discover truth for yourself.
Now that I got that out of the way...
PART 1: SHARE STRUCTURE IS IMPORTANT!
It appears many people do not understand how to do the math on share dividends. When you have a dividend that is less than 25%, the record date is immediate. Because it was issued as a dividend, every share was affected. That means the total ownership of each share is diluted to 80.65% of its previous ownership (you just divide the old share count by the new share count, it's really not rocket science). That means, in a perfect world, the price should have adjusted to $2.22 considering the previous day's close. You'll also notice that's the place where investors like myself were buying at a 10% discount to what we felt was fair market ($2.00). That was the first level of support for a very good reason. The reason you discount is to give yourself upside. There is also a reason to discount because the dividend still requires FINRA approval. You saw another large block of buyer at $1.80 because some investors may have discounted the FINRA approval to a greater extent, or perhaps they were discounting for other facts... or were trailing the market by 20% already and just adjusted as a result of the news.
However, as we all know the market is not efficient (otherwise why would anyone self-direct? We are all trying to beat the slow moving behemoths out there). Emotion, panic, fear, greed and information delay creates scenarios where stocks are overvalued or undervalued, sometimes for significant periods of time.
These articles are a perfect example of psychology. Many people sold for many reasons. I think the largest block of people sold because they did not understand that GNIN should have corrected to $2.22 with no change in material events. If it traded down to $2.22, that would have meant everything was normal. Normal? Yes, trading down to $2.22 would have been normal. You are going to get a 24% dividend. So multiple $2.22 by 124% and what do you get? You get $2.75! The exact same price GNIN closed at the day before. Basically, at any price above $2.22 on that day, GNIN would have been "up" on the day when you factor the share dividend. This is something that 90% of market participants that day did not understand, in my opinion. I believe that most people saw it start to trade down and looked for the first thing they could find and they found the Seeking Alpha article, giving it the "presumption of truth". It's the fallacy that a certain action caused a certain result, despite there being no true connection. There have been many studies on this effect and it's the flaw that B. F. Skinner demonstrated can lead us humans to adopt superstitions: http://www.bbc.com/future/story/20120327-why-do-we-have-superstitions
This is also one of the main reasons GNIN took so long to correct up to $3.00. When it cancelled the shares, that day it should have shot up to $3.00. Instead, basically nothing happened. The presumption of "oh that news doesn't matter" set in with people that did not take the time to understand what the news meant for themselves. But for people like myself, we bought-in big based on that alone. As I started doing more research I bought more because I knew I had till $3.00. The market was inefficient and it took day after day after day of trading up 15 - 25% to finally get there. In my opinion, most people thought GNIN was trading up on momentum, but us investors know that it was because of the structure change. That day the CEO cancelled his stock, each share represented nearly 3x greater percentage of ownership from its $1.10 closing. This was something the promotional letters really got correct. They were absolutely right about how that works.
PART 2: THE ARTICLES
This is the topic that bears keep bringing up and are frustrated that no bulls are taking the time to refute the points. Since I am probably the one with the most experience in drafting investment case proposals, I will take the time to go through the articles point by point.
For reference, articles can be found here: http://seekingalpha.com/symbol/gnin.ob
I will be addressing the articles as they are displayed today, March 4th, 2013 and will not be referencing any of the "silent" edits or original content that was published the day of the crash.
However, I will point out a fallacy that bears are trying to say: "The articles did not cause the crash because the articles were not released until after it started going down". I have only one saved portion of these articles to show to everyone:
Above $3.00 a share is when their negative article was first released to premium members. I think that closes that discussion.
Another fallacy is that the stock traded "up" that day in the morning, therefore the articles were not responsible. This may be new information to some, but if you think about it you know it's absolutely right: the markets are inefficient. It takes time to gravitate towards fair value. That's why we are all investors! We are trying to research faster, be more disciplined in our DD, focus on a few companies to reduce our "information lag". If the markets traded perfectly to fair value, there would be no point in being a self-directed investor. You will just buy an equal share of the entire market or the S&P 500 and be done with it. But we all know that's not true. That's why we are self-directed investors. So, the fact that the market was inefficient that morning... even factoring in misleading information, does not negate the responsibility of the crash.
Now we finally get into the points raised in the articles:
Point #1 "Someone unrelated to the company is talking about the company and the last thing they talked about didn't do well"
Ok.
Why do people care about this?
If some outfit with a bad track record started promoting Apple, does that meant that Apple is going to perform EXACTLY like that companies track record? Does that mean Apple will suddenly start having bad "mojo" because a certain company was paid by a third-party to promote another third-party to itself?
