Small Company Champion & Lemming Investors Research and Newsletter Updates

Friday, 13 November 2020

OptiBiotix Health - Overview & Investor psychology


“90% of the stock market is emotions,” said the famous stock market expert André Kostolany. The simple investor is overwhelmed by the flood of news and thus reacts both in panic and incorrectly. Rising prices strengthen his confidence, falling prices scare him. This “pro-cyclical” behaviour inevitably leads to losses, as one buys the stocks at inflated prices and sells them too low.

The purpose of this blog post has two purposes. Hopefully, you find it fun. In my most recent podcast with Chris (Toyin) you can listen to by following the link, We touch on a book I am reading for a second time - I need to because a couple of my long term investments are creating a lot of noisy emails, PM, texts, etc., many of which are a concern for some. I fully understand some of the points being made. One of the points is a reference to the CEO of OptiBiotix, Stephen O'Hara. 

One close friend put it this way; ''It is all good, and well Stephen claims to be building a company not a share price. However, the tortoise pace rather than the hare will see me in the grave before I even break, such as the pain of 5 years of stagnation and range-bound trading because investors do not have the necessary information, we can make informed decisions.''

A reasonable response could be in those 5 years you could have sold above £1, why did you not? I ask myself the same question and always with the books wisdom in mind, ''The art of execution.'' More on my apparent stupidity later! 

''It is not Brexit, it's not the USA elections, most companies have had a great period despite Covid, it is the hiding behind NDA's. Does the H&B have an NDA that says they have sold 500,000 boxes, or whatever the figure is? Surely that would be great PR. The comment I do not want to offer a running commentary on partner sales is tosh.'' Another investor argues.

Pierce come in for a lot of criticism. We see this on the forums. I am not in a position to comment. I would ask the BBM questioning Pierce if he has had the experience of the three amigo's running Pierce? These guys did not become wealthy by the blessing of an inheritance, or a lucky lotto ticket, they build successful companies time and again. They do this with targeted skills, patience, global connections, intelligence and strategic planning. I'm sure there is much more to that, but I'm sure the intelligent will understand my points while the moron wasting his life on the OptiBiotix forum will not and will probably be some total of his success in life, such is his ambition. I'll say nothing of the 7 dissolved companies listed against his name at Companies House! I have one myself, it was sold.

A few weeks ago, some long term OptiBiotix investors were starting to show contempt, a lack of trust, of which some point to the lack of institutional support. This, I know, is unfair because I know there has been supporting, just not at a reportable level, which again, is another glaring problem for potential investors.

I have to say the anger before the Vox webinar by investors who know Vox better than most, was disturbing. I did warn Stephen I knew this to be a mistake and will lead to sections of investors selling for fear this is a pump before the cash raise. He denied there is a need for a cash raise in the near term. Clearly, there must be one for the proposed NASDAQ. They expect 20 x valuation thereafter should impress should the partner development work as planned. 

I have lost count how many investors are now saying Stephen need to take a leaf out of his own playbook. By this, they mean to appoint a more commercial astute CEO and take over as the chairman, or scientific officer. Often cited are bland RNS's, often leaving more questions than answers - blame the NOMAD is not washing. 

This sort of discussion places me in a difficult position. Nevertheless, I do not think it is my place to ignore concerns from people that often reach out and vent their anger towards me, mostly Stephen and always when the SP is sliding, as is too often the case. Both I and Stephen do try to keep investors well informed - I think we have had great access and learned a great deal. Sadly, he is a tad tight with inside info, and he needs to loosen up a tad, if only with a blogger, right! If that was the case, it would be a huge red flag and I would, and I am sure many more investors would-be sellers. So, please no more PM's asking me what Stephen has whispered in my ear. Stephen plays a straight bat. One day we will be thankful for this because as and when he does offer something substantial, he is more likely to be believed than not...meaning forecasts which we do not have in an official capacity yet. 

I could regurgitate the significant progress the company has made, which has been completely ignored by the market and some long-term investors. Instead, I am going to share with you a few bullet points another *investor extracted for Steven O'Hara a couple of days ago, many of which mirror the same conversation I have had. I contacted Steven after several said messages expressing concerns some have;

''I speak to MM’s and brokers, and the current market is seeing lots of margin calls across the small-cap market, due to moves in COVID related names (following the Pfizer news), causing forced sellers of stocks across the board in various sectors. This will settle, and I believe as in the past good newsflow, and a more settled market posts US elections and COVID will settle nerves and move the SP. It was just over 6 weeks ago we announced record H1 sales, IND authorisation in the US, the launch of products in Woolworths & Chemical warehouse with Australia’s best selling brand, and a big deal for SweetBiotix. The investor also picked up on products launches in Asia and India. These things haven’t changed, only the sentiment, after a false blog saying there was going to be a placing in a nervous market.'' 

