180 Degree Capital Corp (TURN) 2020 Q3 法說會逐字稿

Good morning and welcome to 180 Degree Capital Corp.'s Third Quarter 2020 Financial Results Update Call. This is Daniel Wolfe, President and Portfolio Manager of 180 Degree Capital.

Kevin Rendino, our Chief Executive Officer and Portfolio Manager, and I would like to welcome you to this call this morning. (Operator Instructions)

I would like to remind participants that this call is being recorded and that we will be referring to a slide deck that we have posted on our Investor Relations website at ir.180degreecapital.com under Financial Results.

Please turn to Slide 2 that contains our safe harbor statement. This presentation may contain statements of a forward-looking nature relating to future events. Statements contained in this presentation that are forward-looking events are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect the company's current beliefs, and a number of important factors could cause actual results to differ materially from those expressed herein.

Please see the company's filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties associated with the company's business that could affect our actual results. Except as otherwise required by federal securities laws, 180 Degree Capital Corp. undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

I would now like to turn the call over to Kevin.

Good morning, Daniel. You can hear me, right?

Yes, I can.

Okay, great. We're in separate places today. Good morning, everyone. I hope everyone is safe and healthy, and here's hoping we're in the final leg of what has been an incredibly depressing pandemic in a difficult 2020.

Turning to Slide 2, a summary of our third quarter, one in which our NAV climbed 7.4% on the backs of a 25% gain from our public stock picking. This was offset by a 10% decline for write-downs in our private portfolio.

The public market performance was led by Maven, Potbelly, Lantronix and Quantum, with only one negative in the quarter, and that would be Sonim. Our private portfolio decline was led by 3 names: Essential, ORIG3N and Lodo. We have a separately managed account that's been up and running for a few months now and had a similar run of great performance in the quarter.

Let's move to the next slide. On Slide 3, you'll see, all in all, we had a massive snapback in our NAV over the last 2 quarters, rising to $2.90 at quarter end. This book value is very close to our high that we established just 3 quarters ago.

Let's move to the next slide. Slide 4 really matters to me. At the end of the day, judge us as much for our equity performance, but also judge us for this slide. We've nearly tripled the amount of cash and liquid securities we have on our balance sheet. The higher this per share amount goes, the higher the floor should go for our share price. We're finally beginning to build some scale at 180. The law of averages say it may be easier to take our book value from $2.90 to $6, starting with $55 million of cash or $1.78 per share, than it has been taking our book value from the low 2s to the almost $3 level that it is today, given we started this exercise with only $17 million of cash or so and $0.64 per share. So I'm quite pleased with the direction that this slide shows. We have taken our cash per share on our balance sheet.

Slide 5 shows our discount to NAV over the course of the last 4 years. I have to say, to suggest I'm disappointed in this slide would be an understatement. We literally trade at the same discount we did when we started back in 2017. And this despite the fact that back then, we had 75% of our assets in private holdings. And today, that number is less than 40%. Plus, as I said just a couple of minutes ago, we've taken our cash and liquid securities to nearly $1.80 per share.

I got to the Board in mid-'16 and literally at that time, in the middle of the summer, we had $5 million in cash when I first joined the Board in 2016. And today, that number stands at $55 million today. We'll get to the sum of the parts at the end of our presentation in just a few minutes.

On Slide 6, we've included this in our shareholder letter. This is the performance of the Russell 1000 Growth Index over the Russell 1000 Value Index. This has been a trying year. Attempting to navigate through the carnage of a global pandemic amidst a high-octane, overly emotional election cycle has been difficult enough. Doing it in the face of the biggest headwind for value managers I've experienced in my 32-year career has added a more complex set of obstacles.

In past shareholder letters, I've written about how the pandemic and the ensuing global economic meltdown exacerbated an already bifurcated stock market between the winners and losers. You'll see we talk about Apple having a market cap greater than the entire FTSE 100. We all know Zoom, but it trades at a market capitalization of $114 billion today, which is 50x revenue.

I mentioned Tesla, I don't own one, but I like looking at them, and I know a lot of people swear by them. He's a brilliant investor and a great entrepreneur, Elon Musk. But he also oversees a company whose market cap exceeds that of Ford, GM, BMW, Daimler and Volkswagen combined. It's insane.

