AVID stock is ready to go up?!?

[DC-Choppah]

Insiders selling stock: http://insiderbuyingselling.com/?t=AVID

Conference call 3 Aug to discuss earnings for 2nd quarter which they always say will struggle.

Stock down 7% today.

Glad I got out at $39. Not willing to ride through this falling knife.

AVID is a fun stock.

[DC-Choppah]

Falling knife indeed. The earnings report was great too, but it fell 37% all at once and has stayed around $28 since Wednesday. The market wanted to see awesome so it punished AVID for just being great!

[ManFromGlass]

So would you think it could sink more?

[DC-Choppah]

I am glad I sensed the peak at $39 and got out.

Could it sink more from $28?

It does not appear to be in a position where lots of people will want to cash out - which drives the price down. There is an anticipation of more earnings coming so folks are holding the stock. The people running the company appear to be intent on making it profitable.

The $28 number should not be considered how the market values the stock. Instead it is just the result of where the trading has settled out given the mix of people trading it.

[DC-Choppah]

Been floating for a while now. Trading around $25, slowly sinking.

My interpretation is that some folks are cashing out having made good money. Gotta pay the bills!

On balance though, there are only slightly more sellers than buyers. So we have a slow reduction in trading price. Eventually these sellers dry up and we are left only with buyers.

Negative share holder equity. Not a stock to buy and hold. Could go to 0 any moment.

I am out.

[ManFromGlass]

Just curious -
Your brief comments and analysis here make following Avid sound like a simple thing that anyone with common sense can do. But aren’t you doing a lot of research and basing your decisions on years of experience and perhaps a bit of good instinct?
There is so much good and bad information out there, how do you find the useful signposts?

[DC-Choppah]

There is so much good and bad information out there, how do you find the useful signposts?

The way that I learned how the market feels was by using back testing, and look forward testing. You can take an assumption about the market and test it using real data from the past. You have to have the discipline to not look ahead even though the data exists into the future. So you can get lots of market trading experience using all the past data available. Tradestation is set up for this. Then you have to create simulated accounts and trade those for a few years before playing with real money. You have to lose millions of dollars (simulated) lots of ways to learn what does not work and why.

Some folks have these little rules they use to find signals. Those can all be backtested and you can find that they basically don't work. Using them will lose all your money.

So you have to find out for yourself all of the stuff that does not work. Best to do that without losing real money.

After a while you can find opportunities, because you have seen things like it before. Then you do the opposite of what lost you money before. You have to do the opposite of what most of the people trading will do.

[The Red Bladder]

There is so much good and bad information out there, how do you find the useful signposts?

That is a lovely question!

Ask yourself two questions - (1) Am I a gambler or an investor? And (2) What is this company really worth?

(1) People talk about investing, when what they are really doing if they are buying stocks to sell at a higher price, is gambling - or to put it politely, speculating. An informed gamble! Avid is a good gambler's stock as the price is exceptionally volatile: it is a rotten investors stock because it has never earned any money!

An investor buys a company, in part or whole, in order to keep it for a very long time and hopes that it will pay them a dividend over that time and also improve in value. To know if that is going to happen means that you must calculate the Intrinsic Value. Warren Buffett defines Intrinsic Value as "The discounted value of the cash that can be taken out of a business during its' remaining life."

Discounted means that we must take inflation and other costs out - a good ballpark figure would be 10% p.a. In simple terms the price-to-earnings ratio must be 10:1 or lower to break even.

That is of course a very approximate calculation, but as Buffett once said "It is better to be approximately correct than precisely wrong!"

When Buffet bought into Apple, the price was low ($25-$50) and the earnings were high, giving it a very low P:E ratio. It was undervalued. The free cash-flow, EBITDA and revenues were growing at 20-30%. Today it is somewhat overvalued - along with just about every other stock traded!

Avid - something is stirring at Avid and the CEO and other insiders have all been selling their stock, despite announcing a $115m share buy-back.

https://finance.yahoo.com/news/avid-tec ... 00142.html

There are two reasons for a buy-back - either the stock is undervalued or a hostile takeover is expected.

Well, we can definitely rule out undervalue, so that just leaves a hostile takeover. But who the hell would buy loss-making Avid at today's price? Answer - nobody!

