《随想杂谈》：2025年4月

It is just before market closes on April 11, and that’s a Friday. I normally do my random ramblings on Saturday morning, but, as I’ll discuss, I’m going on one of the worst-timed vacations and work trips over the next 2 weeks in the history of the world. So, I didn’t have time for that on Saturday. I’ll dive into that more later.

Look, it has been a wild, wild ride this week. You’ve had tariffs, no tariffs, the best day in stock market history on Wednesday, and some of the worst days in stock market history last week and earlier this week. I’ll talk about all that in a second.

The first thing I want to start talking about is KROS. The ticker is KROS. I am long. This is the last podcast I did; I published it on Wednesday. It was very, very well timed because I published a podcast on Wednesday saying, “Hey, KROS, you’re trading for a huge discount to cash. You need to wind this up.”

I think you need to do what’s right for shareholders. What’s right for shareholders, in my opinion, is to wind it up. I think I presented very compelling evidence why that was the most compelling thing to do, and I encouraged shareholders, whether they agreed with me or not, to reach out to the board and tell them to do that.

On Thursday, KROS came out and said, “Hey, we’re evaluating strategic alternatives. We’re going to provide an update on the strategic alternatives process in the next 60 days.” The stock was up a lot. It went from $10 to, as I’m recording this, about $12 per share. Do I prefer the stock at $12 versus $10 per share? Yeah, I don’t mind that. But I will say, here are a few things that are interesting.

I think it speaks to how bombed-out and how mistrusting investors are that KROS announces it’s reviewing strategic alternatives, and the stock goes from $10 to $12. Yes, that is a nice move, guys. This company has $16 to $18 per share in net cash on its balance sheet and at least 1 other asset that I think is clearly NPV-positive in the royalties that it is owed from Takeda.

So, yes, the market is up, but it speaks to how bombed-out and mistrusting the sector is that the company announces strategic alternatives, says, “Hey, we had someone—it was not me, I can assure you—acquire over 11% of the stock in response to that. We’re pushing, we’re doing a strategic review,” and the stock went from 50% of net cash to 60% of net cash, right?

I say this because a lot of you might have listened to this on Thursday morning and thought, “Oh, I missed it. The company announced strategic alternatives.” In my opinion—and I’m talking my own book; I’m long the stock—the answer is no. You did not miss it.

This is still a corporate governance play. The market is still hugely skeptical that KROS is going to do the right thing. If the market had no skepticism, the stock would be trading for—reasonable people can disagree—$17, $19, $16, $22. The stock would be a lot higher.

The market is still really concerned that KROS, again, with roughly $18 per share of cash, trades for $12. The market is saying, “Hey, ignore all the other assets. This company is going to turn every dollar they have into 66 cents of cash on the dollar. And it’s also going to burn all the other assets, too.” So, this is still a corporate governance play.

You might be thinking, “I missed it.” Look, I’m not a financial adviser. I can’t tell you if you did or not, but I’m just saying I don’t think you missed it. I think it is still absolutely critical that you lob in letters to this board.

Go contact IR. Whatever you think the right path is, they’re in a 60-day review period. Say, “I believe this is the right path. You need to show me, if this isn’t the right path, a lot of reasons why with really compelling evidence,” because there’s a path here to create shareholder value. It is a very easy one.

The market is very skeptical. I am a shareholder. I own this company. There are some big shareholders on the board, and there are some very small shareholders on the board. The board cannot allow this company to light this much money on fire. You have to rationalize. You have to maximize shareholder value.

I just wanted to say that. Let me turn to the next thing. Again, the big focus of my past month, fortunately or unfortunately, this year has been this busted biotech story. I’ve done the KROS podcast. I did the Sage podcast. I’m long Sage as well. I’ve put several articles on the blog, and I’ve got another one coming in the near future.

Basically, it is nuclear winter in the pre-commercial biotech market, right? There are just so many companies. I could show you so many companies with $300 million in cash trading for under a $100 million market cap. KROS has $750 million of cash trading for a $500 million market cap after they announced strategic alternatives, right? It is absolute nuclear winter.

I’ve publicly called out KROS and Sage, and I’m long both. On the blog, I’ve mentioned several more on the premium side. I’ve mentioned several more that I’m long. On the public side, I’ve mentioned several more that are interesting and trade at huge discounts, but for 1 reason or another, I don’t have a position in them.