I hope people see the point here: unrelated third-parties are unrelated. Why does this have any bearing on the company?
The only thing you should take from this is the fact that the company is being promoted. Advertised for. Marketed. In other words, more and more investors are hearing about the company. Does this create a situation where a company can become overvalued? Yes. Does it mean that the company is overvalued? No. Big difference.
That's where people make the mistake most often. Past performance is not indicative of future results and further, unrelated parties have no influence on each other.
I hope everyone understands exactly how little another unrelated company's reputation matters to the issue at hand. We are talking about GNIN. Why do I care about another company that is not involved?
The answer is I don't.
The only takeaway is that the company is being advertised. To which I say: Good. Great. That's excellent. The more people who are involved in the market, the quicker GNIN will trade to its fair market value.
Just because a company is being promoted doesn't mean that you have to throw your brain out the window. Sell when it gets overvalued. Buy when it is undervalued. Nothing changes.
The efforts of this author to make this a focal point is nothing more than noise. You want signal, "what affects GNIN as a company?". If it doesn't affect the company or your investment, disregard the noise.
Point #2 "The CEO has been involved in other companies in the past and they didn't do so well"
Well duh! Welcome to the world of start-up!
Don't you think everyone would be an entrepreneur or a CEO if there was no risk of failure?
Let me tell you something: start-up companies are called high-risk for a reason. Most of them will fail. That's the nature of the game.
What do Steve Jobs (Apple Founder), Thomas Edison (Light bulb coming on?) and Jack Bogle (Vanguard Founder) all have in common?
Failure.
They were not afraid of failure, nor did they give up after failure. Some interesting reading: http://finance.yahoo.com/blogs/daily-ticker/failure-success-steve-jobs-j-k-rowling-jack-134815058.html
A start-up company needs a CEO who is not afraid to fail. Who will not be conservative and will pursue the company's business plan till the bitter end, no matter how implausible success may seem. You need people like this who live for start-up. People who are dedicated to giving their all into a company no matter the negativity, obstacles or hearsay that may come their way.
GNIN has this CEO. He could have given up long ago. He could have quit and backed down and stopped trying. He could have accepted these articles as an excuse not to press forward with the company. But he didn't. The company refuted the statements, backed it up with SEC filings and is now entering Whole Foods. Talk about not backing down.
Which CEO would you want?
One that has a pristine history of no failures, but never really attempting anything big in this life?
Or a CEO who isn't afraid to dive in head first and push to the finish line, no matter the obstacles?
Food for thought.
If you want to read more about how important this characteristic is in early-stage company leaders, here is some more reading about Walt Disney, Bill Gates and many more: http://gradberry.com/thefruitbowl/2012/10/21/7-famous-people-who-tasted-failure-before-success/
I could go on and on: http://grasshopper.com/blog/2011/11/the-early-failures-of-famous-entrepreneurs-and-what-they-learned-3/
Point #3 "No Revenue"
Well, we all know this allegation is false. Proven false with filings and purchase orders. Even a recent bear did some research on GNIN's import history and further proved that product is really being sold.
Reference to SEC Filing here: http://www.sec.gov/Archives/edgar/data/1491471/000147793213000899/0001477932-13-000899-index.htm
Reference to evidence of real imports of GNIN's products: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=85232233
I'm pretty sure this would be called "lying" and most definitely misleading in a court of law. I already forwarded this information to the SEC for their review.
Falsely representing that a company has zero revenues, despite subsequent material events to the contrary... that's got to be jail time.
Point #4 "Weak internal controls, Too good to be true, Cancellation is a Farce, Dilution"
I am grouping all of these together because well, none of these are "points" that are worthy of being addressed outside some brief comments.
-Weak internal controls.
Start-up company is not spending its only revenues or going into debt to support strong internal controls. Check (this point is a positive for me).
-Too good to be true
All documents and invoices were filed with the SEC after this article to prove that it was indeed true. Unbelievable that this could be a "point".
-Cancellation is a Farce
This was also forwarded to the SEC as a false statement. The company did cancel the shares. They filed this with the SEC as well.
-Dilution
The exact opposite has happened. Cancellation of shares. Non-dilutive pay down of debt. Equal dividends to all shareholders. That's the direct opposite of dilution.
PART 3: COMPETITION
It was pointed out that GNIN has competition.
...
That's true, they certainly do.