I look at 2 funds managed by one of the world's largest global asset management companies. And through Q3, the total return of the large-cap growth fund was 26%, while the return of the large-cap value mutual fund was down 15%. These are large-cap funds, a 4,000 basis point difference in returns year-to-date.

One last illustration of the market that we reside in looks at 2 extreme polar opposite asset styles. Through Q3 '20, the Nasdaq 100 is up 32%, while the Russell Microcap Index is down 19%. This is the disparity that is shown on this chart.

On the next chart is one further illustration of the bifurcated market that I've talked about. This is the percentile median change between the P/E or the price-to-book between growth and value. I've never seen such a wider disparity and value gap in all my careers.

Look, 2020 has been difficult, to say the least. The discrepancies and the multiples that these companies trade at versus -- show the widest discrepancy that we've ever seen in generations and, in my opinion, are not sustainable. Do I understand why this has happened? I absolutely do. We're living in a pandemic and earnings for a certain group of companies have gone one way and earnings for others have gone another.

But do I think this is forever? No, I don't. As I said in the last 6 months, this pandemic has an expiration date, and that date is when a vaccine is developed and widely available. It is our view that's not an if but a when. When the economy recovery takes hold, we believe the market will expand its appetite for more than just a handful of names. And hopefully, 180 will actually have the wind at its back, not in front of its face as it has been for the greater part of the entire year.

On Slide 8 is our normal sources of change in net assets from Q2 to Q3. We started with a book value of $2.70. We add $0.36 of gains from our public portfolio. We subtract $0.14 of losses for the private portfolio, $0.02 of normal operating expenses and you end up with a $2.90 book value.

Slide 9 is the same slide but looked at year-to-date. Same story, gains in the public portfolio offset by losses in the private portfolio.

And on Slide 10, this is the performance over the history of 180. We've generated nearly $40 million worth of gains or $1.30 per share from our public portfolio while incurring $0.27 per share or nearly $30 million from losses in our private portfolio over that same time period -- I'm sorry, $9 million worth of losses from our private portfolio over that same time period. Subtract 4 years of operating expenses, including an early 2017 restructuring charge, and you end up with a $2.90 book value.

As for Slide 11, this is a look at our public market performance. I'm proud to say in the face of all we've talked about with regards to headwinds and with regards to value investing, we did achieve a 25% return in the quarter. A good 30% of this gain came from a recovery in the price of Maven as the advertising business has begun to recover. But let's remember, this is a pink sheet stock that hasn't uplisted yet and is working hard at getting out its full numbers. So this stock is going to move around a lot quarter-to-quarter. Even this quarter, it's actually down a little bit. So we don't take any solace in what Maven certainly does quarter-to-quarter. We believe in the business over the next 3 years, and that's where the real money is going to be made.

Potbelly was up 69% in the quarter. Synacor, 38%, Quantum, 20%. Just a good all-around quarter as the market began to reward businesses and stocks returning from their earlier shutdown and stay-at-home orders.

As it relates to specific reasons why for each company, that's what Slide 12 depicts, I'd offer there was a very well-received CEO change at Maven, one of the reasons why the stock did so well last quarter. On Potbelly, the company hired Robert Wright, who was the former COO of Wendy's, to run the business. Between him and Steve Cirulis, who came from Panera and is the current CFO, we really think the company is in fantastic hands from a leadership perspective. And we think we're set up to make a lot of money over the course of the next couple of years, especially from where the equity price is today.

What is going to take time at Potbelly is to work through the fact that we are still in a pandemic. I know 2 vaccines were announced in the last 2 weeks, but we're also staring at spiking cases of the virus, and we're seeing stricter guidelines for activity. And that's just a fact. So we have the vaccine, but getting through the next 2 or 3 months is going to be challenging as winter unfolds here, and Potbelly is going to have to just get through this period, come out of it on the other side, and we think we'll have a home run investment.

Both Quantum and Lantronix reported solid quarters just from reporting their numbers, and the stocks appreciated as a result.

