The Phantoms' Wake Up Call Email Hotlist" (tm)
September 20, 1996
Part II
To further answer a few questions regarding the play between both FTEL and DCTC.
Yesterday, my write up regarding the DCI meeting in Dayton, emphasized the need to separate both of these companies as separate and distinct investments. Each, needed to be evaluated on their own fundamentals, and to consider FNET as the wildcard that binds the two together.
I own both, but as you know, I place a large amount of emphasis on money management and risk/reward factors, when it comes to my investment philosophies.
The following are only my opinions, and, are not to be misconstrued as recommendations. The best advice I can give, when asked what is the better of the two (FTEL or DCTC), my answer is this. You need to perform due diligence on both, and if you decide that both are worthy of your investment dollars, base your allocation of dollars on what you feel is the strongest company, based on fundamentals. That may lead you to the investment in both, one, or none, based on your tolerance for risk. Let's face it, neither company enjoys "Blue Chip" status, they are, what they are, speculative situations, based on stories that instill high expectations. That means risk. So, if you like the story or stories, or want to make a play on the FNET story, then you need to evaluate each accordingly.
When I make that evaluation, one of the first questions I ask, is, what would this company be worth if the story doesn't play out. A few others would include, what else do they have going for them, and what is driving force behind the company, is it product, service, a person, a technology, and if so, can they be replaced, duplicated, or diluted?
When applying those questions to both FTEL and DCI, it was apparent to me that FTEL had not only the products, but also owned FNET 100%, so in other words they held the cards that make up the winning hand, especially when it comes to the FNET venture. Another determining factor was that FTEL was much further along, not only pertaining to the FNET project, but also in the development of new cutting edge technologies that would lead them into the new millennium. Plus I liked the alliances that they had already established with GST, Gandalf, GTE, WCOM, and DCI. That brings up the other side of the equation, DCI. I admit, the meeting in Dayton opened my eyes to some of the projects that DCI had on their menu, but it still remains unclear as to how many revolve around FNET, or as to what stage these of realization these projects are in, i.e., proposals, negotiations, etc.
Once, I felt comfortable with my conclusions to the above, I then made a determination as to what I wanted to risk on this investment. In the case of DCI and FTEL, one other factor came into play (FNET) and actually it only made my decision easier. Why? Because of the leverage factor.
The way I saw it, both from a standpoint of risk and leverage, it was clear that money management was going to be my determining factor. For example, since DCI has approx. 4 mill shares outstanding vs. FTEL having approx. 15 mill shares outstanding, that means DCI has about 4 x the leverage that FTEL enjoys, when referencing dilution and float factors.
My decision was to invest in a 4:1 ratio of FTEL over DCI. To my way of thinking it is like an equal investment regarding potential payoff. In other words, if all works out with the FNET IPO venture, then the 4 x leverage in DCI would equal the same proceeds as that of my investment in Franklin, but without the risk.
This is not to say that as DCI's projects come to fruition, that I would not adjust my allocation accordingly
The same applies in reverse to Franklin. At this point, I am comfortable with my allocation and remain optimistic regarding both companies.
The main point here, is not what I am comfortable with, but what you are comfortable with, that's what is important. If you can go to bed at night and not have to worry about your investment decisions, then most likely you have made the right ones.
Raleigh
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