And Now For Something Totally Different
Ever get tired of staring at the irrational market? If you're a regular reader of my blog, you'll know that I have gotten frustrated with the markets in the past month. Anyway, as I often do, I was playing the Wall $treet Raider computer game which is, to my knowledge, the best economy/stock market simulator out there. Starting with $100M, you get to invest in bonds, stocks, and the like while taking over other companies, manipulating the markets, trying to drive the AI competitors out of business and so on. I can honestly say that much of what I know about bonds, I learned from manipulating the corporate bond markets and trading the government bonds within this game. I often keep pretty detailed notes as I'm playing, so I figured I might as well post one of these accounts of my gameplay and see if you enjoy this sorts of post/story. If this isn't your sort of thing, fear not, I'll be back to normal blog content tomorrow. In the meantime, enjoy... updates to this story will appear in the comments section.
January 1st, 2010 Today, I finally reached my dream. I accumulated 100 million dollars--enough, at long last, to launch a holding company. I've officially created the company with 50 million outstanding shares priced at $2 a share, and haha, I own all of them. As there is only one owner, they will not trade on an exchange--at least at this time. With my very own holding company, I am able to consolidate all my financial activities into one company that shields me from numerous tax and legal risks. In Vancouver, Canada, the GMX Group officially incorporated with every penny of my net worth invested.
The world is a scary place right now. Pakistan, it was just announced, has invaded India and the threat of nuclear warfare looms large. Oil, not surprisingly, has shot up to $122 a barrel. The Fed has set a monetarily easy policy with the prime rate at 5% and government debt trading in the 4% range. The Dow is trading at a hair over 5,000.
January 4th, 2010
After a bit of research as I pored through the data, I realized that the semiconductor industry was ripe for the picking. With profit margins at an average of 12% and demand within the industry growing at 12% a year, this just feels like the sector to get in. Analysts--though we all know they aren't worth anything--predict that long-term growth within the industry will average 15% a year. Who can resist that? The GMX Group announced that it had acquired some assets within the industry and established GMX Semiconductor Inc. to focus on the creation of chips for portable electronics--particularly MP3 players. Again, there are to be 50 million shares of GMX Semi, however, the GMX Group owns all 50 million of them. As I own all 50 million shares of the GMX Group, I, by extension, own all of GMX Semi--with enough separation to avoid those nasty lawyers.
March 6th, 2010
GMX Semiconductor Inc. took a substantial loss in the first Q of 2010. We expect the losses to continue for awhile as we are spending 30% of revenue on R&D. However, we feel this is a necessary step to get our feet into the semiconductor market.
While the value of my holdings in GMX Group and GMX Semi have fallen, I've made a decent amount of money on a short sale of fellow semiconductor company Analog Devices Inc. We've heard some nasty rumours about the company, and with the stock trading at 7x its book value it was ripe for a correction. Stocks have plunged as the war in India continues to freak out investors. The Dow has fallen 20% this Spring as GDP growth has slowed to 2.2% and interest rates rise. Analog Devices fell 25% and allowed me to make $7 million in my personal accounts. However, I've seen my total assets fall from $100M to $77M as the value of my GMX holdings have gotten slashed as skeptical investors want to see profits.
May 25th, 2010
GMX Semiconductor Inc. announces 2nd quarter results today. We were pleased to announce a profit--yes--a profit of $310,000. Or .006 cents a share. We earned a profit margin of .4%. Not exactly breath-taking, no, but profitable and we're sure our R&D spending will lead to great things later. Despite this, shares have fallen on the informal market to $1.59 each from their debut at $2. While there is no trading market, the informal offer for shares, should I wish to sell part of my stake, has fallen 21% since I founded the company. Shares of my holding company GMX Group would only fetch $1.17 on the open market should I be forced to sell. However, I have no intentions of selling soon.
August 25th, 2010
Losses mounted in Q3 for GMX Semi Inc. We lost $6.5M (12 cents) a share. As such, the GMX GROUP also took a hit. Shares of the GMX GROUP would, if I had to sell them now, fetch only 98 cents. That's pretty bad--my $100M investment in the GMX GROUP has lost 52% of its value this year. However, I'm doing that badly, the conflagaration in the Middle East has sent oil to $180 a barrel and sent the dow down 35% on the year. At least Analog Digital continues to crash. I have a personal profit of $20M on my short position of the troubled semiconductor company.