But everybody and their mothers-in-law is expecting the stock markets of the world to enter a severe correction - and a volatile stock in a small tech company that is up to its' little ears in debt would be worth close to nothing! And that would place it in default of the covenants on the mortgage of its entire IP to Cerberus Capital, who would then sell it off to someone like Adobe or Autodesk (both of whom have been eyeing Avid for ages!)

By earmarking $115m for a rainy-day buy-back, Rosica may be building a future strategic position in the common stock to ward-off a takeover and the inevitable closure of the company that would follow.

There are however other reasons for a buy-back that are anything but honourable and you may want to read about here - https://www.theatlantic.com/magazine/ar ... le/592774/

The other problem is that a buy-back adds at least another $65m (Avid has some $50m in cash, stocks and bonds) to the already mountainous pile of debts and other liabilities of over $360m.

[ManFromGlass]

Am I getting this correctly then -
The people who will make the most money will be the CEO and any other insiders who have a large chunk of shares. They will sell and make a killing before the public can be notified of a major sell off happening.

A few smart and lucky outsiders who time the peaks and valleys correctly.

But the company itself is dead on it’s feet with no chance of profitability. And yet it is still functioning (mostly). How the heck do they even cover payroll?
Or pay suppliers? Etc.
I have a lot to learn about the business world.

[The Red Bladder]

They are able to meet all costs inc. payroll as their gross profits are quite healthy. The big problem is the legacy of debt from three successive CEOs who were (health warning - just my opinion!) bloody useless!

One went on a company buying spree that made no sense whatsoever. All companies that Avid had to sell off at fire-sale prices just to keep the doors open. The next CEO was just an exercise in drifting with little purpose, followed by Captain Testosterone who had to be fired by the board for inappropriate behaviour, bullying and equally as inappropriate acquisitions.

The sums of money lost with those hair-brained acquisitions are truly eye-watering! Possibly as much as one billion dollars! Now they are scratching around for one tenth that for their buy-back.

It's a crying shame because it used to be a great company with great products and great people.

The truth is that the pro-audio and pro-video/film industries are best served by private companies run by their owners and not by publicly listed companies paying their executives silly money via share options. These people are just here today and gone tomorrow Johnnies!

[S2]

This has been a great read. What's been really interesting has been the predictions made over the last couple of years, virtually none of which have turned out to be correct. Not a criticism at all, it just goes to show how difficult it is to predict the future/work out/time the market or predict the economic world situation. One of the comments was something like 'Don't be too surprised if this time next year unemployment in the UK is around 20% or possibly far higher.' - something that a lot of us would probably have agreed with to a greater or lesser extent. And yet here we are a year later with the opposite.

As someone said earlier, the only truism is 'time in the market', rather than 'timing the market'. The original stocks were bought at 6 and had they been left they are now 29. Obviously hindsight is a wonderful thing, but it's worth dwelling on another of Warren Buffett's sayings - 'If you aren't thinking about owning a stock for ten years, don't even think about owning it for ten minutes'. Long term investing is the key it seems.

[The Red Bladder]

One of the comments was something like 'Don't be too surprised if this time next year unemployment in the UK is around 20% or possibly far higher.' - something that a lot of us would probably have agreed with to a greater or lesser extent. And yet here we are a year later with the opposite.

One of my favourite silly statements I make about being an economist is "I can predict anything! Absolutely anything! Except of course the future. Nobody can predict the future and only a fools tries!"

What we can do is study trends and look at probabilities.

Having said that, if you count all the workers who left the UK in the past couple of years and all the people who just quit working and all the people who can't find work but do not qualify as unemployed - you come to about 20%.

The UK employment market is missing qualified people and people prepared to work at more menial jobs like picking fruit and vegetables.

But you have to look at the wild increase in Avid's share price within the context of the US economy and the money supply.

The US and Chinese economies are sick and getting sicker. The sickness is debt. The US in particular is suffering rampant hidden inflation that may spill over into a UK economy, especially now that we are outside of the EU.

ShadowStats is a website that measures various US government statistics and tests their veracity. It put US inflation at 13.5% earlier this year. The CPI (both here and in the US) is not to be taken too seriously as it is heavily manipulated. The basket of goods and services is changed to reflect changes in choice and popularity. If people eat less beef and more chicken then chicken gets a heavier weighting and beef gets a lighter weighting.

But one of the reasons for such changes is rising prices. Therefore the CPI is no longer a reflection of rising costs of maintaining a stable standard of living, but reflects in part, falling standards of living.

