Q1 2020 Portfolio Update

Here is my Q1 2020 portfolio update. At the end of each year, I will give a comparison of how my portfolio and each individual stock performed compared to the S&P 500 index and the S&P/TSX index. Prices are as of March 31st, 2020.

I have not included the cumulative return for my portfolio for the quarter. I think judging your portfolio based on quarterly returns is far too short-sighted and not something I am going concern myself with.

Q1 2020 Portfolio Update
Q1 2020 Portfolio Update

For this Q1 2020 portfolio update, I will try and remain optimistic. It has been a bloodbath without a doubt. Luckily I had some cash ready to invest. I have found this has significantly helped as I watch my portfolio shrink and shrink. Having cash to invest has lessened the pain of the big decline in my portfolio as prices have become more attractive.

I am still optimistic about my holdings, with the exception of Ianthus.

Ianthus Capital Holdings

Ianthus is a U.S. mutli-state marijuana operator with assets in eleven states. They recently announced that they had defaulted on its interest payments.

Ianthus will very likely be the first investment I will ride to zero. I consider this my investing tuition that everyone always talks about paying. The whole weed craze is what got my into investing in individual companies. So its not all bad.

I got wrapped up in the weed hype and bought MPX because it was the most reasonably priced company in the industry. I read a few opinion pieces and that was all the research I did. MPX was bought by Ianthus. I then watched it slowly decline from $7 to now $0.26. I still have my shares, I don’t really see the point in selling now. Ya never know, maybe it will come back from the dead.

After a major stock market decline management decided to re-price their own options. This was a major red flag that should have been the signal that shareholders are not the priority of this company.,

Q1 2020 Portfolio Update: Positions Exited

Tencent (TCEHY)

Tencent is a very interesting company. I sold my position for a little gain to try and take a little risk off with COVID-19 coming. It was a prudent move and maybe I should have sold more positions. This isn’t my investing strategy to move in and out of positions but Tencent wasn’t a position I was overly committed too. I moved my Tencent money into another position I’ll describe below.

Q1 2020 Portfolio Update: Positions Entered

Network Media Group (NTE.V) (NMGGF)

Network is a Vancouver based film and tv production company. For an excellent write up on the company, I again refer you to Trevor Treweeke and his blog.

Their website also gives a good look at the properties they have created: “I am” documentary series, The Age of A.I., and a series titled Beauty on Quibi.

The investment in Network is quite simple, although it took me a while to get comfortable with the business. Develop profitable projects with improving terms as Network gains more notoriety. This will eventually turn into a large library of content they can monetize.

My hesitation with Network is its business model takes some time to understand. The same can be said about its accounting. There are a series of accounting changes made when a project is funded and then finalized. Multiple steps must be accomplished before Network can book its revenue. Again please refer to Trevor’s write up and take your time trying to understand the business model.

It’s hard to argue that there is a bigger macro tailwind then the spending being allocated to content. Network will continue to benefit from this spending. The stock is incredibly cheap on an EV/EBITDA basis of 2.6x. I think Network will remain cheap until more investors discover the company and take the time to understand its business model.

Recro Pharma (REPH)

A nice write up of Recro can be seen here. While I tend to shy away from companies with high debt I made an exception in Recro’s case. This was partially based on a podcast I recently listened to by Dan Rasmussen. Dan utilizes a private equity investment style and focuses on small-cap companies that have a reasonable amount of debt and solid cash flow. The company unlocks value as it pays down debt.

Recro is a contract development and manufacturing business. They are contracted to produce well known drugs like Ritalin and have long term relationships with multi billion dollar biotech companies. Recro recently spun-out its acute care segment which it was using cash flow from the CDMO business to fund.

Now that the acute care business has been spun out they can focus on the CDMO business and pay down debt. There is also the additional tailwind of drug manufacturing returning to the U.S. COVID-19 has exposed the U.S. to its reliance on Chinese drug manufacturing. This could lead to more drugs being produced in the U.S. which would benefit Recro.

Watchlist

OneSoft Solutions (OSS.V) (OSSIF)

OneSoft is a SaaS company that integrates pipeline data and machine learning to better predict pipeline failures. They have partnered with Microsoft as their cloud provider and have gradually built up a client base.

OneSoft’s Cognitive Integrity Management (CIM) software costs a fraction of what traditional pipeline integrity management costs per mile of pipe while providing better fault detection. I really like these companies where the value proposition is so clear.

My biggest hesitation is the elevated share count. They have over 100 million shares outstanding. It should stay at this level as they recently completed financing and have $10 million in cash. I still have more research to do before making a decision on OneSoft.

Conclusion

It’s been a wild quarter. I’ve watched my portfolio shrink away but having some cash in reserve has really helped lessen the pain.

I added to my Namesilo (URL.CN) and NamSys (CTZ.V) positions and still have some cash to deploy. My only holding that has closed operations is Crescita. They laid off its workforce and management has taken a pay cut. I wrote about Crescita and the value I think it presents at the end of my 2019 review of Crescita.

Thankfully my family has not been drastically impacted by COVID-19. All of my family and extended family are still healthy and we haven’t been impacted financially. I hope the world can beat COVID-19 and return to some form of normalcy. Until then the markets will continue to be a roller coaster.


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