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The risks section of a company’s 10-k is normally thought of as a mundane, unchanging part of the filing, at least to me. I have found it rare that they bring up an issue that was otherwise not common sense. Recently I have began to approach the risks section in a different way, especially in companies that are going through significant changes. The new approach involves analyzing both the current and previous 10-k for changes in the risks outlined by the company; especially additions of new risks. This methodology was first brought to me attention while listening to The Investor’s Podcast. A quantitative momentum investor spoke of algorithms, which scan through annual reports looking specifically for changes in the risks section. The idea is that if there is an addition to the risk section it is because the lawyers told management that there is a new potential issue that they need to cover themselves on. I recently applied this methodology to the Rubicon Project (ticker: RUBI...

Over the past several years, new entrants into the craft beer market have hit established breweries hard. Boston Beer company (SAM) experienced a decrease in revenue of 6% from 2015 to 2016 while the latest data from the Brewers Association states that the market has historically been growing in the mid-teens. In their craft beer category specifically, they saw a 6% decrease in volume of barrels shipped. Craft breweries have been popping up all over the country giving consumers an almost overwhelming amount of choice and variety when it comes to drink selection. In 2012 there were 2,456 craft breweries across the U.S. The number nearly doubled to 4,269 in 2015 (the most recent data). Boston Beer has been unable to capture the growth of this market because their market share has been eroded quicker than industry growth. The trend seems undeniably unfavorable, however there may be reason to weather the storm. In their latest quarterly report management put forward uncertainty to...

Rubicon Project (RUBI) is a software company that automates the sale and purchase of online advertising space. They enable buyers to bid for the advertising space in real time or to acquire advertising space for later use through static bidding. The company, which operates in an extremely competitive space dominated by similar technology from Google, is struggling to turn a profit. While their net income per share in their most recent quarter may show that they are finally in the black, the reality of their financial situation is not so clear. In their most recent quarterly report, Rubicon reported a net income of $3,530,000 or $.07 per share. Using these reported GAAP figures for the trailing twelve months, the stock is trading at only 14.8 times earnings. For a software company in a high growth industry it appears to be good value, however when actual net income before taxes is used on the same trailing twelve-month basis a different story is told. In their most recently qua...

On the night of February 28 th Donald Trump issued a statement to congress and stuck mainly to the script. He showed an even temper and conveyed a positive message in the speech, as many have said, he seemed ‘Presidential’. The optimism showed in the market and the S&P rose marginally higher than the previous close. The morning of March 4 th Trump tweeted that the Trump tower had been wire tapped during the campaign; the following open on Monday the 6 th saw a similar disparity in opening price from previous close, but in a negative direction. While these are not major moves and can certainly not be exclusively tied to the highlighted events, the pattern shows the internal debate of every investor; balancing the risks with the reward. It is a simple balance of optimism versus pessimism that has caused the cycle over the last 6 months of upward market movement and then stagnation. Investors want to believe the optimistic side of th...