Just a couple of portfolio notes to consider on Slide 13. We did become a Board observer of Sonim in the quarter. The stock has clearly not performed as we had hoped following a great second quarter earnings report. It's incredibly inexpensive, but there was a lot of work to be done there, which is why we've become Board observers. We are restricted in the name as we do have Board involvement, so I'll be very careful about what I can answer. If anybody has any questions about Sonim, I have to be careful there. We're also, as you know, Chairman of the Board of Synacor.

Slide 14 is our year-to-date performance. Again, if you had told me in March that by the end of Q3, we'd be up to 7.5%, I would have taken it, and that's where we are. Winners year-to-date include Franchise Group, which we've sold; Adesto, which was taken over. We've mentioned Lantronix and Maven already. The biggest loser year-to-date was Quantum, which is super disappointing to us because we really believe in the business, and we certainly believe in the leadership team there.

We had started to sell the position. I think we had sold about 1/3 of it earlier in the year, in the $8, $8.50 range and the pandemic took hold and the stock literally went from $8 to $1 on air, and we just stopped selling it. And as a matter of fact, we've reversed ourselves, and we started buying it back. So we certainly believe in the business. It's just the stock started at a very high level this year, and the pandemic killed it because of its high debt levels.

Slide 15 is our scorecard for every stock we've owned since we started in 2017. Pretty good performance. I'm not going to go through each one, but one of the things to note here is our batting average has been 77%, of the names that were up versus the names that were down. I've always said that if you're right 2 out of 3 times in this business, you're going to be successful. Well, we've been right 77% of the time. So I'm really pleased by that.

More importantly, our slugging percentage is even better, meaning of the names that have won, we won big and of the names that have lost, we've lost small. So that makes for terrific performance over the period of time that we've been managing money in this format.

On Slide 16 is another way of looking at our slugging percentage. What you'll see here is the winners have large green bars to the left and high IRRs, and the losers have much smaller bars to the right and have much lower negative IRRs. So that, as I said, is a formula for good performance over time.

Slide 17 is our scorecard. If you asked me in December of 2016, would I have signed on to this page? The answer is yes. 25% this quarter versus 7%; year-to-date, 7.5% -- I'm sorry, 25.5% versus 3.7% for the Russell Microcap; year-to-date, 7.5% versus down 8%; 1 year, up 16% versus 4%; 3 year, up 100% versus flat. The numbers have been terrific, and we're proud of them.

We're making significant investments in concentrated positions, as you know, and many times, we're using activism and Board involvement as our -- part of the strategy for creating value. Our performance has been and will continue to be episodic. And it's uncorrelated, which is what we like. The market can go up. If our stocks aren't working, we're not. Conversely, the market can get rolled over. And if we have one of our companies that we're on the Board of get taken over, we're going to have good performance.

So let's remember that the next time we do underperform, that the goal here is to provide our shareholders with performance like you see in columns 4 and 5, which are 3 years and 4 years, rather than just staring at our numbers on a quarterly basis and determining if we're being effective or not.

On Slide 18, a pie chart that we show you each and every quarter, it's the remaking of the company since we got here. We were at an all-time high on our balance sheet for cash and liquid securities, a total of almost 61%. Hopefully, one day, that number will be 100%, but we've taken that number from 25% to 60% over the last 3 years, and we look forward to taking it from 60% to 100% sometime in the next few years.

I did prep everyone for this chart when I talked about Maven earlier, and we'll always be transparent. As amazing as last quarter was -- or this quarter, we haven't participated in the upside as much as we did last quarter. It looks like we may have borrowed some performance from last quarter in the early parts of this quarter.

Sonim has struggled. I talked about Maven. It's early. A lot can go on between now and then, and we'll obviously review that, but I want to give you a snapshot. We've -- sort of have flat performance or so for Q3, which is a little disappointing to say the least.

With that, Daniel, why don't I turn it over to you and then you'll turn it back over to me, and then we'll take some questions.

Sounds good. Thanks, Kevin. Please turn to Slide 20. This slide lists our 10 legacy, privately held holdings by value as of the end of the quarter.