I don't see why this would be considered a negative. Apple has competition. Its competition was actually years ahead of it into the marketplace. Apple was the underdog in the music player market. Now they dominate. Apple was the underdog in the phone market. Now they dominate.
Reference this post: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=85232233
For my model to work, GNIN needs to capture 0.8% of the market share in the United States. Those are the numbers I used, I won't disclose what my personal target price is (because people may consider that investment advice despite my disclaimers to the contrary), but I will disclose that I was a buyer at $3.10, so that should give some an idea of where my thoughts are at.
But it doesn't matter what I think, do the math for yourself! Research, fact-check and perform some estimates for yourself of how high GNIN could go. Then calculate the probability of it going to that price. Now you have a risk-adjusted target price. Now remove all emotion and buy or sell based off your target.
That's all folks. I hope that helped give some insight to those who are new to investing or maybe just don't get the opportunity to spend all day doing this kind of stuff.
Remember, these are my thoughts and my research. I could have missed something! And if I did, reply with the new information and I will update this post and we will update the sticky on the board so this post remains as accurate as possible.
PREFACE:
By no means am I saying that everyone else is not a "real" investor or that I am somehow better than anyone else, but investing in companies is what I do for a living. 100% of my income comes from return on equity passed through to me by way of either dividends or capital gains. Many of the companies I invest in are considered "start-up" or "angel" investments, so I believe I have a unique perspective on the issue at hand.
THE ISSUE:
Is Green Innovations Ltd. a good investment?
THE DISCLAIMER:
Many of these points reflect my own opinion. Some of these opinions may differ from you, but are grounded in facts I have discovered over the course of my due diligence.
Unlike many, I welcome controversy. I will embrace any new information. I respect anyone with a different opinion, so long as they care about the truth of the matter more than their own personal agenda.
ON A PERSONAL NOTE:
Ego and emotional attachment is something that I still struggle with, but is ultimately the best mindset to have. When you don't get "emotionally" attached to something: you can make clearer investment decisions. Investing is a lot like trading, you need to stay detached so you can buy when undervalued and sell when overvalued according to your model. The only thing you want to be emotionally attached to is the truth, to the facts, no matter if they conflict with your preconceived notions or "gut feeling". Any experienced trader or investor will tell you, trading on "gut" is the quickest way to losses. That’s why every day I continue to strive to be focused on one thing: reality.
NOT FINANCIAL ADVICE:
This part is very important. None of the information I am about to write or every write is to be considered financial advice. Even if I claimed to be giving financial advice, I would be out of my mind to tell someone to buy a stock or sell a stock without knowing their personal situation. Everyone is different. Someone who is investing beer money while going to college has a much higher risk tolerance than someone who is looking for income and capital preservation in retirement years. Good financial advice has to consider tax implications, structured risk assessments, lifestyle, family, your current investment strategy and where you are currently diversified, any hedge strategies (if anyone is into arbitrage or straddles) and many more factors and points that are way beyond the scope of this post. Even I use a good financial advisor and I suggest you do too.
At the very least, as the best piece of advice for anyone reading things on the internet: do not trust anyone. Even someone like myself. No one is perfect, I could be right 99% of the time and then be wrong with just one sentence and that could be the sentence that you base an investment decision off. Just don't. Trust yourself. Only yourself. Double check every single bit of information for yourself. Not only will you be "playing it safe" by confirming everything (and confirm things with proper sources: SEC filings, direct company press releases, reputable journalists) but you will also learn a hell of a lot about how to find and confirm information for yourself. You are the most important word in investing. Invest in yourself and the skills to discover truth for yourself.
Now that I got that out of the way...
PART 1: SHARE STRUCTURE IS IMPORTANT!
It appears many people do not understand how to do the math on share dividends. When you have a dividend that is less than 25%, the record date is immediate. Because it was issued as a dividend, every share was affected. That means the total ownership of each share is diluted to 80.65% of its previous ownership (you just divide the old share count by the new share count, it's really not rocket science). That means, in a perfect world, the price should have adjusted to $2.22 considering the previous day's close. You'll also notice that's the place where investors like myself were buying at a 10% discount to what we felt was fair market ($2.00). That was the first level of support for a very good reason. The reason you discount is to give yourself upside. There is also a reason to discount because the dividend still requires FINRA approval. You saw another large block of buyer at $1.80 because some investors may have discounted the FINRA approval to a greater extent, or perhaps they were discounting for other facts... or were trailing the market by 20% already and just adjusted as a result of the news.