When I’ve done these callouts, I have gotten calls and emails from small shareholders, large shareholders, and professional shareholders who own some amount of stock in these companies. I’ve talked to them, and they’ll say, “Hey”—they’re really encouraging me—“we agree with everything you say. We’ve owned 4% of this company for 2 years, and we are just talking to the board behind the scenes every time and saying, ‘Hey, rationalize all this,’ and doing all this.” So, they’re really encouraging me. I’m happy to go push these companies for what’s right because the inefficiency of a company having a $300 million market cap and $300 million in cash, $100 million market cap, weighs on me, but also the portfolio returns. If I can get them to rationalize it, I love that, right? I’m happy.

When I push them—“Hey, why aren’t you being more aggressive? Why aren’t you going out and making this publicly known? Why aren’t you applying more pressure to the board?”—a lot of these guys will say, “Hey, we don’t want to get the activist label. We’ve got a business, and we’re kind of thinking about our business long term, right? If we go activist on someone, then the next time a company does a PIPE round or a private fundraising round or something, we’re not going to get invited because people will be worried to bring us under the tent.”

Look, I get that. I totally get that, and I can’t tell anyone how to run their business. But I want to put this out there for all investors because, again, I know there are some—not to toot my own horn—large investors in these pharma companies who have listened to at least the pitches that I’ve done.

If you own 5 positions, 5 biotechs, and they’re all trading for half of cash, and you’re saying, “I’m not going to go push them to liquidate, to rationalize value, because I want to be invited to the next PIPE round,” what’s the point, right?

You know what would be better for the next PIPE round? If all of your positions had doubled, so you had 2× the amount of money and you could write a bigger check. When the PIPE round comes up, you can say, “Hey, yeah, we’d hate to go after this, but look, these guys were trading for 33% of net cash, and they were going to light it all on fire on silly science projects. You, Mr. Management Team, surely wouldn’t do that with my money, so you have no need to worry.”

So, that’s point 1. And then point 2: Every biotech company, every pre-revenue biotech company, is trading for 50% of net cash. What person is going to put a PIPE into any company? If you came with a PIPE tomorrow, why would you ever put a PIPE? Why would you put fresh money into any company when it’s instantly going to trade for 50% of net cash?

I understand people are saying, “I need to protect my ability to do PIPEs. I need to protect my ability to manage funds.” I just say, “There is no place where you’re putting PIPEs in this market.” Let’s go rationalize these things, and then PIPEs can be effective in the future.

But in this market, nobody’s going to do it. Anyway, I’m on a little bit of a rant. I completely understand. I’m not calling anyone out, but I would just say: If all of these things—I was pointing at them saying, “Look, they’ve got $10 per share of cash on their balance sheet. They trade for $9.50. I think they should liquidate.” I think they’ve got another one that’s $10 of cash and $2 of other assets. I think they should liquidate.

People were coming to me saying, “We can’t do that. We don’t want to ruin our relationship with the management team. We’re thinking about our future deals.” I can completely understand that. We’re not in that situation. All of these things are $10 per share of cash trading for $3, $4, or $5. This is not about, “Hey, let’s preserve the future.” There is no future if these companies don’t figure this out.

That’s my rant. All these guys are incredibly smart, but I just keep hearing the same line: “We can’t go activist. We can’t do this.” I’m just a small guy sitting in a closet of an office. I’m happy to push as hard as I can, but I think if you are an investor in one of these companies, particularly a larger one, it’s time to look and say, “This is so existential, and the upside is so high. Maybe it’s time to get our hands a little dirtier.”

Again, I’m happy to keep getting my hands as dirty as possible because I think the upside is enormous, and I think these are generational opportunities. That’s just my push that I keep hearing from people.

Let me go to the third thing. Let’s talk—and I think this will tie in well between both the below-cash biotech companies I was just talking about. I want to end by talking about how wild markets have been. One thing that I’ve been increasingly thinking about is all this conversation on stock comp. You hear lots of conversations on stock comp: Is it a real expense? Is it the same as a cash expense? All that sort of stuff.

I’m kind of a value investor, so I fall into the “Yes, of course stock comp is a real expense” camp. But I’ve been increasingly thinking about whether stock comp makes you antifragile. Let me give a simple example. One of the things you love about stock comp is that it should create alignment among all parties, but I’ve been thinking about whether it creates an antifragile company.

