ARKK is today’s equivalent of the Internet bubble funds of 1999-2000: Shortseller

ARKK is today’s equivalent of the Internet bubble funds of 1999-2000: Shortseller

Stanphyl Capital’s commentary for the month of March 2021, discussing selling their long position in NASDAQ:EVOL long position.

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Q4 2020 hedge fund letters, conferences and more

Friends and Fellow Investors:

Jim Chanos Unveils Lastest Short As Fund Manager Bets On Further Market Declines

Data 1639507577Jim Chanos has a new short target in his sights. Earlier this week, the hedge fund manager disclosed that he is betting against "legacy" data centers that face growing competition from the trio of technology giants, which have previously been their biggest customers. The fund manager, who is best known for his winning bet against Read More

For March 2021 the fund was up approximately 5.1% net of all fees and expenses. By way of comparison, the S&P 500 was up 4.4% while the Russell 2000 was up 1.0%. Year-to-date 2021 the fund is up 19.5% net while the S&P 500 is up 6.2% and the Russell 2000 is up 12.7%.

EVOL Long Position Sold

We had a decent March because our shorts went down a bit (although they were down a hell of a lot more last week!) and we sold our EVOL long position for a nice gain when it hit our target price following its Q4 earnings report; also, most of our other longs were up a bit too.

Only our precious metals have been performing poorly lately (although today may have reversed that), because nominal rates have been increasing faster than inflation expectations. However, I think the Fed will eventually cap those rates via “yield curve control”), and we’ll thus be well positioned for the PE multiple-crushing inflation that I believe we’ll soon see (and in fact are already seeing*) as over 200 million Americans get vaccinated while Democrats jam through trillions more in “stimulus,” thereby accelerating the velocity of all this newly printed M2:


*While February’s “core” CPI was much tamer than the huge top-line number, this was only by eliminating the increasing cost of energy. Yet as vaccinated people travel again while the Biden administration discourages new oil & gas drilling and forces a switch to far more expensive “green” energy, high energy costs will become permanent and work their way into the “core” number, similar to what happened during the oil price shock of the 1970s.

Meanwhile, contrary to the protestations of Wall Street’s pumpers & pray-ers, equity indexes are so stretched that myriad exogenous events (both “known unknowns” and “unknown unknowns”) could pop this market even independent of inflation fears or Fed actions. Courtesy of Yardeni Research we can see that the S&P 500’s ratio of price-to-sales and the overall stock market’s ratio of price-to-GNP are the highest they’ve been in modern history…


…while Tobin’s Q ratio of stock prices relative to the replacement cost of their underlying assets shows the same thing:


And when the world’s economy does recover, here’s the insane amount of debt it faces; the only “solution” for this is the aforementioned PE multiple-crushing inflation:


We thus continue to be short shares of the aforementioned ARKK, an ETF consisting of the most execrable story-stocks on Nasdaq—a collection of companies with a blended PE of “infinity”—run by perhaps the wackiest portfolio manager on Earth. ARKK is today’s equivalent of the Internet bubble funds of 1999-2000, and we know what happened to those. We also continue to be short Tesla, the biggest stock bubble of this (or any) bubble market (much more on that in the back half of this letter).

Long Positions

Here then are the fund’s current long positions, followed by our regular update on Tesla; please note that we may add to or reduce position sizes as stocks approach or recede from our target prices…

We continue to own Aviat Networks, Inc. (NASDAQ:AVNW), a designer and manufacturer of point-to-point microwave systems for telecom companies, which in February reported a fantastic Q2 for FY 2021, with revenue up 26% vs. the year-ago quarter and both GAAP earnings and adjusted EBITDA up hugely, at $1.16/share and $10.1 million respectively. The balance sheet is beautiful too, with $43 million in cash, no debt, and hundreds of millions of dollars in NOL carryforwards, and Biden’s wireless infrastructure plan should provide a nice revenue tailwind. A valuation of 20x run-rate earnings plus the net cash would make this roughly a $100 stock.

We continue to own Data I/O Corporation (NASDAQ:DAIO), a manufacturer of semiconductor programming devices, which in February reported a mediocre Q4 2020, with revenue of $4.9 million, down 17% from both the year-ago quarter and sequentially, a 53% gross margin (excluding some non-cash write-downs), and a net loss of a bit over $600,000 (excluding the non-cash write-downs). However, backlog is strong and the company guided to a 10-15% revenue increase over 2020’s $20.3 million, and DAIO has $14.2 million in cash ($1.69/share) and no debt. This company is a great play on the increasing electronic content in cars—particularly hybrids and EVs—and a great buy-out target. An EV of 2x 2021’s revenue guidance of $23 million would put the stock at around $7.15/share.

We continue to own Spok Holdings, Inc. (NASDAQ:SPOK), which combines a slowly fading (by around 5% a year) high-margin medical paging division with a high-margin medical software business that management is trying to grow. In February Spok reported a mediocre Q4 2020, with the all-important software revenue up slightly sequentially but down slightly year-over-year due to a combination of COVID-restricted sales calls, intensive hospital focus on COVID (rather than on buying new software), and a gradual change to a SAAS model that books revenue over an extended period of time, rather than “up-front.”  Although GAAP earnings were hugely negative, that was due to a couple of non-cash write-downs, and free cash flow was positive by around $1.5 million. Most disappointing was the 2021 revenue guidance, the midpoint of which was just $140 million (vs. $148 million in 2020), as the company expects software sales for the first half of the year to be “COVID-handicapped” with the back half much improved. Overall, Spok is an 80% gross margin company with a great balance sheet (over $4/share of net cash) and 2020 and 2021 insider buying, and assuming 19.4 million shares and $79 million in cash, it currently sells for less than 0.9x the midpoint of 2021 revenue guidance. A valuation of 5x revenue for the software business (if management gets the growth it seeks) plus 1x revenue for the paging business would value the stock at over $25/share. While we wait, SPOK pays roughly a 4.7% dividend yield.

As mentioned at the beginning of this letter, I sold our remaining position in Evolving Systems, Inc. (NASDAQ:EVOL) in the high $4s this month, exceeding our $4 target price. This was a great home run for us as our average price was in the low $1s less than a year ago; hopefully, we can find many more of these!

Finally on the long side, as central banks increase their money-printing to ever higher levels in order to fund multi-trillion-dollar annual deficits, we continue to hold long positions in the gold and silver ETFs (GLD and SLV); the likelihood of the Fed maintaining negative real interest rates for years to come adds a substantial tailwind to these positions, while silver is also a major component in the solar cells the Biden administration is expected to heavily subsidize.

Thanks and stay healthy,

Mark Spiegel

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Jacob Wolinsky is the founder of, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at) - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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