Apology
Posted by: Matt Margolis October 9, 2014
I want to apologize to the PTT subscribers who put their hard-earned money on the line by investing in GT Advanced Technologies. I made a call on GTAT. I was 100% wrong and as a result some of you lost a great deal of your wealth. I lost much of mine too. It is a painful thing. It’s especially painful to see that this experience has made some of you lose confidence, not just in me, but in yourselves as investors. That should be on me, not on you. You paid me for expertise and you had every right to expect me to guide you well. I am the one who failed, not you.
Many of you have been critical of me in the forums. Your criticism is welcome… yes, even those of you who can’t find a way to put it kindly. Especially you, because you have probably lost the most, so I owe you the most heartfelt apology. We all work hard for our money. I hope you enjoy your work as much as I enjoy my work, which right up until Monday has been to help other people grow their wealth and financial security by providing expert analysis. That’s what gets me up in the morning. But on Monday my confidence was shattered right along with your capital.
The horrible irony is that it was precisely my expertise that set me up to fail. I have been neck-deep in GTAT for five years. I saw them come back from the loss of nearly 100% of their 2010 revenue stream when the solar market dried up. I watched them buy Hyperion and develop Merlin. When Apple came along, I had no reason to believe it might be too good to be true. I knew GTAT as both a survivor and a performer that deserved Apple’s business. My long history with the company gave me every reason to believe they could deliver. Exactly how far off the mark my confidence was we may never know. But it’s clear that I succumbed to confirmation bias along the way, and it kept me from giving due weight to the warnings of analysts who we later learned knew more than I did. I failed to fully acknowledge the risks or to rebalance my assessment of risk/reward, even when my primary thesis was blown out of the water on September 9.
I am still struggling to understand GTAT’s bankruptcy filing. It was unprecedented in my experience. In 20+ years of following the market, I have never seen a company’s financial picture fall apart so completely without warning. Even Apple claims to be surprised. Financial controls are there to ensure that a company’s financial statements are accurate and complete. GTAT’s struggles to get the Mesa facility off the ground were well documented in its SEC filings, but there was never a hint that the company was at risk of bankruptcy. At worst I thought GT might issue new shares to fund operations if Mesa was not fully ramped by the end of the year. Chapter 11 was not on the mind of any analyst to my knowledge. We will learn soon enough why GTAT filed.
Certain aspects of the Forensics newsletter are going to change. First, I will begin designating my picks as Core, Momentum, Value or Speculative so that you can allocate capital in proportion to the amount of risk involved. I joined PTT after having already made public picks of MU and GTAT, and many of you became Forensics subscribers here because you were already following my blog. It is clear that some subscribers did not feel the rules of position sizing in PTT’s Methodology applied to my picks, and that may be because I did not develop the habit of giving my picks, old or new, a clear designation that would help you use the Methodology to size your positions. If this led to greater losses in your portfolio, I am deeply sorry.