Warren Buffett said at his recent annual meeting: “We're seeing very substantial inflation… I mean, we're raising prices. People are raising prices to us. And it's being accepted… The costs are just up, up, up… it's almost a buying frenzy... there's quite a bit more inflation going on than people would have anticipated.”

The Federal Reserve Bank printed a trillion dollars in just two days last March with the $500 billion plan to buy municipal bonds and the $700 billion to buy loans made by the U.S. Treasury and mortgage-backed securities (QE). And then there's the Fed’s $2.3 trillion programme to help banks, businesses, and corporate bonds.

The US has already injected $11 trillion new dollars into the system since the start of last year and Biden intends to inject another $4 trillion to come in the next few months.

That means the US will have visited The Magic Money Tree for a total $15 TRILLION in just over a single year!

It has been raining stimulus cheques onto US Joe Public. The same has been happening here! As a VAT-registered business, we got £10,000 - and I for one, am not going to turn away free money! I may be a bit slow at times, but I ain't that stupid!

In 2020, US government deficit spending accounted for 15.5% of the entire US economy (OECD figures). The figure for the UK economy was 17%.

That's right! 17% of the entire UK GDP was fresh government debt. The Magic Money Tree.

The standard economists' joke was "Why bother with taxation? Why not just print all government revenues?"

In 1920s Germany, that's precisely what the government did. Based upon the teachings of economist Friedrich Georg Knapp in 1905, a new movement (today we call it Modern Monetary Theory or MMT - I call it The Magic Money Tree) called for both taxes and the money supply to be manipulated to boost or subdue the economy.

And it worked like a dream! The economy was booming - for a while. But in its wake came that insidious tax on the poor that we call inflation. If you inflate the money supply, you get inflation - simples!

The ONLY cure for inflation is to restrict the money supply by raising interest rates.

BIG PROBLEM!

If the Fed or the BoE or the ECB were to raise interest rates (as Fed chairman Paul Volcker did in the 70s when he he raised the Fed rate to 22%) it would destroy their respective heavily indebted governments.

Central banks everywhere are in a lose-lose situation. They are in the Roach Motel - "The Roaches check-in, but they don't check out!"

Economic historian Adam Ferguson explains what happens in his book When Money Dies all about hyperinflation in the 1920s: “It was the natural reaction of most Germans, or Austrians, or Hungarians--indeed, as for any victims of inflation--to assume not so much that their money was falling in value as that the goods which it bought were becoming more expensive in absolute terms.”

And this is exactly what’s happening in America right now. Most Americans are doing the same thing Germans, Hungarians, and Austrians did with their soon-to-be-worthless currencies, even after they’d been devalued for the umpteenth time.

As one German woman said of this era: "When prices soared 25% in a bakery in a single day, the baker didn’t know how it happened… his customers didn’t know… it had something to do with the dollar, somehow to do with the stock exchange—and somehow, maybe, to do with the Jews.”

Madness - a frenzy is created, encouraging massive gambling, hoarding, and speculation as everyone attempts to keep up with the “get rich quick” stories reported in the press.

That is what happened in 1920s Germany, Austria and Hungary and that is what is happening in the US today! It's a feeding frenzy!

Out of the ashes of hyperinflation rose Adolf Hitler and WW2 - and he didn't stop until Germany had been culturally and economically obliterated. The same may happen to America.

[MOF]

The printing of money is mostly due (in recent times) to Covid 19 and before that the need to prop up the banks in the wake of the subprime mortgage scandal. If it was only a few countries printing money then I’d be worried, but it’s not.
“ Two-thirds of US public debt is owned by US citizens, banks, corporations, and the Federal Reserve Bank;[5] approximately one-third of US public debt is held by foreign countries – particularly China and Japan” https://en.m.wikipedia.org/wiki/Debt-to-GDP_ratio
If inflation rises the USA’s currency will be devalued and make its exports cheaper, it doesn’t need to import many raw materials and is largely self sufficient, so over time it will earn enough money to pay back the loans, also taxes could be raised.
Dealing with Covid 19 isn’t the only call on money, investments in electrification/green energy are viewed, almost universally now, as being necessary to deal with climate change, principally, plus energy security and air quality.

[Tomás Mulcahy]

Great post @The Red Bladder.

