Top 50 Microcap Investor List: Siegfried Eggert
We are excited to present the Chief Executive Officer of Grizzly Research, Siegfried Eggert, as our final Top-50 feature. Grizzly Research focuses on generating “differentiated research insights on publicly traded
companies through in-depth due diligence.” Their US-based team composed of accountants, analysts, and engineers frequently find management teams making “conscious efforts to hide negative aspects from the public, and amidst Wall Street’s perpetual buy-rating machine there is no one to call them out.” As a result, Grizzly Research feels obligated to publish their bearish views.
Read our feature on Siegfried Eggert here.
Whatever It Takes
In the fall of 2008, the economy was on the brink. Lehman Brothers had just failed and nearly took down the entire financial system. Federal Reserve Chairman Ben Bernanke and those around him vowed to do whatever it takes to keep the economy afloat. And some of those actions were controversial:
In October, the Fed and Treasury came to Wall Street's rescue with a financial package called the Treasury Asset Relief Program or TARP. The Fed intervened to ease conditions in particular credit markets that seized up during the crisis. The central bank also continued to slash interest rates, eventually bringing them to zero in December. It took part in an unprecedented global rate cut in November. Its first purchases of agency mortgage-backed securities that month began what would become an unprecedented and controversial series of bond buying programs aimed at first at stabilizing the financial system and later at boosting growth.
The Fed and Treasury knew it had to tame both the financial crisis and the psychology of the people. To do that, they needed people to believe they could handle the worst-case scenarios and keep the system together. And that’s what they did. Many may argue that they did it for too long—but they bought and spent and lent and suspended mark-to-market accounting to make sure there was a financial system left when they were through.
We bring this up because, once again, Fed officials have begun repeating the whatever it takes mantra—this time regarding inflation. To illustrate with some recent examples…
Former Fed Governor Bill Dudley in an April Op-Ed:
“It’s hard to know how much the U.S. Federal Reserve will need to do to get inflation under control. But one thing is certain: To be effective, it’ll have to inflict more losses on stock and bond investors than it has so far.... Investors should pay closer attention to what Powell has said: Financial conditions need to tighten. If this doesn’t happen on its own (which seems unlikely), the Fed will have to shock markets to achieve the desired response. This would mean hiking the federal funds rate considerably higher than currently anticipated. One way or another, to get inflation under control, the Fed will need to push bond yields higher and stock prices lower.”
Minneapolis Fed president Neel Kashkari in an essay last month:
“If supply constraints unwind quickly, we might only need to take policy back to neutral or go modestly above it to bring inflation back down. If they don’t unwind quickly or if the economy really is in a higher-pressure equilibrium, then we will likely have to push long-term real rates to a contractionary stance to bring supply and demand into balance.”
San Francisco Fed president Mary Daly, in a CNBC interview last week:
“I certainly am comfortable to do what it takes to get inflation trending down to the level we need it to be. I really think these high inflation numbers have been going on too long. And consumers and businesses—everyday Americans are depending on us to get inflation back down.”
Ben Bernanke, as told by DealBook, after he sat down with them for a chat about his new book a couple of weeks ago:
“Bernanke says backing away from a 2 percent inflation target would be a mistake. He says current Fed chair Jay Powell should make it clear that the Fed’s inflation target remains unchanged. And do whatever it takes to bring inflation back to that level. ‘In everyday life, we judge the credibility of promises more by the reputations of the promise-makers than by the exact words they use,’ Bernanke writes in the book. ‘The same principle applies to central bank promises.’”
If you had bet against the Fed being successful in 2008-2009, you probably lost money. They threw so much support and liquidity into the system that most asset prices rose for more than a decade. The Fed was willing to suspend free markets and price discovery to stop the deflation we were seeing back then. And they seem willing to suspend economic growth and bull markets to stop the inflation we’re seeing right now.
We don’t know whether the Fed, Treasury, Administration, Congress, business community, and/or the Jedi Order will be able to bring the current rate of inflation down to a lower and more acceptable level. But we do know that when Fed officials start using phrases like whatever it takes, one should pay attention.
Your Invite From the CEO of DeLorean
As you may know, the DeLorean was featured in the three “Back To The Future” movies, starring Michael J. Fox and Christopher Lloyd. The first movie hit the theaters in 1985.
Fast forward to the present day. Once again, DeLorean is about to make automotive history... and the world of electric vehicles will never be the same.
Their CEO Joost de Vries can’t wait to tell you more. He’s hosting an exclusive webinar for accredited investors on Tuesday, June 7th at 10:00 am Eastern/ 7:00 am Pacific.
Register now for the DeLorean Evolved webinar
Learn More:
DeLorean Shows Off Electric Car, Says It Will Arrive in 2024
Here's why the new electric DeLorean is so big
Investor Education
Another metric that we look at when evaluating a company is its Return on Assets (ROA). Return on Assets is an operational metric that measures how efficiently a company can convert its assets into net income.
The formula for ROA is another pretty simple one to find from the financial statements. To calculate ROA, you simply take the net income and divide it by average total assets. The net income number is located at the bottom of the income statement or the top of the cash flow statement, while the total asset number comes from the balance sheet. We are going to continue to use Apple as our example, so let's take a look at their ROA for 2021:
How do we know if this is a good metric?
As we mentioned above, the higher the ROA, the better. This example shows that Apple can convert over ¼ of its total assets into net income on the bottom line. According to Reuters, the 5-year average ROA for the technology sector is approximately 10%. Given this information, we see that Apple is much more efficient than the sector average. We can also compare Apple with its historical ROA to see if the company is getting more or less efficient as time goes on. The highest ROA that Apple has had in the last ten years was just over 30% in 2012, with the lowest ROA being just under 14% in 2017. Apple's ROA typically fell within a range of approximately 14%-20% until the beginning of last year, when it began to move above the 20% range. Since Apple currently has a ROA of 28%, we can see that this is a high number based on the historical trend and sector-wide averages.
Additional Notes on ROA:
Some analysts believe that ROA is best suited for banks, as they are forced to mark-to-market their assets and liabilities at estimated market value
Interest expenses and income are already factored into the bank balance sheets compared to other companies that don’t have to mark to market their assets and liabilities
Warren Buffett spoke about return on assets for banks and how they can convert their ROA to shareholder returns in 2012
Here is a link to the transcript of the Warren Buffett Interview on CNBC from 2012.
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Unlimited Partners Podcast: Brent Beshore, Founder & CEO of Permanent Equity
Think Like an Owner Podcast: Michael Arrieta - Building the World's Best Holding Company
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