Imagine you have a company that’s a $400 million market cap company, and they spend $10 million per year on stock comp—2.5% dilution per year in stock. It’s all RSUs. They just price them at 2.5%. No big deal, right? Alignment, all that sort of stuff.

Well, imagine the stock gets cut in half, and the stock goes from $400 million to $200 million. If it gets cut in half because of market turmoil—and I know plenty of companies that have been cut in half so far this year—are you going to go to your management team or your higher-level employees, your senior engineers, and say, “Hey, we’re going to have to cut your comp in half because our stock has been cut in half because the market’s wrong”? No. There’s no company that’s going to do that.

The executives literally have a contract, right? They have a contract that says how much they get. So the stock gets cut in half, goes to $200 million, and this year you’re paying them $10 million in stock still. Now it’s 5% dilution. You can imagine it going further and further.

Some of these net-cash biotech companies I’ve been talking about have seen their stock go down 80% because their lead drug has been proven to be worthless. All of a sudden, they go from a $1 billion company to a $200 million company. When they were a $1 billion company, they were spending $30 million per year on stock comp. Not a big deal—you’re a growth company, you’re aligning incentives. All of a sudden, you go to $200 million and you’re spending $30 million. All of a sudden, you’re diluting your shareholders 15% per year.

By the way, in all of these companies I’m looking at, they’re trading at a $300 million market cap with $600 million in cash. So, 15% dilution—30% dilution if you’re looking at it on a—I guess that’s not 30% dilution, but it’s a lot. You’re diluting 15%, and you’re doing it at half of cash value. It’s just absolutely insane.

I’ve been thinking: In a world that, in my opinion, is more volatile going forward, do you need to look at stock comp a little bit more skeptically? Because if things get rocky and stocks go down, the company is going to be a lot more dilutive than you were expecting. So it actually makes the stock antifragile. The further it goes down, the less upside there is because the employees are taking more and more of the comp.

I don’t have a great answer. Obviously, it’s a niche case. It relies on stocks going down quite a bit, and in the short term, most of the stock comp is actually pretty locked in. You can change any cost structure over the medium to longer term. But it’s just something I’ve been thinking about. I think it’s really interesting, particularly with the biotech companies I’m talking about. Most of them become net cash because the stock goes down 50%, 70%, or 80%.

Let’s use that to transition to wild markets. I’m recording this on April 11. I thought March was pretty damn negative in the middle of the month. I will tell you, personally, I have never felt as dejected as I was—outside of maybe COVID—as I was during last week and earlier this week, with the height of the Trump tariffs, the stock market down 5% every day, and some of the smaller liquid stuff I'm in. It was just crazy.

I will tell you, I’ve never seen things get this bearish. It’s the most bearish I can remember, so I wanted to give some commentary on wild markets. When markets get wild, it is really easy—and I certainly had several days where I was just staring at the screen—to pull back. I keep a big notes folder of everything I’m researching and reading, and my notes folder was a lot emptier than it generally would be. That’s human nature, and shame on me, right?

But you really have to try, when the markets are rocky—whether they’re flying high, choppy, or going down—to keep the same methodology, the same system, and the same practice every day. I’ll give you a few reasons why. Number 1, markets are rocky. I had 2 days there where I wasn’t doing much, and you’re kind of 2 days behind on research. If you think about the compounding, it’s not great to skip a couple of days of research.

The other thing is, if you stick to that process and you’re reevaluating, I think it’s easier to spot opportunities. Let’s talk about opportunities for a second. I also think you need to be reevaluating your portfolio in real time.

If you came to me and said, “Hey, Andrew, my portfolio today, right now, April 11, is the exact same as my portfolio was on April 11, 2024,” I would say, “Hey, man, that’s great. You’re convicted. You’ve got conviction, and you’ve done a lot of research on your projects.” But if it’s exactly the same, I don’t really think you’re evaluating opportunity costs.

Your portfolio should always be your risk-adjusted best set of ideas. Obviously, there are concentration and diversification implications and all that sort of stuff, but it should always really be your best set of ideas. If you told me, “My best set of ideas today is the exact same as it was one year ago, with the exact same sizing,” I’d say you’re probably not turning over enough rocks. You’re probably not updating your priors enough. You’re probably not thinking through it enough.