November 2nd, 2010
The imbroglio in India continues to scare investors around the world. Fears of a war spanning the entirety of the Middle East have led oil prices to a preposterous $194/barrel. Stocks have collapsed, the Dow is now at 2,900, down 42% on the year. In reaction, I have covered my Analog Digital short for a $24M gain and then used those profits to buy a 5% interest in Precision Drilling Inc. (PDS), a rapidly growing oil service company. The company can be fetched for $12 a share and yet it earned 95 cents a share last year and is expected to earn $1.21 a share this year. The chance to grab a company with a solid balance sheet (BB credit rating) with a forward P/E of 10 in a sizzling industry just can't be turned down. I have $10,000 in personal cash left after my PDS purchase. The biggest concern is that PDS' book value is only $5.03 so I overpaid for their assets, but I believe the growth will continue.
November 24th, 2010
GMX Semi lost $1.05M this quarter (2 cents a share), a marked improvement from the 12 cent a loss last quarter. Once my researchers feel that we are ready to devote less spending to R&D, we should become consistently profitable.
2010 Year In Review
Man, what a terrible year.
The dow fell 45% to 2,753. Interest rates shot to 9%. However, they collapsed to 6% and oil plunged to $114 a barrel as the global economy collapsed. As the war drags on, the spark of hope has flickered and faded. The American economy is shrinking at 6.2% of a year now.
My personal worth dropped $300k to $99.7M. My investments in the GMX Group have been a huge money loser, but my short of Analog Digital paid well, and now shares of PDS have risen from a hair over $12 at the time of my purchase to $17 after a strong earnings report.
February 22nd, 2011
GMX Semi lost $450,000 this quarter (0.009 cents a share) and is expected to turn profitable for good next quarter as R&D funding is being slashed to 10% of revenue. We now have a solid product line and are ready to monetize our research. Good thing too, as PDS shares have fallen back to $13 and my net worth continues to slump.
May 22nd, 2011
GMX Semi reports a profit of $2.7M on revenues of $17.6M, before taxes, our profit margin was a more than healthy 23.5%, way up from previous quarters. That profit will be reinvested in new assets for the company--GMX Semi is looking to grow!
Speaking of growing, economists are saying the worst is over, after spiking down to -9%, GDP growth is back up to only -5% and the Dow is back over 3,000. Despite ever-sinking oil prices as the Indians and Pakistanis signed a peace accord (oil is now at $72 a barrel), PDS shares have rebounded to $19--a 52-week high, on earnings of 62c a share last quarter. They are now trading at a forward P/E of 7. However, earnings are not likely to match expectations as oil demand has fallen so sharply.
August 23rd, 2011
GMX Semi reports a profit of $3.1M and a pre-tax margin of 29% on sales. Net Worth has rebounded to $1.65 a share after falling as low as $1.58 for GMX Semi. I'm getting offers to sell shares at prices as high as $1.80 now, but that is too cheap for a company on pace to earn 14 cents a share for the full year.
November 23rd, 2011
GMX Semi earns $3.4M in profits this quarter on a 30.7% margin. The offer for shares of GMX Semi Inc. are up to 2.07. People would love to buy us out, but as the one and only asset of the GMX GROUP, we aren't selling. Just when the economy appeared to be recovering, Indonesia defaulted on her debts due to the sudden decline in the price of oil. The Dow, which had crept back up to 3,300, plunged back to 3,045 in just two days. However, ignoring the trouble, the vastly overvalued PDS soared to $27 a share as earnings came in at 80c last quarter.
2011 Year In Review
I have sold out of PDS at $25.50 a share for a preposterous 115% profit over my slightly longer than year long holding period. After paying tax on the profits, I netted roughly $60M in gains.
In total, my assets are $153M, $80M in cash and $73M in my GMX Group Holdings. GMX is now showing a profit on GMX Semi Inc. --despite this--however, GMX Group is valued as if GMX Semi really isn't worth the $2.11 a share it could be sold for at present.
The Dow closed the year at 3,050 up just more than 10%. GDP growth has rebounded to 0.8% as interest rates remain low under 5%. Spot Crude is at $75 a barrel.
