Preliminary remark

I purposely refrain from sharing my portfolio updates on social media. First, because no one cares. Sharing would just put me in a position to care about the fact that no one cares, and that would be a waste of mental energy. Second, this is only my second year of investing seriously (we could even argue that 2020 doesn’t count) so there’s really not much to share anyway.

Performance

June was my best month YTD.

My top 3 holdings all performed well. $CTS.TO has been on a massive tear these past two months, up 85% since end of April. $WELL.TO has been stagnant since the beginning of the year but started moving up in the last days of June, maybe in anticipation of a Nasdaq uplisting announcement.

$NUR.CN, my biggest holding by far (more on this at the end of this post) has reached a high of $2.50 in anticipation of news but ended the month at $2.08. The news did come out but it wasn’t as good as we hoped. In particular, the PP price was at a massive discount to market price.

New positions

I have suddently morphed into a shameless cloner this month.

I bought some $BABA shares and leaps for a total allocation of 4.7% of the portfolio (see rationale here).

I also bought some shares of $GOED. To say the truth, this was a decision I made in under 20 min, hence the minuscule allocation (1.3% after a 85% run-up). I cloned a group of snipers who publicised this stock on fintwit, namely AsymmetricDhandoBets, Thomas Braziel and ch-ch-changes capital. I could tell they were not bozos from their twitter timelines and I later learned that they were real killers.

I initiated a non-insignificant position in $EMO.V (Emerita Resources) after listening to some DD by Doc Jones. I listened to his podcast during last weekend and decided to start a position on Monday. Then on Monday morning, the stock quickly went up around 5% and I decided to wait for it to come back down before entering. Long story short, it never went back down. Instead, it ran up +25% the next day, and I decided to bite the bullet and started buying. I bought between $1.26 and $1.33 and current price is $1.46. It represents 6% of my portfolio as of today.

$VMD.TO is also a new position in the portfolio. The initial DD was done by the guys over at Cove Street Capital (video here). It hasn’t done much during the month but I like the stock. It represents 1.5% of my portfolio.

$MDP.TO (Medexus Pharmaceuticals) is a momentum play. It’s a pharma company that is currently aiming to commercialize Treosulfan in Canada and the US. They recently received a Notice of Compliance from Health Canada and management seems optimistic about the US. There has been a lot of insider buying lately, from the CEO and other directors. I’m still reading on the company.

$DOO.TO is an idea I got from C.J. Oppel. After looking at the historical operating performance of the company, I liked what I saw and purchased a small position. Increasing revenue and income, decreasing shares outstanding. Now 1.1% of the portfolio.

$KUT.TO (REDISHRED CAPITAL) is an idea I found on Value Investor Club (see DD here). It’s kind of a reopening play. Overall, after looking at the numbers on a per share basis, I wasn’t feeling too impressed. I’ll have to review but I doubt I’ll stay in this one very long.

Finally, I bought a minuscule position in $ATTO. This one is a favorite of Brown Marubozu and he’s been very vocal about it. He even shared his DD with me, but to be honest most of it went over my head. What made me pull the trigger was this post from Thomas Braziel announcing he was going long the stock. It’s only a 0.3% position for me…basically I had some spare change and decided why not.

Added/Trimmed

I did not add to any of my existing positions (wonder if that’s a red flag).

I sold shares of $CTS.TO during the month between $7.91 and $9.74…which is pretty sad given that it kept running higher. I wanted to cap my position at or around $150K and I thought I could find better opportunities elsewhere. The stock is not dirt cheap anymore, getting close to 30x trailing EBITDA, and I feel like there is a bit of hype around it now. That being said they have executed flawlessly so far and the plan for the next 3 years is straightforward, so I’m not willing to trim it too much. It’s still a 17.1% position.

I also sold shares of $WELL.TO around $7.90. I might have to do a longer post on this but although I love the management there, I’m not sure I can tell what that company’s moat really is. That being said, assuming the environment remains friendly, I think it has some legs - and as they say, never bet against Hamed. It’s still a 13.5% position.

Portfolio distribution

portfolio-dist-june-2021

There are many things that I don’t like about my portfolio distribution, aside from the $NUR.CN position which I talk about below.

Previously, I was adamant about portfolio concentration, mimicking the best investors I knew about (Buffet, Munger, etc.). So I did just that in 2020, betting big on $WELL.TO, $CTS.TO and $DOC.V. That was my unconscious incompetence phase, and I got lucky. Lately, I’ve started realizing that I am very much a monkey throwing darts in the dark. I’m becoming painfully aware of my incompetence. As a consequence, I started cloning smarter people and diversifying in proportion to my ignorance on the individual bets I make. Hopefully as I educate myself and increase my confidence in my own due diligence abilities, I can steer back towards concentrated bets. That being said, I currently have too many microscopic positions (1% and under) and I’m looking to either increase or exit those. Two positions that I don’t like in particular are $KUT.TO and $NEWU.V. I will exit those sooner than later. I’m also on the fence about JTR.V, I will decide after the next quarterly reports.

Lessons learned

Let’s talk about the elephant in the room: my disproportionate bet on $NUR.CN. When I took this position, it was partly a jockey bet (I liked the CEO and how he brought the company back from the dead) and partly a speculative bet (expecting more news around the DRC contract).

Given the backing of Orange, a multi-billion dollar behemoth, I thought that the financing for the DRC project would be a formality. I remember building this entire position very fast (possible over the span of a few days).

Needless to say, I am ashamed of my recklessness. I had a lot of money sitting in the account at the time and went on a buying spree. I have learned since then that money sitting in my account does not last very long.

That’s not the end of it. Since my first purchase, there were two distinct selling opportunities where the stock price went above $2.50 (my average cost basis is around $2.40 I think). I could at least have trimmed a bit.

Let’s get to the heart of the problem: this was a speculative bet but I got overconfident and I sized it as an investment. Given that the speculative bet didn’t pan out, I have to ask myself whether this is a worthy investment.

The recent private placement increases my confidence in this position as an investment, despite the very low placement price. We have partnered with a leading sattelite operator who wants a piece of all our future contracts in Africa. This partner (Spacecom) is itself being acquired by Hungarian IT firm 4iG, giving them some cash to manoeuver. Nuran now has some money in the bank for working capital, capex to start the DRC project, product development and marketing, meaning significant risk has been taken off.

I expect we can reach $50M revenues in 2023 based on the Orange contract alone, with 50% gross margin (according to management). TowerOne is another company in the space which makes between $3M and $4M in gross profit and has an enterprise value of $18.65M (6x multiple). If we apply that multiple to Nuran, we get 25 x 6 = $150M EV, a triple from here. Of course this is not proper valuation but it does give us a point of reference, and I believe a conservative one, as I expect any additional contracts to increase both revenues and price multiple. In order to hold this position, I will require to see more contract annoucements before the end of the year. If not, I will have to take the loss and move on.

Despite the potential upside, the size of this bet makes no sense. When I made it in February, the market was looking gloomy and I overreacted, thinking this was my way out. I massively underestimated the future cost of opportunity. My ability to source ideas has drastically increased since then (especially since I’ve started invested south of the border) but I find myself short on cash. A big chunk of my capital is now tied in this one position and I don’t think my margin of safety is big enough to warrant such a commitment. On top of it all, I was at the time sitting on a big winner ($CTS.TO) and I could have simply added there instead of looking for a magical shortcut.