If you’re continuing to research, there are a lot of benefits. One is that you can see, in real time, what some of the other opportunities are out there. Sometimes it’ll hit me when I’m researching a new company. I’ll say, “Oh, my God, this is great.” Then I’ll look at a company in my portfolio that I thought was a good risk-reward and say, “Hey, this company I own trades at $10. I think the downside is $5. I think the upside is $20. This new company I’m researching trades at $10. I think the downside is $8, and I think the upside is $30.”

Now I can say, “Hey, I’m seeing better risk-rewards in the market. Time to swap.” If you’re seeing that a lot, then your whole portfolio might be too stable.

The second reason I think it’s interesting to do this is that you can spot really interesting opportunities. I’ll give you one in volatile, changing environments—one quick example that’s been on my mind. Tariffs, right? There are clearly going to be tariff winners and losers. I think there are going to be a lot of losers. I think it’s more likely to harm the economy as a whole, but you could imagine a company that produces something where there are a lot of businesses that are natural monopolies or oligopolies because of distance.

A value-investor favorite is cement. Cement naturally concentrates into a few local hands because it is very heavy, so it’s very expensive to transport. When you build a cement plant, all of your sales tend to be—and I’m simplifying a little bit—within a 10-, 20-, or 50-mile radius, whatever it is. You’re not going to build a cement plant in southern Florida and be able to fill cement orders in northern Portland. It’s only going to be Florida.

So, it tends to be a really local market. I could imagine a scenario where you have a cement plant 20 minutes south of the Canadian border, and then you have a cement plant 5 minutes north of the Canadian border. Before all the tariffs go into place, the cement plant 5 minutes north of the Canadian border would service anyone who was right on the other side of the Canadian border. So, they’re 6 minutes away from the Canadian plant and 20 minutes away—or 19 minutes away—from the U.S. plant.

That’s a big transportation cost. I could imagine that all of that cement service is getting filled by the Canadian plant. Again, I’m simplifying everything here. I don’t know the time, the distance, or everything else; I’m just simplifying.

But you slap a 10% or 25% tariff on the stuff coming from Canada, and you could imagine that all of a sudden, maybe the U.S. plant is better equipped. It’s lower-cost for them to serve all those towns close to the border that are on the domestic side of the border. Maybe it’s not better for them to serve the ones that are right on the other side of the border, but at some point, I would guess there are some towns that were previously getting served better by the Canadian company that, because of tariffs, are better served by the U.S. company.

And what does that mean? That means better utilization for the U.S. company. They’re probably going to have a little bit better pricing. You could imagine there were some towns that were right in the middle where, before, every year they’d put up their pricing, and it would be a big battle between the U.S. and Canadian companies. They basically priced each other down to the marginal cost of capacity.

Well, guess what? Now, all of that capacity gives the U.S. firm a huge advantage. I just wanted to point out, look, it’s really easy to stare at screens, but try and stick to your process. Try to stick to your research. Keep turning over rocks, because if you do that, you might, A, see better opportunities than are currently in your portfolio, and, B, see really unique opportunities that have popped up because of the environment.

If you’re turning over the rocks, you’re more likely to see that in real time. It’s something that investors who aren’t still on it or who aren’t turning over rocks might not see in real time. I would just encourage you—and look, I ramble here because these are the things I’m telling myself and trying to do myself.

On Wednesday, when the markets go from down 2% to up 8%, I tell myself, “Hey, Andrew, this is nice. It feels nice to see green on the screen for once, but let’s not stare at the screen. That is an unproductive use of your time. Let’s go try to turn over some more rocks.”

Let’s try to find some companies that Chinese tariffs are going to benefit. I don’t know, are they at 400% now? If you’re going to set Chinese tariffs at 400% and 10% on everyone else in the world, maybe there’s a company you can find that is actually going to be a big beneficiary because all of its competitors source from China, and this company has better sourcing from Taiwan, domestically, or whatever it is.

Just keep turning over rocks. That’s what I’m telling myself. That’s what I’m trying to do: not stare at the screen, and make sure everything I’m doing is maximizing the opportunity. I think there was something else I was going to say, but I can’t remember.

Look, it’s been a really rocky, volatile month. Keep your heads about you and keep the process going. The other thing I tried to do is—maybe I’m too caught up in the moment, and maybe stocks are whipping around too wildly to really research a company—the other thing I’ve been trying to do is longer-term projects.

