Face Plant
Loss hurts. People feel losses more than gains. That’s how brains work. This insight helped win Daniel Kanheman his Nobel Prize.
But some things gained this year. And investors feel alright. The S&P 500 has been a rocket—up 27%. Chinese stocks shared in the fun—up 16%. Even European shares have broadly risen—up 7%.
Overall, things went right for Lamplighter's portfolio too:
Cheniere Energy proved reliable, again. It delivered results like clockwork and kept ahead of schedule on its expansion projects. Investors bought a little more into the story this year. That helped share price.
IDT's digital growth businesses—POS solutions for independent retailers, fintech solutions for remittances, and cloud communications for businesses—flipped from their investment-phase to their cash-generating one. Its traditional communications businesses shrank more slowly than investors feared. This convinced some more investors that it’s a “growth” company rather than a dying one.
Google looked like an AI loser until a few weeks ago. Since then it's been firing salvos of AI and technology innovation that have recaptured investors' imagination and their bids.
There aren't profound takeaways from these examples other than "Lamplighter looks right, for now."
That's nice, but, like Kanheman would have guessed, losses take up most of Lamplighter’s attention. There were plenty this year. There are every year. We can't fix them now. We could sit and stew in them. Or we can learn.
Losses are lessons
Here are the top—er—bottom handful of screw ups from the past year, what Lamplighter thinks the big lesson was and how it's applied that to other opportunities.
Broken spirit
Lamplighter invested in Spirit Airlines when the DOJ challenged its merger with JetBlue on antitrust grounds.
The idea that a larger JetBlue would be a "monopoly" was a stretch. I fly places. I have choices that aren't Spirit or JetBlue. Other people can choose different airlines too. There are lots of airlines. Four of them in the US are bigger than Spirit and JetBlue combined.
Evidence supported the argument against the merger resulting in a monopoly. History supported this argument. The fact that Spirit was struggling financially supported this argument—the whole idea of a monopoly is to extract unreasonable profits from customers. Spirit lost lots of money.
The courts, though, decided that allowing JetBlue and Spirit to merge could, potentially, harm a few customers in a couple of airports in the southwest Atlantic. It decided this was enough to block the merger. Spirit shares headed south. Lamplighter exited with a loss.
Fast forward ten months. Losing money quickly caught up with Spirit. It landed in bankruptcy in November. It would sell what few assets it owned—it leased most of its planes. Any potential protection to customers from blocking the merger vanished.
Since the ruling, Lamplighter has shrunk its investments subject to the moods of the court and, in other cases, avoided them altogether.
Who am I?
IDEX makes fingerprint sensors for payment cards and ID cards. Lamplighter believed in the technology—two-factor identification in a "no-power" setting. It believed in the market—payment cards in circulation could reach 30 billion (!) by 2028. Investor expectations for the company were low. IDEX could capture a vanishingly small fraction of the market and still be a hugely successful investment. Card networks like Visa and Mastercard make it hard to qualify new technology for cards. Solutions need to be rugged. IDEX is one of one to achieve broad qualification.
So far, the portion of the market IDEX's captured is roughly none—a bust.
The technology has yet to gain traction. IDEX has announced some customers. These have been less “green shoots,” though, and more “grasping at straws.” It's still burning through and raising capital. Management hasn’t found a quick path to profit, yet.
Lamplighter made another technology investment this year—in Powerfleet. It offers customers whizzy tech to lower costs and improve the safety of their warehouse and road logistics fleets. This one had plenty of traction among customers. The team proved their M&A chops to achieve scale. So far, the results have been much better.
Lunch money
Viasat provides a handful of space-based communications services—for residential users, for the military, for boats and planes and things that go. It announced its "next generation" network back in 2015.
Space is hard. Viasat faced production delays. COVID set it back further. When it finally got the first new bird in the air, it didn't work. That was nearly two years ago. It still hasn't launched the second and third satellites in that series.
In the meantime, Starlink/SpaceX has been eating its lunch, gobbling up customers and providing rapid-fire advancements.
The investment broke the most iron-clad rule of investing today: Elon wins. It also highlighted a glaring single-point failure in the business model. You can't go up and fix things in space if they don't work.
Lamplighter's put a magnifying glass to other potential single-point failures in the portfolio. Part of its take on Planet Labs was that the outfit already had a fleet of earth observation satellites. It's been launching loads more. The failure of a single one wouldn't undermine the company. Some of their satellites have failed. Planet's carried on building and growing its business.
Shiny new things
Mistakes are maddening. And inevitable. The choice is to learn from them or not—to apply the lessons in novel ways and to build a more robust investment process. That way Lamplighter can avoid making the same ones twice. We want our returns to compound, not our whiffs.
Lamplighter will surely make new and—hopefully—more clever mistakes next year. The lessons from this year—and 2023 and 2022 and 2021 and all the years before—will protect the portfolio though. The idea is that—like happened this year—applying lessons from those mistakes limits their impact and lets the things Lamplighter does get right matter.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.