Recorded on 7/8/2016 via telephone conversation so please forgive the poor quality of the recording. Thank you for your patience as I release what in hindsight appears to be the relevant context of…
For anyone attempting to do their due diligence on a potential investment opportunity, the task can be a daunting experience. Many investors often misunderstand the confusing legal speak within the SEC filings that publicly traded companies are required to issue. This guide is intended to help investors better comprehend the practice of a preferred stock issuance.
Preferred Stock is something of a hybrid between common stock and bonds or debt. Typically, those shares are paid a regular cash dividend, regardless of company’s financial position to issue a regular dividend to the common shares. Commonly, these types of stocks sell in large blocks, purchased by financial institutions who has several tax advantages over retail investors.
When an investor buys preferred shares, they do so at the par value, a set price that determines the amount the issuer is obligated to pay as a preferred dividend. To determine the preferred dividend’s annual payout, multiply the dividend’s percentage by the par value.
5% preferred stock x $100 par = $5 per year annual dividends
Although preferred shares typically do not show much appreciation they can provide financial institutions with an incentive to stay vested in the underlying security. This type of scenario is the most common example of a Non-Participating Preferred Stock. What this means for the above example is that if 10,000 non-participating shares were issued, regardless of the company’s performance the annual dividend payout will never yield more than the set $50,000. Sounds boring, right?
A simple way to understand the difference between preferred stock and other investment vehicles is to look at how shareholders get treated if the issuer becomes financially distressed. If an issuer does file for bankruptcy and their assets are liquidated to satisfy the bondholders, the preferred stockholders are entitled to any left-over monies before the common shareholders.
Publicly traded companies often need flexibility when it comes to acquiring capital. Preferred stock is issued based on the issuer’s creditworthiness and other related factors. Preferred stock serves as a middle-ground between equity-based common shares, and the debt obligations to bond holders.
Sometimes to entice buyers and compensate for the lack of appreciation in the par value, Participating Preferred Stock is issued for dividend payments more than the price set by the par value.
All preferred stock is either Cumulative or Non-Cumulative. Cumulative is the most characteristic of the preferred stock and derives its name from the accumulation of all delinquent dividend payments owed to the owner.
While it is non-cumulative dividends are rare, they do get produced in situations where a company has a previously established history of making the regular dividend payments to the common shareholders.If the issuer cannot pay the preferred dividend, those shareholders are owed their dividend before the common shareholders can receive any expected profit sharing. Those missed payments are known as “in arrears” and take priority to the common shares claim to the issuer’s assets.
This financial instrument gives investors the opportunity to be shareholder and creditor.The promise of a preferred dividend entitles the preferred stockholders to preferential treatment, second only to the bondholders. Unlike bonds, failure to pay the dividend does not result in default or bankruptcy.
Preferential Treatment Where it Gets Tricky
The motivations for a publicly traded company to issue preferred shares can lead to uncommon occurrences in the issuing terms.
Preferred shareholders can also be granted votings rights if the dividends are in jeopardy of being paid. Often these rare occurrences can lead investors to a better insight into the overall financial picture of a potential investment. That is why it is important always to investigate the motivates of the issuer for offering the preferred shares.
Camping World Holdings met Friday’s opening bell with its IPO that placed 11.4 million shares placed at $22, raising $251 million.
At its peak, the stock reached $24.35 but by 2 P.M, the company’s ticker, CWH, was holding a %5 return on 10 million in volume but closed at $2.50 or %2.27.
The company believes they have a competitive edge due to their diverse holdings and claims says to the largest network of RV-focused retail locations in the U.S.
Driven by top and bottom line growth spread throughout 36 states with a total 120 outlets the company has increased its annual revenue to $3.33 billion in 2015. With less consistent growth, Net Profit has also shown a steady annual increase, up from $5.4 million in 2011, to $178 million in 2016.
The Recreational Vehicles market has seen steady growth as recession-riddled millennials and retired baby boomers look for alternative leisure activities.
While it is estimated that in the largest transfers of wealth the baby boomer generation will be left behind $30 trillion to their Gen X and Millennial children.
This may help CPW begin to look like a candidate for a potential Millennial themed portfolio and we will continue to watch this one from the sidelines.
