Five Hours
Five hours. That's about how long it was before LCM’s note last week began looking very stale.
The short version is this: LCM argued that an activist investor agitating for action at RAIN was more compelling than another activist investor WISH. Tang Capital, the investor nudging RAIN to act, put up its own money and offered to buy the whole company and share the upside of selling the company’s assets with existing shareholders. Tang bought a 15% stake in the company when it made the offer. This set a sizable voting foundation to support its effort and put its own money already on the table.
Cannell, the activist investor running a similar playbook in WISH, bought a pretty small stake and sent a strongly worded letter to management that said, basically, "do something." That’s it. LCM argued that following the money was a better bet for investors on the outside. A bet on Tang was better than a bet on Cannell.
LCM pressed “send” around 9:00 AM on November 7th. Later that day, WISH reported earnings. It announced that the company would explore "strategic alternatives" a euphemism that could include a sale just like the type pushed by Cannell. RAIN reported last week too and said… nothing. Shares of WISH jumped. Shares of RAIN fell.
LCM is wrong a lot and looks foolish a lot more. Usually it takes more than five hours. But here we are. Financial markets are mostly pretty good at sussing out the value of things. They occasionally get things wrong. Occasionally very broadly wrong. But most of the work of investing at LCM comes from taking advantage of situations that are specifically wrong, like WISH and RAIN. BOTH are undervalued. Both have more cash in the bank than their shares are worth on the market.
LCM tries to take action so that when it looks wrong or is foolish, like in the relative case of RAIN vs. WISH, the consequences are limited.
WISH took action first. Good for WISH shareholders. The company has more cash than its shares are worth and is losing money, this is exactly what management and the board should be doing. Other than looking like a bit foolish, LCM isn't harmed by WISH taking this road first. It doesn't hurt the case for RAIN. It's a gentle reminder of the benefits of a diversified portfolio — even in the case of specific situations and to be humble and patient in our investments.
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.