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potential VUZI dilution, plus market & Ebix commentary -4
21:53 09-Feb-24
Typically, Vuzix has chosen Friday night for (avoidance of) notification to investors that it may sell up $300M worth of stock and derivatives, with up to $50M of that on the open market. Since I've been cautious or negative here for at least as long as I was on EBIX, I'm not going to dwell on this much except to say that eventual prices below $1 would not surprise me.
That said, the S&P500 finally topped 5K to close the week, and the Nasdaq is on the doorstep of 16K. Part of that seems to be zombie capital from the back to work push in post-pandemic years; both that and recent and coming layoffs have a delayed effect in markets. Another is the spread of weekly options, including for AMSC at least through March. I've found these tend to enhance market momentum, and seem to be leading us toward a Y2K style crash, which should scare us more than 2008; to excerpt from another old article:
This is why I am continuing to prioritize safety and dividends, over megacaps, even though many of these stocks are currently languishing comparatively and market irrationality can continue for months or years.A History Lesson
To put some color on that,
the market hit a then-high in Nov. of 2007 but was only 12% lower by June of 2008, even though the danger signs had been around for quite a while. That's an average drop of 1.5% per month or 18% annualized. The bottom really fell out in September and October of 2008, when markets lost about 40% in two months. That would be about 240% annualized, but it should be obvious that figure is irrelevant as one can't lose more than 100%, at least if one avoids leverage, which is a principle I've always espoused. Those who bought or held for the 4 months between then and the beginning of 2009 have made over 400% or 40% per year in the years since, based only on index value and ignoring dividends. The lesson here is that, so long as I don't have to sell, I am more concerned with the length of down turns than their severity.
So, the real question to ask is not about a reprise of 2008, it is about 2000, when the Nasdaq lost well over two thirds of its value in a sustained drop that lasted more than two and a half years.
However, the S&P lost less than 50% over that period, or about 20% annualized. This may be the only time you'll ever see me mention the DJIA, because I am of the opinion that it has become outdated and irrelevant, but it lost just over a quarter of its value, or 11% annualized. I mention it now, because back then it really was made up of comparatively higher quality dividend stocks.
On that note, regarding Ebix, it should have reached its denouement this month, but is facing a last ditch effort from shareholders to salvage some value for themselves. I give little weight to its prospects, since the motion uses dated information and questionable analysis. It also omits the onerous fees detailed here, and will eventually raise the legal question of to what extent an American bankruptcy can exclude international assets. Though at last question could extend the legal process and fees to the point of undercutting any chance of success regardless of the outcome in principle.