For the quarter, as Kevin mentioned, our private portfolio decreased in value by approximately $4.3 million or $0.14 a share. The largest decreases were in [Essential Health Systems], ORIG3N and Lodo. These declines were due to specific events in the portfolio company. We are under confidentiality with these portfolio companies, so it's difficult to go into too many specifics there. But there were also no material increases in value in the private portfolio this quarter -- in this quarter.

In almost every shareholder letter and update call, we state that while we desire to shepherd our existing private portfolio to exits or to explore opportunities to sell our positions in those companies, we have the luxury of being able to sell our private holdings when we believe it makes sense for shareholders rather than being forced to do so to survive. The remaking of our business and the significant cash and securities of public portfolio companies that we have built means that we don't have to sell anything unless we feel that it is the right thing to do for shareholders.

Any decision to sell our private portfolio would be based on a variety of factors and not limited to just the sale price. Selling our private portfolio would allow us to focus all of our time and efforts on our public investment strategy. It would also reduce certain operating expenses that are incurred solely because of the private portfolio. As Kevin said earlier, since the start of 180, our private portfolio has reduced NAV by $0.27, while our public investing strategy has increased NAV by $1.30.

It is important to note that future results may be materially different than prior results. That said, we remain interested to provide -- to monetize this private portfolio.

Please turn to Slide 21. As we have noted in previous letters, we have dramatically reduced our cost structure under our new strategy. In 2016, before our funds change, investment focus and management team, our operating expenses, excluding stock-based compensation and interest on outstanding debt that we had at the time, averaged approximately $1.3 million per quarter. For Q3 2020, our operating expenses equaled approximately $790,000.

I remind shareholders that our Q1 2020 expenses included a reversal of the deferred portion of the 2019 bonus of approximately $317,000. This deferred portion of the 2019 bonus has yet to be reinstituted as of the end of Q3 2020, and it will ultimately be the decision of the Comp Committee of our Board of Directors at the end of the year on whether or not that is reinstituted and also any bonuses for 2020.

Please turn to Slide 22 and 23. We continue to anticipate that reductions in our operating expenses as a percentage of net assets will be based on growth in our net assets rather than further reductions in our expenses. The positive events in Q3 2020 discussed previously, if they hold throughout the quarter -- the year, will help reduce these expense ratios as of the next quarter and in future years.

We remain committed to treating every dollar of shareholder money with the utmost care and consideration. As we continue to say and will repeat all the time, it is much easier to grow NAV when the expense hurdle rate is where it is today. I'll turn it back over to Kevin.

Thanks, Daniel. The last couple of slides are just our sum of the parts, which we show for you every quarter. At the end of the day, the remaining portfolio of value not being ascribed to our public and cash and liquid securities, is about $0.15 a share if you give us full credit for our cash and liquid securities. That means the market is paying $4 million for $35 million in assets. That's the way it shakes out. Makes no sense to me. I've said that before. We will have wins in the private portfolio. We've had -- we've showed you where some of the wins are, companies like Petra and Mersana over the last couple of years, sales like HZO. We'll have them again.

But $4 million, by the way, is less than the net present value of the cash flows that we hopefully can expect to receive from our investment in Petra that was taken over last quarter and trades at nearly -- $4 million trades at about 30% of the value we have for 1 security, which happens to be AgBiome. And I know there's a lot of folks around the private equity markets and the VC markets that would love to own AgBiome.

So we feel okay about the private portfolio. We'll continue to run our strategy around creating performance from what we can control on a daily basis, which is our public portfolio. And I certainly think sum of the charts show that our equity is fairly inexpensive relative to the book value that we actually have, which is $2.90.

So why don't we stop there, Daniel, and then open it up for Q&A.

Sounds great. (Operator Instructions) [Whitney,] please go ahead.

I have a sort of a broad question -- well, actually, a specific question about D-Wave and AgBiome. We have, in the case of both of these end markets, just extremely full pricing in the case of computing and electronics and so forth; wild valuations as Kevin has remarked in that space. In the agricultural business, I mean, 4 years ago, I was a kid hauling grain between Central Kentucky and Illinois and Ohio. And we've almost got prices where we were then, which was the period of a bottle, partially from Bunker Hunt driving soybeans to almost $20 a bushel.