The Associated Press, Vice Media and Gannett, the parent company of USA Today, sued the FBI today in an attempt to uncover information about how the law enforcement agency was able to unlock an iPhone used by Syed Farook, one of the San Bernardino shooters. The Justice Department initially sought to force Apple to create custom…
Book Review: “The Intelligent Investor”, by Benjamin Graham 4th edition with liner notes by Jason Zweig.
I believe I first read “The Intelligent Investor” at some point around 2005. It was really an incredible coincidence that I ran across it during the time I did. I was looking to expand my own knowledge base, and at the same time, I just happened to be working at Countrywide financial, which ended up being one of the largest players in the mortgage meltdown in 2007.
I was just so perfectly prepared for that bear market because of that. I had very recently taken my first two accounting courses in college as well, and had been tinkering with individual stocks before that. What happened was that I was working this part time gig for a few hours each night with this accounting firm, because I didn’t feel like I had a good understanding with what my teacher had taught vs. what made an investment successful .
There used to be an older gentleman who would be in that office from time to time, and I remember that I found out he was into the stock market, and I mentioned how well my Sirius Sattellite Radio had done that day, up something like 5%. The response he gave was something I’ll never forget: “Do you really think that 5 or 10 years down the road, that number would be meaningful?”. Answered honestly, I couldn’t say that I had any idea. He directed me to start reading about Warren Buffett.
So I did. The first book I read about Buffett was a biography, “Buffett: The Making of an American Capitalist” by Roger Lowenstein, and the other was Mary Buffett’s “Buffetology”. Those two books overwhelmingly pointed to Benjamin Graham as the source of Warren’s investment mentality, and so I picked up the 4th edition of “The Intelligent Investor”. I took to the material immediately, and had never seen anything else like it. Inside of just a couple of pages I understood what I was doing incorrectly. I was chasing momtentum and news, and what Graham taught me to do instead was look at the business as if I were the owner, and try to estimate it’s intrinsic worth from there.
Graham changed everything for me. I immediately understood where both my strengths and weaknesses were, and when the 2007 housing market crash hit, I was so well prepared that I took in more than a 400% gain before 2008 ended. That volatility continued well into the next year, and I doubled my holdings inside nearly every couple of weeks during that madness. I haven’t tracked my performance for a while now, but I know that by 2012 I was sitting an an increase approaching 50,000% of my initial capital.
What Graham really hit home with in his writing was on buying companies that earned profits. To that point I had been purchasing stocks on news, and on dips in their charts. I had thought that was what “Buying Low” was. Graham tought me to think about the future of a business, not it’s past, but by using the businesses’ past as your guide.
Graham ‘s core concept is centered around a “Return to mean”. A business that’s been doing the same things for a long time tends to keep doing them, so you get in there and buy them when they are having a temporary, but solvable problem. Alternatively, he gives you tips on how to value the assets on a company’s balance sheet, so that you can know if a true catastrophe is in the cards for a struggling company. You learn to find greater chances for rewards with substantially less risk involved.
More than anything, he teaches you to be fearless in the face of a fearful, easy dismayed stock and bond market. You learn to prepare for these times, and how to hedge your losses when there is risk involved. Best of all, you learn that all of these things are entirely within yourself to control. Graham’s book is so complete that you could probably never read any other and outperform at least 80% of the market easily. With a bit of fine tuning that comes from practice, I think I’ve got this number into a range of 98%.
Since that time, I’ve become a contributor for Seeking Alpha as well as a few smaller sites, and have introduced a couple of new concepts to the field. I have a chart named after me called the “Waterman Life Cross”, and am developing a new method around what I call “Insult Theory”, which is a way of using investor sentiment to guage if there is serious interest in a stock, or if the owners don’t understand the business at all. Graham was the foundation for both methods, and I believe that anything good that comes in the future will also be due to his writings.
If you would like to read more please follow Matthew on Seeking Alpha and Twitter.
Goldman Sachs has submitted a patent application focusing on how blockchain could cut out the middle man with transaction costs, claiming that the technology could change the current process.
