April Portfolio Review

Often I’m asked what areas or sectors is the focus of Tailwinds. Historically, the response was a rather generic statement that we are looking for undervalued plays in the typical growth areas of the market. When I start to discuss the individual holdings of the portfolio, however, it has slowly become clear to me that we are investors with a very strong underlying theme. Tailwinds focuses on disruptive technologies.

This theme first became evident to me when I wrote the article “AQMS – Disruptive Innovator”. In this piece, I discussed how Aqua Metals was on the verge of disrupting a $22B industry with a process and technology that works better (and cheaper) than anything else has to date.

Subsequently, the disruptive theme has appeared in every company in our coverage universe.
– biOasis, disruptive peptide platform for bringing existing medication across the blood brain barrier
– 3D Signatures, novel diagnostic platform that will personalize cancer medications
– CryoPort, the only shipping platform that can deliver next generation, personalized therapeutics that are cryogenically frozen
– Resonant, the only third party software platform for RF Filter design
– Vuzix, the best form factor and design for the disruptive Augmented Reality space
– and, in a little bit of a stretch, Earthstone & Lilis, two oil companies focused on horizontal drilling in the Permian Basin, an area and technology that has disrupted OPEC’s hold over the oil industry

Now, being a disruptive technology usually means two things. First, you are an early or pre-revenue company. Your technology is being developed and tested. It takes time for the entrenched players to move over to a new platform or technology. It will happen, but it never comes as quickly as you’d like.

Secondly, the competition is out to get you. There will be naysayers, others who stand to lose from your new technology, and they will fight you tooth and nail. They will try desperately to debunk your technology, or launch PRs against your stock in an effort to prevent you from funding their eventual demise.

It’s this second aspect of disruption, one which is basically guaranteed to happen, that hit us hard this last month. For, the performance of the Tailwinds Select Portfolio in April was quite weak and it was the direct result the short sellers that caused this occurrence.

More particularly, AQMS was the subject of a hit piece on Seeking Alpha. This attack has been substantially debunked as part rumor, part innuendo, and, to a a large part, outright lie. However, the damage was done and Aqua Metals shares got hit pretty hard in April, reversing the portfolios March gains.

To be forthright, AQMS wasn’t the only stock that was down in April. However, along with RESN and VUZI, Aqua Metals wasn’t the only stock with a large short interest increase during the month. All three stocks saw heavy shorting during the month and this seriously impacted performance.

At Tailwinds, we are not overly focused on month to month movements in share prices. More importantly, when you’re dealing with disruptive technology, we are looking for significant gains over the long term from our portfolio. And, at this time, I am very comfortable with the future prospects of the Tailwinds Select Portfolio.

However, it is important to pay attention to shorter term movements in that they may be telling you something about the companies in your holdings. And, in this case, we were down 7% in April. All of which told me, after looking closely at the portfolio, that we are in the right space and, as will always be the case, our disruptive companies are coming under increasing attacks from the short sellers. We will wait this out and, in the long run, will be amply rewarded for our patience.