However, as we all know the market is not efficient (otherwise why would anyone self-direct? We are all trying to beat the slow moving behemoths out there). Emotion, panic, fear, greed and information delay creates scenarios where stocks are overvalued or undervalued, sometimes for significant periods of time.
These articles are a perfect example of psychology. Many people sold for many reasons. I think the largest block of people sold because they did not understand that GNIN should have corrected to $2.22 with no change in material events. If it traded down to $2.22, that would have meant everything was normal. Normal? Yes, trading down to $2.22 would have been normal. You are going to get a 24% dividend. So multiple $2.22 by 124% and what do you get? You get $2.75! The exact same price GNIN closed at the day before. Basically, at any price above $2.22 on that day, GNIN would have been "up" on the day when you factor the share dividend. This is something that 90% of market participants that day did not understand, in my opinion. I believe that most people saw it start to trade down and looked for the first thing they could find and they found the Seeking Alpha article, giving it the "presumption of truth". It's the fallacy that a certain action caused a certain result, despite there being no true connection. There have been many studies on this effect and it's the flaw that B. F. Skinner demonstrated can lead us humans to adopt superstitions: http://www.bbc.com/future/story/20120327-why-do-we-have-superstitions
This is also one of the main reasons GNIN took so long to correct up to $3.00. When it cancelled the shares, that day it should have shot up to $3.00. Instead, basically nothing happened. The presumption of "oh that news doesn't matter" set in with people that did not take the time to understand what the news meant for themselves. But for people like myself, we bought-in big based on that alone. As I started doing more research I bought more because I knew I had till $3.00. The market was inefficient and it took day after day after day of trading up 15 - 25% to finally get there. In my opinion, most people thought GNIN was trading up on momentum, but us investors know that it was because of the structure change. That day the CEO cancelled his stock, each share represented nearly 3x greater percentage of ownership from its $1.10 closing. This was something the promotional letters really got correct. They were absolutely right about how that works.
PART 2: THE ARTICLES
This is the topic that bears keep bringing up and are frustrated that no bulls are taking the time to refute the points. Since I am probably the one with the most experience in drafting investment case proposals, I will take the time to go through the articles point by point.
For reference, articles can be found here: http://seekingalpha.com/symbol/gnin.ob
I will be addressing the articles as they are displayed today, March 4th, 2013 and will not be referencing any of the "silent" edits or original content that was published the day of the crash.
However, I will point out a fallacy that bears are trying to say: "The articles did not cause the crash because the articles were not released until after it started going down". I have only one saved portion of these articles to show to everyone:
Above $3.00 a share is when their negative article was first released to premium members. I think that closes that discussion.
Another fallacy is that the stock traded "up" that day in the morning, therefore the articles were not responsible. This may be new information to some, but if you think about it you know it's absolutely right: the markets are inefficient. It takes time to gravitate towards fair value. That's why we are all investors! We are trying to research faster, be more disciplined in our DD, focus on a few companies to reduce our "information lag". If the markets traded perfectly to fair value, there would be no point in being a self-directed investor. You will just buy an equal share of the entire market or the S&P 500 and be done with it. But we all know that's not true. That's why we are self-directed investors. So, the fact that the market was inefficient that morning... even factoring in misleading information, does not negate the responsibility of the crash.
Now we finally get into the points raised in the articles:
Point #1 "Someone unrelated to the company is talking about the company and the last thing they talked about didn't do well"
Ok.
Why do people care about this?
If some outfit with a bad track record started promoting Apple, does that meant that Apple is going to perform EXACTLY like that companies track record? Does that mean Apple will suddenly start having bad "mojo" because a certain company was paid by a third-party to promote another third-party to itself?
I hope people see the point here: unrelated third-parties are unrelated. Why does this have any bearing on the company?
The only thing you should take from this is the fact that the company is being promoted. Advertised for. Marketed. In other words, more and more investors are hearing about the company. Does this create a situation where a company can become overvalued? Yes. Does it mean that the company is overvalued? No. Big difference.
That's where people make the mistake most often. Past performance is not indicative of future results and further, unrelated parties have no influence on each other.
I hope everyone understands exactly how little another unrelated company's reputation matters to the issue at hand. We are talking about GNIN. Why do I care about another company that is not involved?
The answer is I don't.
The only takeaway is that the company is being advertised. To which I say: Good. Great. That's excellent. The more people who are involved in the market, the quicker GNIN will trade to its fair market value.
Just because a company is being promoted doesn't mean that you have to throw your brain out the window. Sell when it gets overvalued. Buy when it is undervalued. Nothing changes.