As a result I read this and am not surprised, but a bit scared:
https://www.rte.ie/news/business/2021/0 ... oup-china/

[MOF]

Out of the ashes of hyperinflation rose Adolf Hitler and WW2 - and he didn't stop until Germany had been culturally and economically obliterated. The same may happen to America.

You can’t compare inter-war Germany with the USA. Germany was paying large reparations and also had lost vital industrial territory as part of the Treaty of Versaille, so it couldn’t produce enough to pay off the debts.
Also the Gold Standard underpinned the financial system, now it’s the US dollar.

[The Red Bladder]

You can’t compare inter-war Germany with the USA.

Too late! I did! There are similarities and there are (as you rightly point out) important differences.

But I would be interested to hear of any theories you (or anybody else!) might have on how central banks could get out of the Roach Motel. In other words, how do they avoid high inflation without raising interest rates and thereby bankrupting governments and large institutions?

About 10% inflation (using the 'adjusted' CPI) is baked into the system. The baking came from wages, the money supply and producer prices.

What they are hoping for is some 'transitory' (yer, right!) inflation that will allow them to inflate away all debt - and the problem is solved! It's very easy to pay eye-wateringly high debts when interest rates are at zero and inflation is at 10%.

Some people became fabulously rich in inter-war Germany, Austria and Hungary by borrowing large sums at low fixed rates as inflation began to pick-up and paid back in worthless Reichsmark.

To Tomás Mulcahy - The Evergrande late payment (they still have some time to pay, but the clock is ticking) is not yet the Lehman Brothers and I have a sneaky feeling that the Chinese government will engineer a solution behind the scenes and somehow grant Evergrande more time.

The real danger to the Chinese economy is the housing price bubble and the debt levels associated with that bubble. If/when the bubble deflates, what happens to all that debt?

So why the fear of inflation?

Inflation is a back-door tax on the poor. The rich have assets. The poor have liabilities. Anything that costs you money is a liability. Things that earn money are assets. Inflation increases the nominal costs of those liabilities and also increases the nominal value of those assets. High inflation does so disproportionally.

Here's an example - after the war, a nice house with a garden in the SE of England cost about two years median net wages. Today it will cost about 20 years median net wages. Owning a house in 1950 meant that you possessed the equivalent of two years work. Today you would own the equivalent of 20 years work.

A family that owns assets, simply by doing nothing, have increased their real wealth ten times.

A family that owns nothing and has to pay rent has become effectively considerably poorer, as the real value of wages has fallen from half a house to one-twentieth of a house.

That process took 70 years and so poor people adjusted to staying poor and having to buy everything on the never-never.

But when that process speeds up (high inflation!) people get desperate and desperate people start throwing things and setting fire to buildings and voting for carpet-biters.

[DC-Choppah]

AVID going steady.

Making money the old fashioned way. Looks like a business now that the market can calculate a value for. Also, buying it's own stock back like the big boys do.

Regarding stock buy back, that is a very popular way to reward share holders since it has tax implications.

If the company were to pay dividends then the shareholder would pay tax at his income tax rate. Perhaps 20% - 30%.

If instead the company buys its own stock back, then the share price goes up. That means that for buy-and hold folks, no tax at all. For people who sell, they pay tax at the capital gain rate, which is much lower than their income tax rate. Perhaps 0% for some or 15% for many parties.

Because of this tax-issue, companies with smart CEOs are choosing to buy back stock rather than pay dividends. They have to to compete with other companies doing the same thing.

I take it as a sign that the CEO is sophisticated and has the interests of the shareholders in mind.

[ManFromGlass]

So are you back in?

[The Red Bladder]

So are you back in?

I hope for his sake that he is not! There are some wonderful opportunities to earn money out there, but US tech stocks are what most fund managers are selling and most of these US techs have been seeing some considerable insider selling - Avid included.

[DC-Choppah]

So are you back in?

Yes. I got back in right after the last good earnings report.

AVID did what I had hoped at the beginning of this thread. It crossed over into making earnings regularly. In that time the stock went up from about $8 to now $35. I believe the new management will continue to run it as an earnings generator. AVID is like other software companies. I do tend to understand the software business so I am comfortable owning this.

It is unknown where the market settles out. But since the subscriptions continue to grow and since AVID is intending to grow too, I want to have it in my portfolio - although, a smaller piece than I had when playing the swing-trade.

Every pro music and video maker around me uses AVID products and it is what is taught in schools here. The subscriptions are reasonable, and do seem to be enough for AVID to make good earnings.