SNMX -- Senomyx

[yadayada]

yeah this whole idea is kinda strange to me. the stock options are a compensation. I saw something mentioned here that it was a gift. Or a thing you luckboxed into (in the casino case). But it is actually compensation for a decade worth of work. You could argue he is being overpaid, but that is another story.  He also bought 230k$ worth a month ago. About 1/3 his cash salary I think.

 

Also at some points over all those years, don't you think insiders will think like 'hmm I got over half my networth in this Senomyx thing'. The odds don't look very good, let's slowly turn most of these options into cash, and gamble with a small %? Especially when it was trading at 12$.

 

From personal experience, when I won money with poker, at first it doesn't really feel like it is yours. If I won 20k$ in a few days, it felt like I didnt really lose if I lost it right back. But if I would take a break of like a month and lost it, it did feel like losing and I would be more risk averse. In this case the period is almost a decade. What you are saying is true, but only for a certain period. After a while, owning these options, it will feel like their posession. And not like house money. Especially if it is probably a large part of their networth and likely dead money.

 

I believe people could be irrational, but I think time will eventually take care of emotions and turn people rational almost always.

[merkhet]

I suspect that being a poker player (or a value investor, for that matter) tends to make us think that people are more rational than they actually tend to be -- http://en.wikipedia.org/wiki/False-consensus_effect -- purely because we see ourselves as fairly rational.

 

Time does not eventually take care of emotions and turn people rational -- if anything, it can exacerbate that irrationality through the commitment and consistency effects. (See Cialdini's book "Influence.")

 

The whole notion of a sunk cost fallacy is predicated on the idea that time eventually makes people MORE irrational and not LESS irrational.

[yadayada]

yeah but these people arent exactly average either, if anything they are similar to investors and poker players. They are middle aged v succesfull and highly educated people we are talking about. Not some average dope on a yahoo message board, or your average student needing some money for an experiment. Also this is an effect I noticed with a wide variety of gamblers and degenerates. Not just a few rational pokerplayers. Go to the casino and witness the effect yourself!

 

Only time people get more irrational is if their entire identity and world view or reputation depends on it imo (like religion, the longer someone beliefs, the less likely they stop believing). I doubt that is the case with all the insiders here. They have very complete information. They know exactly the odds of a new product, and how well their current products work i different type of foods. Even if they sell a lot more stock options over the year, it wouldnt make much of a difference, except they now have more money if odds of succeeding are low here. They could always rationalize it that they still have something to lose.

 

Also if what you say were true in these type of situations, the market should be completely irrational most of the time. But over the long run the market tends to be rational.

[merkhet]

We are starting to stray quite a bit from the thread's initial focus on Senomyx and into whether or not people tend to be rational or irrational. Not sure entirely what to do about that, but I figured that I would point it out...

 

yeah but these people arent exactly average either, if anything they are similar to investors and poker players. They are middle aged v succesfull and highly educated people we are talking about. Not some average dope on a yahoo message board, or your average student needing some money for an experiment. Also this is an effect I noticed with a wide variety of gamblers and degenerates. Not just a few rational pokerplayers. Go to the casino and witness the effect yourself!

 

For some reason, you are assuming that age, success or education has something to do with rationality. As if being older, successful and highly educated makes you more rational as person. I don't know why you would think that -- I have spent a significant amount of time with successful and incredibly educated people, and though I haven't done a robust quantitative analysis, my sense is that they are just as crazy as other people on average. (Many people are successful based on luck of some sort, and luck does not prejudice the stupid or, in this case, the crazy in delivering its bounty.)

 

Furthermore, what makes you think that these particular individuals are more similar to poker players and investors than the average Joe on the street? Have you spoken to them? Are there a series of interviews that you can point to indicating that these managers are more rational than the average Joe? What hard data do you have on them outside of the outcomes they've achieved?

 

If you play Russian roulette and win, it doesn't make you a genius. It makes you a lucky SOB. So outcomes (being successful) buy you nothing.

 

Only time people get more irrational is if their entire identity and world view or reputation depends on it imo (like religion, the longer someone beliefs, the less likely they stop believing).

 

You mean like when you're running a company and believe you have something in the pipeline that might revolutionize the food industry? That's not the kind of thing that starts to bias the mind? Or the type of thing that might cause a person to have a very strong identification or world-view wrapped up with it?