The efforts of this author to make this a focal point is nothing more than noise. You want signal, "what affects GNIN as a company?". If it doesn't affect the company or your investment, disregard the noise.
Point #2 "The CEO has been involved in other companies in the past and they didn't do so well"
Well duh! Welcome to the world of start-up!
Don't you think everyone would be an entrepreneur or a CEO if there was no risk of failure?
Let me tell you something: start-up companies are called high-risk for a reason. Most of them will fail. That's the nature of the game.
What do Steve Jobs (Apple Founder), Thomas Edison (Light bulb coming on?) and Jack Bogle (Vanguard Founder) all have in common?
Failure.
They were not afraid of failure, nor did they give up after failure. Some interesting reading: http://finance.yahoo.com/blogs/daily-ticker/failure-success-steve-jobs-j-k-rowling-jack-134815058.html
A start-up company needs a CEO who is not afraid to fail. Who will not be conservative and will pursue the company's business plan till the bitter end, no matter how implausible success may seem. You need people like this who live for start-up. People who are dedicated to giving their all into a company no matter the negativity, obstacles or hearsay that may come their way.
GNIN has this CEO. He could have given up long ago. He could have quit and backed down and stopped trying. He could have accepted these articles as an excuse not to press forward with the company. But he didn't. The company refuted the statements, backed it up with SEC filings and is now entering Whole Foods. Talk about not backing down.
Which CEO would you want?
One that has a pristine history of no failures, but never really attempting anything big in this life?
Or a CEO who isn't afraid to dive in head first and push to the finish line, no matter the obstacles?
Food for thought.
If you want to read more about how important this characteristic is in early-stage company leaders, here is some more reading about Walt Disney, Bill Gates and many more: http://gradberry.com/thefruitbowl/2012/10/21/7-famous-people-who-tasted-failure-before-success/
I could go on and on: http://grasshopper.com/blog/2011/11/the-early-failures-of-famous-entrepreneurs-and-what-they-learned-3/
Point #3 "No Revenue"
Well, we all know this allegation is false. Proven false with filings and purchase orders. Even a recent bear did some research on GNIN's import history and further proved that product is really being sold.
Reference to SEC Filing here: http://www.sec.gov/Archives/edgar/data/1491471/000147793213000899/0001477932-13-000899-index.htm
Reference to evidence of real imports of GNIN's products: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=85232233
I'm pretty sure this would be called "lying" and most definitely misleading in a court of law. I already forwarded this information to the SEC for their review.
Falsely representing that a company has zero revenues, despite subsequent material events to the contrary... that's got to be jail time.
Point #4 "Weak internal controls, Too good to be true, Cancellation is a Farce, Dilution"
I am grouping all of these together because well, none of these are "points" that are worthy of being addressed outside some brief comments.
-Weak internal controls.
Start-up company is not spending its only revenues or going into debt to support strong internal controls. Check (this point is a positive for me).
-Too good to be true
All documents and invoices were filed with the SEC after this article to prove that it was indeed true. Unbelievable that this could be a "point".
-Cancellation is a Farce
This was also forwarded to the SEC as a false statement. The company did cancel the shares. They filed this with the SEC as well.
-Dilution
The exact opposite has happened. Cancellation of shares. Non-dilutive pay down of debt. Equal dividends to all shareholders. That's the direct opposite of dilution.
PART 3: COMPETITION
It was pointed out that GNIN has competition.
...
That's true, they certainly do.
I don't see why this would be considered a negative. Apple has competition. Its competition was actually years ahead of it into the marketplace. Apple was the underdog in the music player market. Now they dominate. Apple was the underdog in the phone market. Now they dominate.
Reference this post: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=85232233
For my model to work, GNIN needs to capture 0.8% of the market share in the United States. Those are the numbers I used, I won't disclose what my personal target price is (because people may consider that investment advice despite my disclaimers to the contrary), but I will disclose that I was a buyer at $3.10, so that should give some an idea of where my thoughts are at.
But it doesn't matter what I think, do the math for yourself! Research, fact-check and perform some estimates for yourself of how high GNIN could go. Then calculate the probability of it going to that price. Now you have a risk-adjusted target price. Now remove all emotion and buy or sell based off your target.
That's all folks. I hope that helped give some insight to those who are new to investing or maybe just don't get the opportunity to spend all day doing this kind of stuff.
Remember, these are my thoughts and my research. I could have missed something! And if I did, reply with the new information and I will update this post and we will update the sticky on the board so this post remains as accurate as possible.
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