Can a title be more dull? Sure. The stories, however, they are what keep me interested in stock investing. Stories alone are not a reason to invest, unless you have lots more money to lose than most. Stocks without stories can perform well, but I’ve also noticed that it is easier to track a stock if there’s more than a financial reason to hope it succeeds. Stories help put the ‘personal’ in personal finance. AMSC (originally called AMerican SuperConductor) hoped to do for electricity what fiber optics did for telecommunications. Maybe they still hope for that, but I can’t see how they will get there, anymore. LCTX (Lineage Cell Therapeutics) is developing a few medical treatments to tackle ailments like accidents, eye issues, and maybe some cancers and vaccines. I can see how they can get there. AMSC out. LCTX in.
For a short version of my investing strategy, read my semi-annual portfolio exercise from July 31, 2020. For a longer version, read my book, Dream. Invest. Live. For the longest version, read this entire blog – No! Don’t do that! Have a life! There are probably over a million words in this blog. That’s a lot of reading.
I tend to invest in companies that can positively disrupt entrenched industries. (Examples in the book of some that worked and some that didn’t.) I also tend to invest in companies whose business model or technology is uncommon. Analysts for large financial institutions have a great advantage analyzing giant companies in conventional businesses. So, innovators get overlooked.
First they ignore you. Then they laugh at you. Then they fight you. Then you win – hopefully.
In investing that can mean buying overlooked and therefore hopefully undervalued stocks, hold through the laughter and the struggles, then sell when the stocks ‘suddenly’ become popular.
American Superconductor had, and may have, great promise. Decades ago they found a way to manufacture relatively high-temperature superconducting cables in commercial quantities. The world’s electrical grid is old, inefficient, and due for some massive upgrades. We can’t afford to waste energy. Superconducting cables would decrease the losses in transmitting electricity. The bonus was that the cables could also make better motors, utility-scale voltage regulators, possibly tie the US grids together, and help renewable energies like solar and wind farms. Great!
Fortunately, while they were building the cable capacity, they merged or acquired a company concentrating on wind turbine design. Even better, they had a key customer in China that produced impressive revenues. The stock did well, and the company hadn’t even launched its key product, those cables, in my opinion.
Oops. Intellectual property theft happens. A customer becomes a competitor using AMSC’s technology. AMSC’s stock crashes. Years later, after potentially losing hundreds of millions of dollars in revenue, the company settles for far less.
AMSC just announced earnings. They are proceeding to profitability, but I have lost the confidence that they will disrupt the industry. I’ve held the stock since 2003. I think I’ve been patient enough.
As I wrote in July; “AMSC may not be dying off, but it also seems to be growing like a low ground cover rather than the towering tree that was supposed to “do for electricity what fiber optics did for telecommunications.” Of the five, it is my most likely candidate to sell, despite the need for its technologies that improve the efficiency of the power grid.”
It announced earnings and started to climb. An investor’s dilemma; getting ready to sell a stock, seeing it rise, and wondering whether to let it run a bit more. I missed selling AMSC about a year ago. Friday morning I noticed it was getting close to that old price. If I’d heard of some change in corporate strategy, or shift in the industry, maybe I’d hold longer. I haven’t. I sold. That’s a fat load of annual reports headed from my shelves to the recycle bin.
At the same time, I’ve been watching Lineage Cell (LCTX is easier). Again, as I wrote in July; “LCTX includes one of those GERN prime technologies (stem cells) that is inspiring as it has the potential and has proven somewhat to repair damaged nerves in accident victims without the use of mechanical devices or implants.” Add in their work on eye issues, and cancers and vaccines and witness that possibility of a positively disruptive technology(ies). The treatments aren’t approved, are in early human trials, and typically would take years to get to profitability. That timeline may still be true, but I am encouraged by the results of the trials which aren’t theoretical. From what I understand, some accident victims are regaining some muscle control, and some with eye issues are regaining some sight.
AMSC has taken so long to develop that I believe competing technologies like graphene and other superconducting materials may have caught up enough to out-compete AMSC.
LCTX’s technologies are some of the most advanced, and in may be one of the earliest to market to an unmet need.
“AMSC may not be dying off, but it also seems to be growing like a low ground cover rather than the towering tree…” – me
Meanwhile; “Compassionate approvals may be possible when there are few or no alternatives, which might be the case with Lineage’s treatments.” – me
I hesitated selling AMSC. Maybe I sold just before a future dramatic rise. By selling AMSC I have reduced the diversification in what had been a diverse portfolio. By buying LTCX, however, I am balancing what remains of my portfolio. If LCTX was to succeed, my holdings were so small that my bragging rights might exceed the value of my stock.
People ask me why I conduct my semi-annual portfolio exercise. This is why. I can look back over years (decades?) and read how my expectations and understanding have changed. Notes are never complete, but human memory is fallible. Why did I buy that stock? Did that prove to be true years later? If so, great. If not, should I buy, hold, or sell?
This is the end of a era for my AMSC holdings. Superconductivity now changes into stem cell therapies – at least within my portfolio. I intend to buy a bit more LCTX to better balance my portfolio. That will take funds, revenues, profits, income from my business (and I also buy lottery tickets.) After that, I plan to save to be ready to buy something else. Maybe I’ll buy back into AMSC. I’ve performed such returns before. But I also look forward to diving into a full stock screen as I haven’t done for years. Normal is gone. New and positively disruptive technologies and businesses are needed. It will be time to look ahead, not back.