 

I doubt that is the case with all the insiders here. They have very complete information. They know exactly the odds of a new product, and how well their current products work i different type of foods. Even if they sell a lot more stock options over the year, it wouldnt make much of a difference, except they now have more money if odds of succeeding are low here. They could always rationalize it that they still have something to lose.

 

Really? I'm of the opinion that no one ever has complete information. I wasn't aware that the company also made crystal balls.

 

Also if what you say were true in these type of situations, the market should be completely irrational most of the time. But over the long run the market tends to be rational.

 

I have no idea what you mean here. Why would what I said lead to the market being completely irrational most of the time? Explain.

[jouni1]

the point is that if you count free options as insider ownership and consider it a positive thing, most of the businesses in usa are good investments by this standard.

 

i remember some old fart saying that it's even better if they don't give out options for free, and the execs put their own money on the table, but that's probably unheard of these days.

 

i'm just saying, if this is a positive, 99% of the s&p500 must have insiders that have conviction about their businesses.

[Fowci]

Just noticed Bronte Capital mentioned it as a long in their latest letter:

 

http://brontecapital.com/peformance/2014/Client%20Letter%20201405.pdf

 

No analysis though.

[yadayada]

the point is that if you count free options as insider ownership and consider it a positive thing, most of the businesses in usa are good investments by this standard.

 

i remember some old fart saying that it's even better if they don't give out options for free, and the execs put their own money on the table, but that's probably unheard of these days.

 

i'm just saying, if this is a positive, 99% of the s&p500 must have insiders that have conviction about their businesses.

I dont think it is comparable. You have to look at the risk they are taking. In this case the risk is very high as they don't have some proven business model printing money 5 years from now right? There is a big difference between having all those options in some blue chip, or a biotech company that could blow up 3 years from now.

 

I mean shares could trade at 1$, and in that case they made a big mistake of not cashing in when the market was still positive about their prospects (especially if those prospects where unlikely and they knew it). They would lose probably a large part of what could have been their networth now if the cashed in the bets when the market was still irrationally positive.

 

But some company like P&G trading at 80$ now, you can easily wait a few years, and the shares probably trade higher 3 years from now. There is a lot less risk.

 

So my point is, you would have to compare this to biotech company's that blew up I guess. And see what they did with their options, and what % that could have been to their networth. That is a more comparable thing then comparing it to low risk s&P500 company's.

[writser]

I think you view the insider situation through glasses that are too rosy. Insider ownership through granted options is nothing special. They could've been holding on to their options because of a) tax reasons b) being lazy c) the options might be not vested yet d) irrational belief in the success of their products e) to mislead the general public f) to speculate on a small chance of success g) something else I overlooked. Nevermind that some insiders ARE actually selling. If insiders are really rational and their products will be a great succes, why has only ONE insider bought 47k shares in the open market over the past four years, despite their generous salaries?

 

A huge part of your conviction in this stock is based upon the actions of insiders but from the 100 possible explanations of insider behavior you choose the most optimistic one to justify your investment. I don't think that's a very solid way to validate your investment.

[yadayada]

You need to look at morning star. The CEO bought 28k shares at 8$ or so v recently. ANd a lot of other insiders bought 20k shares. And some 71 year old guy bought 500k$ worth of shares.

 

http://insiders.morningstar.com/trading/insider-activity.action?t=SNMX&region=USA

 

Or is this wrong?

 

In February January Sharon wicker also bought 95k shares. Pyhonen bought 500k shares.

 

It says acquisition with value at 0. That means they bought shares right? Or am I reading that wrong.

 

It is sort of weird that it doesnt show up in the proxy lol.

[writser]

Yes, I think you are reading that wrong. Those are all option grants. Open market purchases are noted on morningstar as ' Buy at $xx.xx per share.'. The only one who did that the past few years was Michael E. Herman for 47k shares. Here is the SEC filing for Sharon Wicker in february: http://www.sec.gov/Archives/edgar/data/1123979/000120919114012721/xslF345X03/doc4.xml . Note that it uses table II: 'Derivative securities acquired' and the title of derivative is 'Stock option (right to buy)'. The footnotes even explain it was a grant: '1/4th of the shares subject to the option shall vest one year after the date of grant of 2/18/14. 1/48th of the shares vest monthly thereafter over the next 3 years until fully vested on 2/18/18.'. The footnote also explains that these options vest over a period of multiple years, which might be a reason why insiders hold on to their options.