The patent, “Systems and Methods for Updating a Distributed Ledger-Based on Partial Validations of Transactions”, which was published on September 8 by the U.S. Patent and Trademark Office (USPTO), was initially filed in March 2015, making it Goldman Sach’s first blockchain focused patent.
At Def Con 24, I was given a chance to spend about an hour talking with the proposed CEO of MGT Capital Investments(NYSEMKT:MGT) outside of the Bally’s Poker Room. Joined by CTO Eric “Eijah” Anderson halfway through our interview, we discussed several important issues that I am simultaneously preparing to publish. It has been a month since I interviewed McAfee and Anderson but I have waited to release my interviews due to the controversy some believe have muddied the credibility of this company. Without specifically mentioning any of the detials, I will just share this tweet that I feel captures the spirit better than anything I could write.
Unfortunately even my editors at another site have decided to believe libelous claims from an avid troll, that I am on the payroll of MGT or one of its insiders. I feel that like others, they seem to be committed to their bias against McAfee and continue to judge this new company unfairly. On the other hand, by analyzing what John has been saying about the industry and not MGT, objective and free minded people may already understand the potential growth that his insight could bring. No matter how you feel about John McAfee, it is hard to deny the truth in his sentiment regarding the industry he helped to create.
John McAfee: Well when I started out people were saying ‘well virus aren’t a problem you’re insane’. Today I see the entire cybersecurity industry is operating on an outdated paradigm that is let’s find after the hacker gets in, let’s find the traces…”
As bold as the statement McAfee makes, it seems that the methods we use to secure our information are indeed outdated and is driving an increased demand for better cybersecurity. It is not hard to find indicators to support this idea.
At a time when global cybersecurity sales are expected to rise to $1 trillion by 2021, research is now showing that the problem of cyber-crime will cost companies $2 trillion by 2019. This reflects a widening gap between the efficiency of the solutions and the resourcefulness of the criminals.
In the United States, CNBC reported that the problem has become a drain on the infrastructure to the point that law enforcement agencies and hospitals have given in to ransomware demands for payment. There has also been a rise in reports that indicate that this type “pay or beware” strong-arming cost about 2,500 victims around $24 million in damages last year.
This year that number has already dramatically increased 500%. Recent data is also indicating that at the end of March 2016, Americans had paid over $209 million in order to regain access to their critical information. What I find most concerning about these figures is that those damages are limited to only the complaints reported to the FBI meaning that the actual costs of these crimes could be significantly more expensive.
What this shows that security professionals are as in the dark as law enforcement when it comes to protecting sensitive data. The problem is rooted in the lack of a solution that stops these intrusions while they occur
“JM: But by then it’s too late…He’s already in…
So obviously the paradigm doesn’t work.”
What Is Wrong With the State of Cybersecurity Today?
With a shift from Personal Computers to mobile devices, many hardware vendors have also moved to a cloud-based product offering secured by third-party cybersecurity vendors. With so many trusted names to protect the customer’s data, I believe if the paradigm is broken, then supporting data will be represented in the market. I feel the story of FireEye(NASDAQ:FEYE) and former McAfee CEO Bill DeWalt illustrates a great example of what John goes on to say is wrong with the current state of the cybersecurity industry.
Intel(NASDAQ:INTC) acquired McAfee’s former company after his departure in a $7.7 billion sale spearheaded by Bill DeWalt. Intel Security intended to embed features into its chipsets but now must consider selling its underfunded interest in cybersecurity under the McAfee brand. DeWalt would go on to leave to leave McAfee as a surge in venture capital funding poured into an industry and take the CEO role at the emerging FireEye venture in 2012. Under his leadership, their products took a proactive approach to developing anti-malware firewalls that brought a surge of interest in the company’s stock shortly after its IPO in early 2014.
With a flurry of new technologies to market interest from investors was on the rise yet the result of these new approaches was that from 2013 to 2015, the costs of cybercrime on businesses had quadrupled. In early 2014 FireEye had shed about 81% of its stock market value from its high of $13 billion and in the case of Bill DeWalt, he was recently replaced as CEO.