I’ll give you one example. Step back and research, or reevaluate, my process for the pipeline. Can this be improved? How am I sourcing new ideas? Can this be improved? I look at my writings and my work over the year, and I’ve been banging the drums on improving how you use AI in your research process for 2 years, basically since ChatGPT came out.

If you’re thinking, “Hey, I can’t research companies for some reason. It’s just too volatile. I’m too lost in the market,” you can say, “Hey, I’m going to spend some time on a longer-term project, and maybe I’m going to spend more time learning how to better incorporate ChatGPT, AI, or whatever it is into my process.” Learn how to better incorporate it into your portfolio process, your research process, or whatever it is.

There are other examples. Maybe you’ve been meaning to learn how to code so you can build some custom scripts to better alert yourself when certain keywords or anything else pop up. Maybe it’s time to do that. Maybe there’s a book on—maybe you’ve been wanting to get smarter on bankruptcy code. Maybe you go read a book on bankruptcy code or do some case studies, some historical studies, on bankruptcies and how those played out for investors, so that the next time a bankruptcy pops up, you’re better prepared and better equipped to research it.

You don’t have to just read 10-Ks all day. If you’re having trouble looking at new companies, I think looking at new companies is really good to make sure your portfolio measures up against the opportunity cost elsewhere. But there are other things you can do: longer-term projects.

For me, that other thing is AI—figuring out new tools and new ways to use AI in my research process. I’ll probably do a post on this at some point. But if 20 or 30 years ago you had said, “I’m not going to use the internet. I’ve always used the library and snail mail. I’m not using email and Google,” within weeks, you would have been behind other people.

That kind of scales cumulatively, right? If you don’t use email and you adopt it 2 years later than other people, you can catch up to them a little bit, but your whole process is going to be about 2 years behind. You’ll catch up a little bit more because the ground has been blazed, but you’re always going to be a little bit behind the people who naturally incorporated email, Google, or whatever it is into their process.

With AI, if you’re just sitting there saying, “I refuse to use AI,” I think it’s so clear that AI is such a useful tool. You’re just going to be falling behind your investor friends. Yes, when you finally incorporate it, you’ll be able to incorporate it a little faster than the people who were trailblazers, because the best practices will have been laid out.

But if I’ve used it for 6 months and then you try to catch up, I’ve got a big head start. I’ve probably incorporated it better into my processes, understood it better, and learned how to use some tricks better. You’re falling behind pretty quickly, and the world is moving faster. So, you fall behind just a little bit, and that’s a cumulative edge.

I guess this last thing: I’ve been talking about AI for the past 2 years. I still haven’t had investors really ping me with ways to use AI that are much better than improving the prompts and questions you give it. Obviously, you can upload some files to it—some of your internal files—and have it work on some of your ideas, but I haven’t heard much better than that.

I’m always looking for new ways to incorporate, improve, and use AI, because I just think it’s such a revolutionary tool. Some of the stuff it does is mind-blowing to me. I keep mentioning these Busted Biotechs. There was one Busted Biotech where I spent a day and a half and had 3 expert calls trying to get up to speed on one of its drugs to see if there was any value there.

Then I just typed the drug into ChatGPT and said, “Hey, write a research report with me using Deep Research.” The Deep Research was better than the day and a half I had spent on it. I’m not a scientist or anything, but it picked it up like that: 15 minutes. You put in a good prompt, give it 15 minutes to run, come back, and boom. It was really good.

Anyhow, look, it has been rocky. Stay safe out there. I’ve got a vacation coming up next week—a working vacation, but I’m going on vacation to Austin with the family. I can’t tell you how poorly timed that feels, but I’m going to try and take my own advice, keep things normal, work a little bit in the mornings, and hang out with the family in the afternoon.

It does not feel like a fun time to take that vacation. Then I’ve got a work trip to Planet MicroCap in Vegas the week of the 20th. If you’re out there, ping me. I’d love to see you.

I’m really looking forward to those. That is my random ramblings for April 2025. I’m looking forward to the May 2025 random ramblings. May markets be in a better place than they were this month, and hopefully I’ll still have some interesting things to talk to you about.

As always, hit me up on Twitter/X, by DM, email, or wherever you want to. I’m always happy to chat, and we’ll go from there. Talk to you next month.