''Investors must follow their own path, but it seems a strange investment strategy to base investment decisions on blogs and an emotional reaction to a drop in the SP linked largely to market factors rather than an analysis of the facts, particularly if it is compounding a loss in a down market. Investors should ask themselves if the factual news flow is likely to lead to further revenue growth and growing product internationalisation and if the company is showing potential in its second-generation products.''

''I think we are in a tremendous position with award-winning products being taken up by multiple retailers and pharma partners across the world and next-generation SweetBiotix, LPLDL, and microbiome modulators being manufactured and licensed by US partners. A rational analysis of the facts I believe would come to the same conclusion.''   

Notes from my conversation with #OPTI CEO yesterday (who was kind enough to give up 1 hour of his time)
If you use Twitter, I will urge you to follow him; 
He is one of the more intelligent investor's. I don't always agree with his tweets, but he is more trustworthy then most pump & dumper crews working together. 

❇️Current SP weakness - nothing in it other than AIM volatility and traders working the ranges. OPTI in a stronger position than ever. He urges SH to look back at Newsflow from just the past 6 weeks as an example of the enormous progress being made e.g.
- Sweetbiotix deal
- Optipharma Oz/NZ Launch (bigger than Slimfast)
- FDA new drug IND for LPLDL
-Pharma deals, and more!
-he said investors should clearly see these as Rev and brand value accretive

❇️Irrational AIM and PI's! He provided a good example - just 4 or 5 weeks ago (when SP was in the ’60s) SoH received lots of correspondence from PI’s praising the team for excellent newsflow, skip forward 1 month, the SP has fallen away, and he has had lots of email/calls from concerned PI’s asking what’s going on?

❇️Strategy - he reminded me (and other SH’s) the strategy is to get to profitability (this year) with our 1st Generation products (LPL & Slimbiome) while in parallel bringing our 2nd generation products Sweetbiotix and MIcrobiome Modulators to commercialisation - this is ALREADY happening, and there is a LOT more to come.

❇️Dual listing -
OPTI has already begun to position itself for the dual list, e.g. reporting cycle and governance changes, look out for additional BoD appointments in preparation for dual list
-SoH made it clear he could not confirm the market or timing of a dual listing for legal and reg reasons, however, the depth and breadth of his knowledge related to Nasdaq listing options and the type of conditions that would suit a US listing make me think Nasdaq will be the dual list destination. My personal view on timing would be around Q2/3 next year (my own inference based on market prerequisite market conditions SoH spoke about)

❇️inflexion points -
-I suggested revs hitting next level (£m’s and becoming profitable) as well as further Sweetbiotix and MM’s deals and of course Dual listing.
-SoH agreed also said LPL as Live Biotherapeutic should be included on that list, noting the uptick in Pharma deals/interest in LPL and he said that trend is set to continue - He mentioned excellent results from the most recent LPL study seeing reductions in Cholesterol in what would be considered as therapeutic drug range (although recruitment had to be cut short due to Covid)

❇️ Other
- Expect more in the pipeline for India rollout
- Increased activity in the US
- China: continue to work through the Pierce deals, as well as other routes into China, e.g. through Taiwan (noted partner TV campaign)
- working on lots of deals
-looking very good in a challenging market
-believes sales of £10-20m P.a. EACH for Slimbiome and LPL alone is achievable (would not give a timeframe as would be seen as forecast by NOMAD)
-Highlighted Collagen Solutions #COS as an example of share which was sold at 3.5x prevailing AIM valuation (basically saying OPTI valuation seen as much higher within the industry)

Very positive chat, keep the faith we are in excellent hands, the real value will out soon enough!
To be fair, I think the language used by other bloggers and investors can create more hype and worse still, it can appear to come from Stephen O'Hara. A point I have made. Stephen comments; ''My line is consistent in whoever I speak to in that we continue to grow sales in a difficult environment. Whatever interpretation or spin people put on that is down to them. I think people who have heard me speak have never heard me use language such as ‘massive uplift’. I use actuals for historical (i.e. 5X, 1,600%) or terms like encouraging or good progress as that’s a balanced and fair view of progress - we are pleased with what's coming. 😄😄''

Those smilies are not mine.