Eventually, the buzzword fueled hype had lost its effect on investors as the money pouring into the industry failed to produce tangible results. The Ponemon Institute released research that goes on to explain that the average cost of a data breach rose 23% in the last two years to $3.79 million. Like many other tech firms at the time, once these companies went from private ventures to public markets, investor confidence dropped as it became apparent that the current methods of information and network security were failing to keep up with enterprising criminals.
I feel that key players like Intel are discovering that they may have over-compartmentalized themselves as the disruptive effect of mobile technology shifts the focus of their business development. This tricky situation leaves Intel in a position to either increase spending by expanding the security operating expenses to competitive levels or sell the McAfee assets in order to focus on the company’s proposed move away from the PC market to a cloud-focused enterprise. Intel has released a manifesto that issued a proclamation that “The cloud is the most important trend shaping the future of the smart, connected world – and thus Intel’s future.“
As some companies may consider moving out of the crowded market, some have opted to consolidate. Investors have seen these effects manifest itself in the form of a more competitive industry and competitive acquisitions from established entities like Symantec(NASDAQ:SYMC) and its recent Blue Coat purchase.
Symantec who owns the popular Norton brand is paying $4.65 billion for the reported revenue of $598.3 million last year. All this for a company that decided to cash-in instead going through an IPO after it was acquired by Bain Capital last year for $2.4 billion. While Blue Coast has ceased to be a profitable business, those fundamentals did not stop it Symantec from paying a premium at x8 sales, after being turned away by FireEye earlier this year.
The Contrarian Case: Pillars of Disruptive Growth
It comes down to the concept of analyzing data of real-time user activity within a network, Gartner Research calls this, “Visibility”. It has become what Gartner refers to as its first pillar that describes the methods of analyzing a cloud-based security service as a means of both proactive security and a method to monetize the data being collected. Intel best summarizes Visibility with, “The many “things” that make up the PC Client business and the Internet of Things are made much more valuable by their connection to the cloud“
What if, instead of storing and sharing all of that user information, the company focused on developing real-world solutions to evolving problems? I believe that John McAfee’s re-entry is a calculated move to do just that. When you consider that on May 9th, 2016, MGT put out a press release marking his re-entry to the industry, weeks after Intel announced its new cloud-focused strategy.
JM:“…I spent 3 years finding the best products and that were in development out there and waiting for them to be ready and making both arrangements and relationships with the key people in this companies so that as for when they all matured they can use them.
Much like the investors funding the MGT reverse merger, McAfee is making a contrarian play on marketing the technology he has cultivated.
Although bearish investors may feel McAfee could be leading shareholders into the cybersecurity abyss of diminished returns, there is room for growth in the industry. With a potential market of over 85% of large enterprises switching to a cloud-based access solution, MGT is offering a packaged decentralized network structure to challenge the cloud’s projected dominance. The Ponemon institute finds that 87% of the data stored on the cloud is out of their company’s control. As more digital threats become newsworthy, businesses have shown that are uncomfortable keeping their most secure information outside of their control.
The recent acquisitions of Sentinel from Cyberdonix for 150,000 restricted shares of MGT stock, the company may find itself able to breach the moat of the global managed security services market that is projected to reach nearly $30 billion by 2020. I believe that MGT recognizes this potential market and is in a position to offer them on-site control of their data with a competitive advantage in some niche marketplaces. While the industry is extremely crowded, there is market research to support room for an alternative solution to cloud computing. If MGT’s offering can serve as an analog for Gartner’s four pillar approach as a Cloud Security Access Broker, then Sentinel MGT may prove to be wise acquisition for an initial product offering
For McAfee to expose shareholders to the growth projected in the industry, MGT will have to offer solutions to rival the likes of Symantec and FireEye. The real answer to the question of legitimacy for this venture will come from analyzing how well its technology can directly compete with hardware vendors like Cisco(NASDAQ:CSCO) and other established firewall providers as a real-time threat detection solution.
JM: For example, Sentinel… It doesn’t look for the damages that was done, and say “Ah-Ha! We have a problem.” It knows this within a matter for a second the first time a hacker attempts to approach the system.”
