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  • Final Issue Of Newsletter

Hello All,

I will soon start my full-time job as an Associate in Citi’s Equity Research department, so I am going to stop publishing my informal newsletter. I wanted to take a moment to thank you for reading and engaging with me over the past (nearly) four years.

Over that time, the LGR Analytics Newsletter evolved from a summary of the previous 1-2 weeks’ major events in the financial markets, into a means of distributing research reports on specific companies. Writing a Newsletter forced me to crystalize my thoughts and adequately explain my research on the companies and asset classes I followed. The terrific feedback that I received on my Newsletter, and the subsequent discussions I had with many of you, taught me an incredible amount about following the financial markets, distilling the most important points of an investment thesis down into a simple form, and analyzing a company from a research analyst’s perspective.

In an ideal world, I would use this final Issue of my Newsletter to summarize the performance of each company I previously analyzed in my research reports. Unfortunately, we do not live in an ideal world, certainly not one with endless time. However, I updated the “Report Performance” section of the website to include information on the companies in my most recent research reports, so calculating their performance using the information provided in that section would not be difficult.

Writing this final Issue of my Newsletter forced me to capture the lessons I learned while writing research reports, and through conducting a “post mortem” process afterwards. As expected, I found the majority of the lessons were learned from mistakes rather than from successes.

These general lessons included the following:

  • Don’t miss the big picture. I learned that it is important to not focus excessively on the minor details of a company (i.e. “micro factors”), because doing so risks missing the bigger picture or prevailing industry trends (i.e. “macro factors”); I made this mistake in my work on Las Vegas Sands (LVS) and Signet Jewelers Ltd. (SIG).
  • Approach with appropriate skepticism. I’ve learned to apply skepticism when assessing statements and conclusions made by others (regardless of their positions inside or outside a company) because, generally speaking, it is always best to rely first and foremost on one’s own research and conclusions.
  • Wait for an adequate margin of safety. In some of my earlier reports, I made the mistake of being bullish on companies that I believed were only trading at a small discount to my estimate of their implied value, and I now believe it is a mistake to accept a small discount and instead it’s important to wait for companies to trade at relatively large discounts to estimates of their implied value (i.e. wait for an adequate “margin of safety”); this mistake was made on Harley Davidson Inc. (HOG), and I learned that it is beneficial to have higher standards when it comes to risk/reward.
  • Realize the cumulative impact of headwinds. At a certain point the aggregation of a large number of short-term negative factors can overwhelm even a very strong company, making it very difficult for the company to regain its footing in a short period of time. I made this mistake in my work on Signet Jewelers Ltd. (SIG), which had a large number of negative factors that created a “cloud” over the company that has put significant downward pressure on the stock over the months following the release of Volume II, Issue 6 of my Newsletter (in which I wrote about SIG). I’ve learned that when there are a large number of negative factors it may be better to either wait for some of them to subside before becoming a bullish contrarian, or at the very least a very long investment horizon is needed in the midst of the storm of negative news.
    • When I became bullish on SIG it was suffering from negative factors related to its credit portfolio, multiple pending lawsuits related to different subject matters, slowing industry sales trends, weak internal sales trends, and a significant amount of public criticism from short sellers and other industry professions. Looking back, I realize that I may have wanted to wait for the dust to settle before becoming a bullish contrarian.
  • Keep reports brief. I’ve learned that conciseness is a virtue.  When a research report is too long, the most important/relevant factors for the investment thesis get lost.  I made this mistake in my report on Flotek Industries Inc. (FTK).

My goal was always to learn from mistakes and, in publishing a regular Newsletter that shared the research that I did on specific companies, to force myself through the learning process (both with others and with myself).

I have certainly learned over the last four years that it is very difficult to be successful in the investment industry.  Success requires the ability to constantly continue to learn from one’s own mistakes, and the mistakes made by others, to reduce (or, hopefully, eliminate) the possibility of making the same mistake twice.

I will not deactivate my website and will instead allow it to remain publicly available. With that decision in mind, I updated my website a final time. I also updated some past Issues of my Newsletter that contained research reports to ensure that no one viewing them at a later date could misinterpret the reports’ conclusions, or the dates at which those conclusions were made.

Thank you again for reading, for your interest, and for your advice.  I promise to “pay it forward”.

Please stay in touch!

Best,

Liam

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