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Is NAV useful? Up until 1999, keeping track of SFEs price vs. its NAV was useful, in that SFE generally traded between NAV and a 10% or 15% premium. That changed in Jan. 1999 [with indications of change as far back as last Oct.] Why? Internet Capital Group and word of its eventual IPO. Details were sketchy, and in an environment where there were a lot of people including amateurs getting internet fever, the price of SFE was able to radically disconnect from NAV as imagination and enthusiasm were the only yardsticks to determine the ultimate value of ICGE to SFE. Posts were made along the way to not go buy fundamentals, that a strict adherence to them would cause one to miss the boat. Yes, the pricing was irrational, and became more so, but by watching sentiment and money flow, great opportunity was presented. It was suggested early on that risk was limited even though SFE was trading at what then seemed an absurd premium to NAV. Risk became heightened as details, filing, and ultimately the IPO itself became a reality. Each step along the way left less room for imaginations to run wild as to the worth of ICGE to SFE. It was thus not surprising [though I'm not inferring that I predicted it] to see a final drop the day ICGE ipo'd as its value to SFE and shareholders became cold hard numbers. It was not just this, as the background environment had effect also. The point is that ICGE was such a big and undefined story that it allowed speculators to place what turned out to be an absurd valuation on SFE above its NAV and current price. [$120 with projections much higher higher]. Is there anything private that SFE has that could allow that to happen again? Not currently to my knowledge. ICGE was huge and it added a significant but not astronomical $16 to SFEs NAV. Further offerings though good should add only incrementally to SFEs value going forward. [and not allow speculative excesses to develop like were seen for ICGE]. For that real benefit to SFE and us as shareholders, SFE should retain a premium to NAV. But... it will be more like the years before ICGE where it adds relatively slowly and is not likely to allow imaginations to take SFE to wild numbers above NAV like we experienced in the first 5 mo. of '99. NAV will ge a good point of reference, as the stock price should fluctuate in a reasonable range from NAV [or above] to some nominal % above that. That range will be determined by the market, but it is not likely to include a 100% premium or even close in the forseeable future IMO.. Therefore, if someone says SFE is going to $100 this year, which was the case fairly recently, one can judge the reasonableness of that statement by looking at the NAV, deciding what would cause a giant surge in NAV components, and or a wild premium over NAV and come to a reasonable conclusion. Conversely, someone suggested elsewhere yesterday that SFE was headed for the low $30s, which means that it would be trading at a 33% discount to NAV or that NAV would decline drastically. How reasonable is that? We may differ in responses, but through examining the components of NAV, evaluating their collective prospects, then assigning a reasonable premium over NAV we are likely to come to conclusions that are closer to reality than the shot in the dark projections often heard, and maybe even discern patterns of behavior in relation to NAV that can be exploited. For long term holders, who never sell, and occasionally buy on dips, there seems to be a very simple rule. Don't worry about NAV, stochastics, projections, or anything. Just add more on dips of 50% to 60% from the highs, [it happens regularily] take the offerings, and ignore everything else. For those who are interested in more short to intermediate timing, it becomes much more complicated, but the above discussion is one tool I will use in those endeavors. Short term trading has been quite profitable with SFE this year, albeit with a lot more work involved. Have a great weekend, Mike |