 

I really don't understand that I have to explain this to you given that you own the stock based on insider conviction ... And that you tell me I 'need to look at morningstar' and 'insider monkey is innacurate' even though both sites explain perfectly what is going on. In fact I don't know why I even bother. You defend the merits of insider ownership at Senomyx for pages but you don't have a clue about the most basic facts. It's a waste of our time.

[yadayada]

ok your right. But still they held on to most of them. Also Kent snyder converted most of his options that were expiring into shares without selling them.

 

I am also not purely investing based on that. I am investing based on the progress on their pepsi deal, they have all their products approved and I am investing based on their improved process of finding these taste enhancers and sweeteners. The possibility of direct sales. Possibility of finding a natural sweetener, salt enhancer etc.

 

There are simply a lot of ways this could be a home run, and that isnt priced in.

 

It is my only speculative holding really, and it is by far my smallest at only 3.5%.

[writser]

15/6:

The main thing really does it here are insiders owning and buying huge stakes. These insiders are v smart and have close to perfect information.

 

20/6:

I am also not purely investing based on that. I am investing based on the progress on their pepsi deal, they have all their products approved and I am investing based on their improved process of finding these taste enhancers and sweeteners. The possibility of direct sales. Possibility of finding a natural sweetener, salt enhancer etc. .

 

Your investment approach is not really consistent over a 5 day period. How can you still be so confident about this stock given that you were completely wrong about the simplest part of your investment thesis? Frankly, it looks like you just liked the VIC write-up, bought the stock and are making up arguments to support your purchase on-the-go. If you can't figure out how to read an insider filing and you don't work in the additives industry, why do you think you have more knowledge than the market about their 'improved process of finding taste enhancers', the 'possibilities of direct sales' and the chances of finding a 'salt enhancer'? Why are you so sure this 'isn't priced in'? I think the certainty (or: arrogance) you display in this thread is completely misplaced based upon what you posted so far.

[yadayada]

your just twisting my words now. I never thought insiders bought huge shares. That was a typo, and it is obvious I didnt think that. I just meant they had large exposure, and I thought that 2 insiders bought shares. But I was wrong about the CEO like you pointed out. 

 

I also still fail to see how getting 14 million$ in cash and then using most of it to buy shares would be different from receiving the same amount (you otherwhise would have bought) in options on those same shares. In both cases it is a gift and free money in your words.

 

I notice you go in detail if you think you can win an argument. But if your about to lose one you say that it is pointless to go in detail and you ignore the arguments given.

 

does this sound like I am very sure that insiders bought huge stakes and that I am very sure of myself?

You need to look at morning star. The CEO bought 28k shares at 8$ or so v recently. ANd a lot of other insiders bought 20k shares. And some 71 year old guy bought 500k$ worth of shares.

 

http://insiders.morningstar.com/trading/insider-activity.action?t=SNMX&region=USA

 

Or is this wrong?

 

In February January Sharon wicker also bought 95k shares. Pyhonen bought 500k shares.

 

It says acquisition with value at 0. That means they bought shares right? Or am I reading that wrong.

 

It is sort of weird that it doesnt show up in the proxy lol.

 

Also basic math shows that only the pepsi deal is partially priced in. You can easily deduce that from their earnings call and the VIC write up. The rest is not priced in. But I will stop this discussion now. I have a feeling you are more interested in being right and rather twist my words to win a petty argument then to get to the bottom of it.

[Fowci]

I also still fail to see how getting 14 million$ in cash and then using most of it to buy shares would be different from receiving the same amount (you otherwhise would have bought) in options on those same shares. In both cases it is a gift and free money in your words.

 

There is a huge difference here and it's important that you realise it.

 

If an insider gets 14 million dollars (from any source), and buys shares, it is a signal that the insider thinks the best investment available to him is buying stock.

 

If a company grants an insider 14 million dollars of options you no longer have the signal that the insider thinks the best investment available is buying the stock. You have a signal that the company wants to incentivise its managers. That's all fine and well, but it's not the same as an insider taking his own unrestricted money, and buying stock.

[jouni1]

down ~30% today. anyone still buying? (other than insiders  ;D)

[Picasso]

This is why I am never a fan of highly rated or lengthy VIC articles.  They tend to be promotional or lack a concise thesis to where the author claims all the due diligence and the use of common sense from a spectator is simply being misinformed/lacking work.

 

I remember reading the write-up on AMBC and saw a similar situation.  Everyone was swooning over the key points that VIC investors love (hidden assets, NOL's, etc.) but completely failed to look at how their Puerto Rico exposure was 3x their entire market cap in bonds which may or may not be highly exposed to risk.  There was no deep dive into why these particular bonds posed limited risk to AMBC despite the fact that Puerto Rico has a very complicated capital structure and is in the process of sending one "secured" revenue source into default.

 

Not sure if others follow certain VIC authors, but I shy away from the ones that tend to be promotional.  I believe cuyler initially had the writeup on SNMX and I find most of his ideas to be pump and dump styled hit and runs.  There are other authors like this on there.

[TeddyLampert]

This is why I am never a fan of highly rated or lengthy VIC articles.  They tend to be promotional or lack a concise thesis to where the author claims all the due diligence and the use of common sense from a spectator is simply being misinformed/lacking work.

 

I remember reading the write-up on AMBC and saw a similar situation.  Everyone was swooning over the key points that VIC investors love (hidden assets, NOL's, etc.) but completely failed to look at how their Puerto Rico exposure was 3x their entire market cap in bonds which may or may not be highly exposed to risk.  There was no deep dive into why these particular bonds posed limited risk to AMBC despite the fact that Puerto Rico has a very complicated capital structure and is in the process of sending one "secured" revenue source into default.

 

Not sure if others follow certain VIC authors, but I shy away from the ones that tend to be promotional.  I believe cuyler initially had the writeup on SNMX and I find most of his ideas to be pump and dump styled hit and runs.  There are other authors like this on there.

 

It wasn't cuyler who wrote up SNMX. It was EBML. I think what you are concluding here that long VIC write ups or highly rated ones tend to be promotional or lacking in a concise thesis is a bit of a generalization and I disagree with it. Aren't all VIC write ups (or SA or Sumzero) promotional in some sense? Likely the author has a position, which the write up is promoting. In the best case, the write up actually serves as a value-unlocking catalyst. 

 

 

[oddballstocks]

This is why I am never a fan of highly rated or lengthy VIC articles.  They tend to be promotional or lack a concise thesis to where the author claims all the due diligence and the use of common sense from a spectator is simply being misinformed/lacking work.

 

I remember reading the write-up on AMBC and saw a similar situation.  Everyone was swooning over the key points that VIC investors love (hidden assets, NOL's, etc.) but completely failed to look at how their Puerto Rico exposure was 3x their entire market cap in bonds which may or may not be highly exposed to risk.  There was no deep dive into why these particular bonds posed limited risk to AMBC despite the fact that Puerto Rico has a very complicated capital structure and is in the process of sending one "secured" revenue source into default.

 

Not sure if others follow certain VIC authors, but I shy away from the ones that tend to be promotional.  I believe cuyler initially had the writeup on SNMX and I find most of his ideas to be pump and dump styled hit and runs.  There are other authors like this on there.

 

It wasn't cuyler who wrote up SNMX. It was EBML. I think what you are concluding here that long VIC write ups or highly rated ones tend to be promotional or lacking in a concise thesis is a bit of a generalization and I disagree with it. Aren't all VIC write ups (or SA or Sumzero) promotional in some sense? Likely the author has a position, which the write up is promoting. In the best case, the write up actually serves as a value-unlocking catalyst.

 

Here's a strange little data point.  Writeups on here and on VIC that receive almost no attention are the ones that go on to do the best.  So find a thread on here that has maybe two responses and you have the ingredients for a potentially good investment.  Those that go on for pages and pages don't end up turning out well.

 

Sometimes the best investments are the simplest ones.  I'm turned off by investments where people need to 'convince' or 'preach' the value to anyone who isn't converted yet. 

[merkhet]

Bank of America seems to be an exception...

[TeddyLampert]

Back to SNMX, I don't own this, but I have followed it on VIC precisely because it's garnered so much enthusiasm (both excitement and skepticism). The author in his/her latest entry said it best. SNMX is a "show me" story, which the street will punish if there's short term negative news flow. I have learned from experience to be wary of show me stories. Their write ups tend to sound more "promotional" (i.e. heavy on rosy assumptions supporting a mouth-watering upside price target). POST is a good example of this, as is SHOS. 