February 14th, 2012
GMX Semi Inc. reported a profit of $2.4M this quarter (4 cents a share.) Margins fell to 21%. The industry, as a whole, is now losing money and demand for semis is falling at 12% a year as a capacity glut built in the face of last year's economic turmoil. I expect GMX Semi will report losses later this year as demand continues to fall while Intel and Texas Instruments stupidly continue to expand their supply. We, of course, are still expanding at 35% a year, but we are just a flyspeck in a gigantic industry. By building the size of our company and establishing a record of profits, our credit rating will rise allowing us access to debt markets and perhaps even to a public listing on the Nasdaq or NYSE.
March 29th, 2012
The GMX Group, after crunching the numbers, decided to sell call options on PDS. Precision Drilling is still trading at $29 despite crude oil falling into the $60-a-barrel range. We expect earnings at PDS to drop. We've sold $35 strike call options for Dec. 2012 at $1.99 bid raising $9.9M in cash. As long as PDS doesn't go significantly over $35 a share (6x/book) (forward P/E of 18), we get a free $9.9M in cash for the GMX Group which has been undervalued vs. its subsidiary GMX Semi. We're hoping the influx of (free?) cash will spark investor interest in the GMX Group.
May 19th, 2012
GMX Semi Inc. reports 4 cents a share but it's due to rounding. We earned $1.7M this quarter, well down from $2.4M last quarter. We'll be lucky to earn 2 cents a share next quarter as margins are down to 12%. We cut the projected growth rate in half to 18% a year... we just don't see the point in aggressive expansion as the semi industry tanks.
On a broader macro level, the Dow is unmoved this year as GDP continues to stagger along at 1% a year growth and interest rates are slowly rising (prime is now at 7%.)
August 25th, 2012
GMX Semi Inc. saw earnings fall to $890,000 this quarter (2 cents a share.) We've raised R&D spending back to 17% of revenue as we aren't going to be profitable until the semi industry turns anyway so might as well get our product lines freshened up for when the economy and industry does turn.
In positive news, PDS is falling sharply as oil is failing to rebound. GMX Group appears to have grabbed a free $10M with their sale of PDS call options. Rapidly rising interest rates (the prime is now at 10%) have caused the economy to continue to sputter.
I bought $90M (face value) worth of government long-duration bonds in my personal account that mature in 2030 for $62M. As they yield only 5%, I could get them at a massive discount to value. One can buy $1 worth of government debt for 69 cents. Should interest rates return to 5%, the value of those bonds should return to roughly $1 dollar. If I can buy $1 of assets for 69 cents, I should do so, eh? The potential downside is if interest rates remain elevated and I receive only a 5% yield on my bonds while a much higher yield was available elsewhere--but I've put this trade on for a capital gain--not the yield on the bonds.
November 23rd, 2012
GMX Semi Inc. loses 3 cents a share ($1.4M) as our profit margin fell to -12%. I got reports from our corporate analysts that Texas Instruments, Applied Materials, and Intel are all cutting R&D spending while selling non-core assets. Hopefully contraction of supply and research within the industry will turn profits around. GMX Semi, though not traded publicly, has seen its value fall sharply as interested suitors have left. If I had to sell it out now, which I certainly don't want to, I'd only get $1.48 a share--a third less than I could have gotten at the beginning of the year despite the fact that book value has remained constant throughout the year.
2012 Year In Reveiew
Odd year. The economy maintained 1% GDP growth throughout the year, but stocks never recovered. The dow traded in a narrow range and closed 20 points higher (.7%) higher than it started the year. The Prime Rate remains at 10% and oil at $52 a barrel as their just isn't credit available to jumpstart the economy despite the noticeable lack of inflation.
My net worth is at $112M (up 12% in 3 years.) This doesn't sound great, but the Dow is down 38% in those 3 years, so I'll take +12%. The GMX Group is also noticeably undervalued as all interest in GMX Semi has evaporated in the wake of the moribund semiconductor market.
Here's some charts for you:
GMX Group (100% owned by myself) Keep in mind as these are private prices, they are more volatile than what you might expect if we were publicly listed: GMX Semi Inc: And finally, a chart of Precision Drilling: