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Further Year-end shuffling

January 8, 2014

Forgot to post that prior to the end of 2013 I did end up selling off some 15% of my position in Fortress Paper (for a sizable tax loss), as well as adding further to my Gravity Ltd. (GRVY) at $.91 per share. The reasons are those I posted before, but I just wanted to close the circle.

Next post: year-end round-up

  1. CT Lim permalink

    Hi Jay, thanks for the post. Just wondering what’s your thesis on adding GRVY – other than price is below book value. Cheers.

  2. My thesis is simple. I think the share price at year-end 2013 was artificially depressed by tax loss selling on top of the poor operational results in the third quarter. Anytime I can buy shares in a company for 55% of cash on the balance sheet I have a hard time restraining myself. Even if management is mediocre (which they seem to be here) eventually they may hit on something that leads to actually earing money! If they do, the shares should reflect cash on the balance sheet plus some value for the underlying assets. Furthermore there is the optionality that they could just stumble on a blockbuster game which might really ignite the shares.

    When you take care of the downside, the upside somehow just happens!

  3. Eric permalink

    GRVY has no history of distributing cash and the ADR fees are effectively a negative dividend. If the Company isnt going to distribute assets then can you really use some sort of net balance sheet measure to value the entity. Surely any venture needs to return cash to the investors at some point and I assume we agree that they have more cash than they need, which would typically be distributed or a plan for use provided to the investors. They’ve held this excess cash for years now.

    I got out in full after they announced they canceled a valid c$20m contract for RO2 without providing a reason. As disclosed performing on the contract meant delivering RO2 and didnt, as I understand, have anything to do with the success of RO2. This decision indicates the owners (gungho) have a more broad gaming interest as it is difficult to understand why the contract would be terminated.

    It is very much possible that the company will simply continue to burn through their cash on unsuccessful ventures and play a bit role for the majority owner all the while ADR investors pay their ADR fees.

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