[LC]

Nate, what leads you to draw that conclusion?

 

My gut instinct tells me you're correct, I am curious if you have the data to share. I for one would love to see it.

[Patmo]

This is why I am never a fan of highly rated or lengthy VIC articles.  They tend to be promotional or lack a concise thesis to where the author claims all the due diligence and the use of common sense from a spectator is simply being misinformed/lacking work.

 

I remember reading the write-up on AMBC and saw a similar situation.  Everyone was swooning over the key points that VIC investors love (hidden assets, NOL's, etc.) but completely failed to look at how their Puerto Rico exposure was 3x their entire market cap in bonds which may or may not be highly exposed to risk.  There was no deep dive into why these particular bonds posed limited risk to AMBC despite the fact that Puerto Rico has a very complicated capital structure and is in the process of sending one "secured" revenue source into default.

 

Not sure if others follow certain VIC authors, but I shy away from the ones that tend to be promotional.  I believe cuyler initially had the writeup on SNMX and I find most of his ideas to be pump and dump styled hit and runs.  There are other authors like this on there.

 

It wasn't cuyler who wrote up SNMX. It was EBML. I think what you are concluding here that long VIC write ups or highly rated ones tend to be promotional or lacking in a concise thesis is a bit of a generalization and I disagree with it. Aren't all VIC write ups (or SA or Sumzero) promotional in some sense? Likely the author has a position, which the write up is promoting. In the best case, the write up actually serves as a value-unlocking catalyst.

 

Here's a strange little data point.  Writeups on here and on VIC that receive almost no attention are the ones that go on to do the best.  So find a thread on here that has maybe two responses and you have the ingredients for a potentially good investment.  Those that go on for pages and pages don't end up turning out well.

 

Sometimes the best investments are the simplest ones.  I'm turned off by investments where people need to 'convince' or 'preach' the value to anyone who isn't converted yet.

 

You must not like my amazing(ahem) pump-up posts, I've been shoving ESI down people's throats both in the internet and in person the last couple months. Just yesterday I was harassing my banker about it... I'm like that religious nutjob who walks up to random people cold to recruit for their cult. And now MCR is getting so cheap I'm starting to do the same with it. Oops...

 

To my credit people would have more or less tripled their money if they had bought ESI based on one of my rants and sold in the past 2 weeks...

[bargainhunter]

down ~30% today. anyone still buying? (other than insiders  ;D)

 

I'm a newbie here, and what better place to start than wading into the controversy that is SNMX? :)

 

I added to my (moderate) position yesterday after the selloff. Here are my thoughts after listening to the conference call:

- Pepsi: This seems to be much more of a timing issue rather than a death blow to the thesis. Reading between the lines, a) PEP is throwing a lot of resources at consumer testing and is considering using SNMX more broadly than just in soda (ie food as well); b) They are probably putting a lot of thought into how to best market this thing (it's a controversial ingredient); c) They want to launch in the summer (who drinks soda in the dead of winter?)

- Direct sales: Things are moving slower than expected here -- but still trending in the right direction. It sounds like they have some much larger potential sales in the pipeline.

- They are making slow but steady progress on natural sweeteners and (maybe to a lesser extent) a natural salt replacement. These are nice call options to have in your back pocket.

 

Bottom line: I wouldn't bet the farm on this stock, but in some ways I think it falls into the classic "low risk, high uncertainty" bucket. The magnitude AND timing of future cash flows is highly uncertain. Yet even modest direct sales + PEP sales would drive a big revaluation of the share price. Past experience tells me that patience in such situations is often well rewarded.

 

And I say "low risk" because they have zero debt, their R&D is fully funded by partners for at least another 2 years, and they have no need to issue equity. In the meantime we get to sit on a bunch of potentially very valuable call options, any one of which could be a gamechanger.

 

Apologies if this sounds promotional!

[jouni1]

Past experience tells me that patience in such situations is often well rewarded.

any examples?

[bargainhunter]

Hi guys. A shameless plug here, but I just got my first article published on Seeking Alpha Pro (link below - visible for next 30 days). This is a controversial stock I know -- would welcome any feedback. Also curious if anybody else here is long SNMX?

 

http://seekingalpha.com/article/3260665-senomyx-ready-for-lift-off