As lucrative as an opportunity this may seem, there is no guarantee that by purchasing a Next Generation Intrusion Protection Device like Sentinel, MGT can find customers who trust the minimalist approach. In order to provide the sales volume to ramp initial revenues, this product will have to offer is a new standard in real-time threat detection.
McAfee would go on to explain how he believes this has been achieved.
JM: A hacker doesn’t come in and dig up a bomb, he has to spend a lot searching.. First getting into the network…
Then it has to find where the thing I’m looking for is…
But we notice in the first few seconds his first approach
Our little box, it’s a passive box just watching, it uses a combination of heuristics and artificial intelligence and we notice instantly that this is an anomaly and there’s a packet or an intrusion here, right at that second that this shouldn’t be happening.
It then notifies our server, our server then does analysis…
All this happens in a matter of seconds.
At that point, you can take action which is close down that port and firewall or take remedial action which fixes the problem that let the hacker in.
Now isn’t that better than to wait for the hacker to come in and find the signs and say Aha there’s a piece of malware but good god that is months after he first came in…
It is a game changer it will change the entire face of cybersecurity in the way that companies address and reacts to intrusion.”
John McAfee, proposed CEO MGT 8/5/2016 Bally’s Poker Room, Las Vegas at Defcon 24
Sentinel and the Projected Growth of Enterprise Security
I expect that interest in Sentinel will grow in relation to the traditional IDS and IPS devices that have contributed to the slow response in threat-detection. With a low bar already set, all MGT may have to do is provide an actual solution to the problematic approach of analyzing data after the fact. According to FireEye, the median number of days that attackers are present on a victim’s network before being detected is 229. For this key reason, I feel that MGT has proven itself to be a legitimate contrarian play based on substantial market research that indicates Sentinel’s unique opportunity.
As the global enterprise governance, risk and compliance market continues to grow from to $11.5 billion by 2019, there will likely be customers reluctant to trust their information to devices that have underperformed. Where companies like Cisco and Microsoft offer IPS/IDS solutions, Sentinel was designed to be ideally suited for smaller areas compared to the standard 19-inch rack configuration that other vendors implement. Standard IPS and IDS solutions have several drawbacks other than their size. As McAfee explained, Sentinel acts as a passive box, meaning that it is on the other side of the firewall where the traditional IPS and IDS counterparts are located. This allows for Sentinel to reduce the risk of bottle-necking the network traffic. When a typical IPS/IDS solution has a malfunction or gets hacked, the entire network access point is compromised. I believe this to be an advantage over cloud solutions because of the obvious vulnerability of all data being transferred through one access point.
According to MGT’, Sentinel’s first production run is expected in Q4 2016 and gives investors exposure to the 13.2% CAGR projected for the market. The trend in information security spending indicates that by 2020, 60% of enterprise security budgets will be allocated for this type of rapid detection and response system and within two years 80% of these endpoint protection platforms will include similar A.I. and heuristic analysis similar to MGT. This may help the new company find some initial footing in the very rocky landscape that has become the cybersecurity industry. For now I will leave you with John’s proclamation to change the industry by bringing real-time results to problems that sometimes take years to understand.
In light of S.A. refusing to believe the simple truth, I am just citizen journalist using my free speech and free will to voice my opinion, I have decided to publish independently for now. I hope this rough notes will help you with your own due diligence. My research and writing is only made possible through your support. Thank you for taking the time to visit my personal website. Please use paypal to help support this blog.
A new release for community has hit the demonsaw.com downloads section.
Here are the latest updates since 3.0 went was launched at DEFCON 24:
* queue unauthorized packets then emoty queue once re-authenticated with xfr router
* transfer routers should not be overwritten when refreshing with msg router (keep in memory and replace only). msg router sends back all xfr routers to clients (not just success ones)
* transfer service unauthorized will drop transfer request (to restart). Re-queue and/or don’t restart, just re-group & handshake? Add to post-auth queue and then process upon successful re-connect?
* restart of client should NOT restart transfer routers (allow transfers to continue)
* turn yellow if you have 0 xfr routers
* use transfer router as long as not error status
* max/min transfer routers that are used in transfer? (1 – 8)
* transfer router open fail should abort? Or.. use TTL and fail when we run out of retries?
