Morgan,
I too take notice when a board is too bullish or dissent is lacking, but I don't make much of it since there are so few posters even when LDP does well. All LDP longs most likely considering the potential downside as they do with all investments. That said, I am not going to theoretically argue the absolute worst case scenario for LDP and post it here for a couple reasons, 1) it is certainly not what I believe will happen, and 2) because I don't believe it, it would be wholly inappropriate for others to take any comment out of context to further an effort to spread entirely unwarranted and unreasonable fear in other retail investors, which is what I suspect some would attempt to do. I am not hyping to dump, nor would I talk it down to buy. Others certainly would, esp. since LDP is somewhat difficult to trade. Simply stated, I see LDP as an outstanding investment long-term, and I see few weaknesses long-term weaknesses. Everyone do your own DD, and make up your own mind.
That said, with LDP, two specific and key concerns an investor might have are a substantial decline in public equity, and a lack of ability to keep a good VC pipeline. IMO, though having some merit, these concerns are outweighed by positive factors.
First, early this year you might have argued and worried that certain stocks in the public equity, which skyrocketed at IPO, would decline and thus reason that the value of public equity would likewise decline. But it didn't happen because over time liquidity events continued to contribute to the portfolio and some "older" issues stabilized or recovered. So, I don't think discounting the public equity in any significant manner is appropriate if you are looking at a 6 to 12 month or longer time frame. If you significantly discount today, you ignore the next 12 months. Why do that here when stock prices are based on future expectations, and there is no reason to believe there won't be future liquidity events?
Second, you might argue that the VC unit will not be able to get good deals in the highly competitive VC industry. But again, there is no real evidence this is happening. Berkeley is no overnight success VC story. They have been around a very long time and are well known in the VC industry. In fact, some might be familiar with Berkeley without even knowing it is owned by LDP. And since Trueger and insiders own so much of the company, any concern over the possible loss of key management is minimal. Furthermore, the company's business model requires only, say, 12 to 20 private equity investments to be maintained, and thus only a small portion of the company's overall assets are invested in private equity at any one time.
Also, partially offsetting these concerns is the fact that LDP has plenty of cash and equivalents, and will continue to grow the company by using their cash and assets to develop their related businesses. It is becoming increasingly more obvious that the related businesses are going to contribute more to the bottom and top line, (in addition to the VC division’s robust pipeline of private equity.) Could the company be a $2 billion company in six months? Quite easily in my view..... an approx. 50% gain from here. Also, one might argue that the company is entering into a "sweet spot" of size and growth that gets the company more widely recognized in the investment community, and among several differing styles of investors, and that could portend a modest multiple expansion.
In my view, the true bearish argument on LDP begins with the premise of a negative view of the overall market, and in particular a negative view of technology stocks. That is an altogether different matter than an argument that is bearish on LDP, where an underlying assumption is that the overall market will remain flat or go up over time. So, you think LDP will decline over time because the NAZ is going to 2900 in the same time frame, OK fine, but that is not an argument against LDP specifically. I think this is what you are really saying about not finding a bear case for LDP, because the bear case necessarily involves some quite negative opinions about the market....an argument against ALL tech stocks.
IMO, the NAZ needed to correct before it could move higher, so, it is correcting. That said, I don't know where the NAZ is going in the short term, but even if the NAZ index goes lower short term or even remains relatively flat for the next six months or longer, IMO, there will be underlying mid and small cap stocks that will perform very well,and if you already own LDP, those may be the stocks that are your cup of tea anyway.
As always, my opinions only.
Best regards |