Regardless of all that history, I don't -- I can't recall a time when agricultural -- raw agricultural markets have enjoyed such high pricing. So my question is what is D-Wave waiting on to do some sort of structure or possibly even going public? And what is -- what do you think are the structural impediments for AgBiome to receive some sort of significant event, possibly going public, possibly being taken over by someone?

And I guess, lastly, as sort of a segue, Novozymes is apparently a partner at AgBiome. Novozymes has been around for a long time and has an incredible track record. What -- I mean, that would seem to me to be a logical exit strategy for AgBiome to sell to Novozymes. So I guess it's sort of a bushelful of questions that probably you guys can easily address, but in any event, please shed whatever light you can on those 2 subjects.

Daniel, let me try and take this one and then add on, if you don't mind.

Certainly.

We ask the same questions, Whitney. If I had controlling stakes in companies like these, there's a forcing mechanism, which we don't have in the private markets, which we do have in the public markets. So we ask the same questions.

Look, I got here in 2017. D-Wave started in 1999. Part of D-Wave's problems was it was answering questions from an AI perspective, and the questions hadn't even been asked before. So their technology seems to be way ahead of its time. But from a commercial perspective, they were -- they've had a very difficult time of getting their -- basically their technology into the hands of the people that were going to use it because I think they were way ahead of their time. And over the years, they've had to raise money and more money and more money and more money to fund the engineers to build the technology that they've built. And as such, you end up getting diluted over time because every third quarter, it seems like, you run out of the $50 million that you raised.

So D-Wave has been a source of bitter disappointment for all of us. And you've seen that valuation get shredded in the last 2 years because the company was run by an ineffective management team that could not make their technology commercial. So that's one. Now, I agree with you that there's still great technology there, and there's still a place for them. And again, Daniel, you can add on to this.

With regards to AgBiome, I think they like being private. They'll like being private until they find how difficult it is to raise money in the private markets forever. They've actually built a nice business. And the one thing -- and I agree with you, Whitney. Now should be the time. But the one thing about AgBiome that's different from D-Wave, we've gotten paid on AgBiome. If you go back and look at our book value in AgBiome, while it's not public cash for us to go get, our valuation has gone from the low, I don't know, $2 million or $3 million, $4 million to $13 million as a result that they've been able to raise capital in the private markets at valuation levels that were sort of as high or higher than the previous round.

And so that has been a successful investment over time. But if they overstay their welcome in the private markets and can't build scale in their businesses, they'll suffer the same fate as every other private business that hangs around too long and doesn't find the right window to monetize itself. Now, I think those guys are super smart. The Board is super smart. I didn't -- Daniel knows this. I did not feel that way about D-Wave's Board nor the former CEO of D-Wave nor the former CFO of D-Wave.

I feel differently about AgBiome. But we'll see, like the proof is in the pudding. And to me, it seems like there's a great appetite in the market for something that AgBiome and D-Wave do, but it's up to them to do it. So there's only so much we can do, Whitney, in terms of voicing our hope and desire, and that really is the truth. Again, we don't own controlling stakes in these companies and, therefore, can't force them to do anything, which is part of the frustration in the private portfolio.

Daniel, is there anything else you wanted to add? I don't know if I did a good job of summing that up.

No. I think you summed it up perfectly. The only thing I'd add is everything Kevin just said is exactly why we needed to make the change in the business that was made.

Yes. No, I totally get all that. I actually listened to one of the D-Wave guys speaking, I don't know, a couple of months ago, something like that. I can't remember what his position was, but the impression that I walked away from was gee whiz, this guy was totally wrapped up in math and he's not running a business.

There you go. You summed it up.

And -- so anyhow, I totally get it, and these are legacy assets, and we just got to do whatever we can do to keep plugging away at all of it. And lastly, I just want to thank you both for everything that you're doing to advance the cause. That's all I've got.

Thanks, Whitney.

Appreciate that, Whitney. Yes. Well, I should give you the CEO's phone number at both places so you can lob in your views there because we certainly -- we share them.

Well, absolutely.

I'd love to think that I could make a difference. But if you think I can make a difference, I'll call them. I'm not afraid to talk to anybody.

Thanks, bud, appreciate it.

Thanks, Whitney.

[Brian,] go ahead.

Are you able to hear me?

We can.