It is worth noting H&B has sold out of all SlimBiome products. I mentioned this to Stephen, my think this is poor stock control, or worse given the poor communication I had received stating my subscription had stopped and I should try an alternative product. It could have been worse, they could have promoted Boombod again. 

Stephen; ''We are pleased with what they (H&B) have achieved and are excited about their plans for the future planning for January 2021.''

''We had a board meeting on Tuesday, everyone was pleased about the progress and excited over the next stage as we bring our next generation of products to the market.''

Allow me to give you something to ponder!

Psychological Games 

I am reading a book for the second time, most of which has always stuck with me, but Chris mentioned it again last week, and I thought I would revisit it because; 1. It is short enough for my attention span 2. Makes a lot of sense 3. A reminder of how shocking so-called professional fund managers can and do perform, usually due to inactions.

The book; The Art of Execution by Lee Freeman-Shor - one of the worlds top ranking fund managers at the time.

Essentially, the book centres around what he calls The Rabbits, essentially smart investors/fund managers that know how to pick a company on fundamentals or future market attractiveness.' 

He classes the rabbits as poor at decision making, indecisive when the trade moves against them. The data in the book to support his theory is eyewatering. The losses the rabbits racked up were significant but did not need to be.

Lee argues, when the stock fell shortly after buying the rabbits should have bought more, and they did in some cases - so far so good. However, when the stock continued to fall, the rabbit refused to add more capital. The point being made here; if the fundamental reason for the original purchase has not changed, you should continue to scale in. This is the problem with retail investors, they buy in large do not scale in, they throw the kitchen sink at the company for fear of losing out. However, macro unrelated to the company can impact it, and you have no room. Lee argues a 20% loss needs 35% to be in profit. No, that is not a maths typo!

Lee recalls the fund managers still talked about the companies as great investments but didn't buy more, which means any recovery is going to be a long one and by not buying more reduce the chance of exiting at a lower breakeven price. If the company's progress warrant's a buy still even when the losses increase, then you should always buy more. If you are not prepared to do you, you should sell and put the money to work.

Lee makes an excellent observation about the perception potential investors perceive from charts. If a chart is in a long-term decline, this taints the view of the company which could have fundamentally changed for the better - the market may not have caught up yet. The point is an obvious one, but if you are a technical trader and not an investor, the strategy is different, of course. For those diligently doing the research should be well placed to take advantage of what the technical trader ignores. Charts. Like markets can be irrational for long periods, so it pays to be alert. 

Anchor Away

''A closely related cognitive bias to primacy error''. Essentially, what we commonly know as confirmation bias. He means allowing the same investor views to confirm what we want to hear. This sort of notion has never been far from my mind, which is why I often engaged with detractors and devils advocate types. I actually like these people because they make you think outside the box on occasions, as did a good friend Paul (PJ1) though his repetitive natures are somewhat annoying. After all, I get endless grief on the back of is posts. I should not, all you should do in actually engage with him and not make an excuse not to. I have often found it can encourage lurkers to join in if they are not bullied into submission. 

I think we sometimes need to remember a fledgeling company like OptioBitix, SkinBioTherapeutic, PowerHouse Energy Group, etc., etc., are not always far enough down the commercial track to offer a forecast to support our own bias, or opinions. Warren Buffet puts it this way; ''forecasts tell you more about the forecaster than the company.''

I have noted from my inbox, etc., weak investors seek to blame others for their misfortune but always take full responsibility when the trade goes their way. I know most readers appreciate my efforts and often say so. Some donate, both are appreciated. I always try to provide facts sprinkled with my own opinions, and if these appear to be risky, I usually seek guidance from the company. 

Lee also refers to The code of the Assassins.

Essentially, these are fund managers void of emotions. They religiously place a 20-33% stop-loss at the point of the purchase. In my view, this is a dangerous area for the retail investor that has not the luxury of £millions or £billions of funds at their disposal. Level 2 has become a mechanism to which I have witnessed it used to take out these stops guessed it, the whales or the HNWI with a good broker relationship. Yes, prices are manipulated for the wealthy, Mike McGeever had explained this when he first started to accumulate OptiBiotix. If I recall, the SP was 1.5p up in the AM, Mike soaked more than 2/3rds of the day's trades - 2.5p OptiBiotix finished down. A 4p swing even by my maths. It happens, and it is happening again. Stops are being taken out. There is a buyer, and the lemmings and the impatient are fodder. Not an assumption, it's a fact being played out right now.