* right click download, Stop doesn’t appear cross rows (if yes/no)
* fix browse sort crash bug
* wrap all service/acceptor handlers in exception handling
* TwoFish crashes on linux??? (Just use AES for session?)
* 5 sec progress update change from green to blue
* removed early socket close function calls (should fix router crashes)
* return 501 if router uses non AES for session
* router socket->close() – let destructor do it
* porn’s weird file parse issue – i think an exception is thrown tbh
* Only allow folder browsing if folder size > 0
* alpha 1 sets button at 255 alpha?
* auto rejoin client to router if going from 0 -> 1 or 1 -> 0 shares
* minus button remove all (download, upload, etc.)
* Stack crash was occurring on Linux due to 4K worker thread stacks
* Increased stack size to 256K
* Added twofish algorithm back
* tooltip for dock widget
* Added tooltips back
* Updated retry to 1 sec (100 ms was DDOSing the router?)
* retry is set to 0-1 sec now…
* Add retries to services & acceptors
* Remove unnecessary error messages
* Unable to write needs to eventually time out?
* retry should be 8
* bring over random retry code from message acceptor to clients (0 – 1000)
* tunnel sockets to 1
* Restart ignores previous queued events
* unable to write still doesn’t timeout – it does, just takes 1 min
* playing while downloading corrupted file, resume fixed?
* 1 tunneled socket
* 1 thread for message routers
* Display “Upgrade Now” message in chat when incompatible router found
As I prepare to release my full feature article and subsequent research based upon what I discovered through my investigating at DEF CON 24, I am publishing this excerpt from my final conversation with Eric Anderson. Recorded on 8/8/2016 via telephone conversation so please forgive the poor quality of the recording. Thank you for your patience as I release what in hindsight appears to be the relevant context of recent tweets that I have included in this excerpt from our interview.
A.M. Faulkner: There has been a lot of sensationalism… Due to this picture of you and your friend.
Anderson: Here is the reality of it, Kim Dotcom is very good friends with Steve Wozniak, at least we talked about him, I don’t know how good but I believe they are very good friends.
This doesn’t mean that Apple is going finance Kim’s Bitcache.
This doesn’t mean that Steve Wozniak is going to be a member a board member or going to be his CTO. Just because the are friends and Wozniak is one of the founders of Apple… It doesn’t mean that their relationship is going to be anymore than a very strong personal friendship / respectful relationship
Anderson: But it also doesn’t mean that he’s not going to reach out to Steve Wozniak maybe for additional help, I have no idea. Those friendships provide us with access we don’t have otherwise but it doesn’t mean we are going to necessarily mean we are going to utilize them in that way. So the fact that he’s friends with Steve Wozniak doesn’t really say anything besides that there is a mutual respect…
And I think that’s the big message here and it’s important for your readers to understand. I have a very close and intimate friendship with him and a lot of things we see eye to eye on a personal level.
But we’re in two different business spaces right now….Nobody knows what the future is going to hold but there have been no announcements made by MGT that I can talk about.
Our conversation goes on for about 20 minutes more and dives into a comprehensive view of the strategy and vision that the new CTO has brought to MGT shareholders. I will be exploring our dialogue for more insights as I prepare for future works. For the sake of this blog post, I will leave you with this final thought from Anderson.
Anderson: I’ve been an activist and a programmer for many years and with that comes many friendships across many disciplines different continents and its part of the balance of being and individual a citizen of this country and executive officers.
…Sometimes it is important that people understand that I do wear multiple hats.
Just like all of us, we have friendships and relationships and we go to work and what happens at work stays at work. We go home and that’s a whole different life and it’s important to keep those separate but also somebody watching in on us might be tempted to blur the lines.
It is important to realize we all, we all have different hats to wear.
It would be a shame or incorrect to make assumptions about things especially if official communications have not happened. That’s just a remember, a vague reminder…
We make press releases for a reason so all I can comment on from an official MGT standpoint is what comes out of those press releases other than, I have a long history of many relationships with many visionaries…like my friend from yesterday.”
Eric “Eijah” Anderson, 8/8/2016
My research and writing is only made possible through your support. Thank you for taking the time to visit my personal website. Please help to support this blog.