We can.

High level, there's -- the investment de jure of 2020 seems to be SPACs. Do you -- are you guys aware of any SPAC interest in any of the private companies? I mean not looking for anything specific. And then if so, do you know what the hang-up has been for any of those that have received possible interest from SPACs?

If they had interest in SPACs, they'd be SPACs. They're not. So you could assume either there's no interest or they're working on becoming SPACs. And if they were, I certainly couldn't say that in a public manner because that's certainly information that I would have that I couldn't share.

Many of our companies are small. Some of these SPACs that are coming out are hundreds of millions of dollars. So that is certainly a path and an avenue that has been created in the last couple of years. What is there, 130 of them out there? It's another alternative way to become public without having to go through the rigors of the normal IPO market. We do our best to shed that light for the companies that we own and let them know. I mean that's our area of expertise, is sharing Wall Street wisdom. Daniel does a good job of sharing that wisdom with the companies that we own, including a couple that we've already talked to.

At the end of the day, as I said earlier, we don't have controlling stakes, and we can't force. We can only recommend the paths for them. So it's certainly a path that exists that didn't exist that should be helpful, but until they become SPACs, they're still private companies.

And all these guys can talk, talk, talk all they want. It's a matter of executing and walking the walk. So we've shared that -- your views about how to become public with most of our companies, and we'll continue to do some, so I think it's a good thought.

Great. I appreciate your thoughts there. That's all for me. Thanks for another good quarter. Keep up the good work.

Thanks, Brian.

Appreciate you taking the time.

Please go ahead, Brandon.

Brandon Goyette from Delta Investment Group. I noticed you guys are carrying about $20,000 a quarter on -- for your broker-dealer expenses. What business is that supporting? And are you getting a decent return on that?

Daniel?

Yes. So we formed the broker-dealer as a way for us to be able to compensate individuals that are within the firm, particularly Rob Bigelow, who's helping with fund development and raising additional capital.

I think we've talked about earlier that -- and it's in the shareholder letters, it is an -- a -- an area that we're interested in doing. That's also why we registered as an RIA, to be able manage that external capital. And what I would say is it's a focus of our efforts, and we'll continue to drive forward on that. And our expectation currently is that it will be a good investment as we look to bring on additional capital to manage.

So we have -- we generated a $25 million win from a public company's pension fund. That would not have been possible had we not had the performance numbers that we've had and the relationships that we're making with outside sources of capital. If we can't raise money above and beyond that, we think it's already paid for itself. So that's number one.

Number two, if we can't raise money or we feel that we have enough equity and capital on our own balance sheet, and therefore don't have an interest in raising outside capital, we'll just shut the broker-dealer down. It's a "how do we pay people to generate revenue for us" mechanism. That's all it is, which is what we've said from day 1.

Zach, go ahead.

Nice job on your continued work here. Two questions, if I can. First off, on Sonim and the decision to become a Board observer. I guess I'm just curious on the general philosophy on why you choose to do that versus sort of just informal dialogue with management? And does becoming an observer handicap your ability to transact in the shares? Clearly, the stock got whacked pretty good here. And I'm just curious if by being an observer, you lose that flexibility to add to the position.

We do lose the flexibility, which is why we say we're value investors first, constructive activists second. We prefer not to be on any Boards if we don't have to be. It's a lot of work, as you know. You do put yourself in a position where you lose the flexibility to trade in and out of names the way you would if you haven't filed or you're not a Board observer or a member of the Board. But we go on Boards when we want to enact change, and we want to have a say in the final outcome of the business and where we think we can help.

And so in the case of Sonim, it's very specific, Synacor as well. We went on with an agenda. How do we create value for our shareholders in the shortest period of time and with the most maximum percentage of value creation for shareholders? We -- sometimes we're asked to go on Boards and sometimes we force our way on Boards. But every time that we've been on a Board, it's been collaborative and collegial and in agreement that we see eye to eye with what needs to get done, and we're willing to roll up our sleeves to get it done. So that's why we do it. We want a final say in the inevitable outcome of how a business is going to be run.

