Replies to post #16551 on Zeev's Turnips Patch-No Politics (ZEEV)

[Larry Brubaker]

You've got to read the SEC filings covering any financing recently raised, look to see if it is a convertible instrument (debentures, preferred shares, etc), and if it is convertible, whether it is covertible at a fixed, or variable stock price. If it is convertible at a variable price and there is no floor on the conversion price, it is a floorless convertible.

They come in many different flavors, and often, the structure of the deal as described in the filing is so complex that I don't even bother trying to decipher them. IMO, the complexity is a tip off that something stinky is going on.

[Zeev Hed]

Bacchus, really two issues, the first, trading only one stock (AMD). Yes, it may be difficult to understand more than on stock, but frankly, understanding a stock (from a fumbamental point of view) and trading it are unrelated. If you are talking about long term investment, well you know my opinion about LTBH, all my core has been traded in and out at least once in the last 18 months, it is a sign of the times. Being only in one stock exposes you unduly to an accident, diversification into 20 to 50 stocks assures that even a catastrophic accident does not wipe you out (I get a least one catastrophe a year, it cost me typically 2% of the folio, hopefully recovered and then some, on the others).

As for your floorless question and NT (and Ericson comes to mind as well). Yes, I typically do not invest in Canadian companies (though right now I have positions in QLTI and TLM and earlier this year I liquidated a serious position in CYT), but Larry is completely right, if you can put your hand on their 10Q or the equivalent 20F (if memory serves), you should be able to understand the structure of their financing and whether or not it is floorless. There is of course the case of the quasi floorless, like CDTS and VLNC. In those cases, there is no document stating financing is at progressively lower share price, but when you look at the balance sheet and cash available on hand, and compare that to the cash burn of the company, you can readily identify companies that will have a continuous trip to the capital markets. If the company in question is unable to raise the amount of capital required to get them to the safe shores of positive cash flow, it is most likely going to avail itself to quasi floorless equity. If you insist on getting involved with NT (and I don't know the details of their deals), consider buying their convertible paper, and then, if the conversion is fixed, wait until the stock bounces accidentally above the conversion pice, and short an equal amount of stock to your convertible. In essence, you now will get interest (and whatever premium to conversion you managed to get, if any) without having any capital at risk, in essence, an infinite return. Of course, during the period between your acquisition of the convert and your short sale of the underlying equity, you are at risk that the stock never gets above conversion, but that is a risk you are going to take anyhow if you buy the equity right now).

Zeev