But that means -- that can mean a lot of things. That can mean changing out the whole Board. It could be changing out the entire management team. It could be selling the company. I mean I don't -- it could be a lot of things. But we want final say or more say in how -- we want a vote. That's the bottom line. And when you take our big -- the big stakes that we have, our vote -- our stakes carry with it a very large vote from a shareholder perspective, but it enables us to get the actual votes that matter, which are Board votes. So that's kind of why we do it.

We really don't want to do it every single time. I prefer buying Turtle Beach and watching it go from $4 to $16 in 42 days. Or I prefer watching Adesto go from $2 to $8, selling it, going back to $2, buying it and selling it at $8 again where we're not on the Board. And we have that flexibility. But when you don't believe in how businesses are running themselves from either a governance perspective or a management perspective, that's when you get involved more often.

Potbelly is -- we really admire the CEO and the COO, I mean, really admire them. It's a restaurant company in the middle of a pandemic, sorry to mention the word again, where cases are spiking. And the company is going to have a couple of issues with comps in the next 2 months. We know that. But you know what, that business is in the hands of managers that get it. Management is everything to us. And when we find managers that we like, we let them go do their own thing, and we don't need to be involved.

In the cases where we are involved, it's because we feel we need to be involved. It's because something is wrong at the top, and something needs to be changed from the top. So that's kind of -- I don't know, it's more philosophical than anything else.

We -- this is not our day jobs. I don't expect to be on the Sonim Board 3 years from now. I don't expect to be on the Synacor Board 3 years from now. When we joined TheStreet Board in November of '17, we didn't expect to be on TheStreet Board in 3 years from that moment, and we were only on for 1.5 years, but you know what, we were able to help the business sell itself.

So that's kind of why you do what you do. And if you limit your flexibility in terms of selling, I don't care. Because we're not doing this, as I said earlier, for instantaneous performance or for quarterly performance. We're doing this to have home run investments in the names that we choose to invest in. And if Sonim goes from $0.80 to $0.40, honestly, I don't care. If we buy it at $0.75, we hope to make money from $0.75. If we buy Synacor at $1.20, we hope that it goes to $2. It's things like that. It's not about what these stocks do on a quarterly basis.

So anyway, I'm sorry, it was a long-winded soapbox, but that is how we think about it from a philosophical perspective.

Yes, I understand. I mean it's -- there's art [verse effect] on that. Yes, I was just -- we saw -- I think it was last quarter, you talked about management being someone you knew. And I just -- I was kind of surprised to see you guys join as an observer rather than sort of keep -- preserve that value to buy, to make more money in this name. So (multiple speakers)

Let's be -- hang on -- just on that alone, they had an unbelievable second quarter. But you saw the third quarter they reported. It was really disappointing. So that was a little unsettling to us. And then you're right, I do have a high level of respect for the CEO. I was a reference for him when he was hired last fall. So that's why I feel like it's time for us to help him, roll up our sleeves and try and figure it out together rather than just sort of abandon him. It's -- we own 14% of that company.

So -- and by the way, that was a Board that needed to be fixed. That wasn't -- it's not necessarily a CEO that needed to be changed out. That Board and the folks that left needed to leave. You saw the stock has gone from $13 to $1 for a reason before we got here. And so we believed in our heart of hearts that going on to the Board or becoming Board observers would help the forcing mechanism of changing out Board members that have overseen a collapse in the equity price. Not since we've owned it; we haven't owned it until last quarter. So -- and they've already started to make changes. So we're happy about that.

Sorry, go ahead.

No, no, no. Good color. I think that's what makes what you guys are doing quite interesting in your willingness to invest the time.

My second question was you made a comment in the letter this quarter. And you've mentioned the discount on multiple occasions. But I'm curious, when you guys look at the universe of smaller closed-end funds and other kind of holding company structures, what level of discount do you think is appropriate? And the reason I ask is I just wonder where -- at what point does your interest get so peaked that you'd be buying your own stock instead of taking cash and investing it directly in the portfolio companies?

So the first thing is we -- if we thought the environment for investing had -- was going to have a return profile less than us buying back our stock. We've done this exercise. I can show you the exercise. If you e-mail me after this, I can literally show you the spreadsheet that we have, which shows if we bought back x amount of dollars, how much of that would accrete to our book value. And you'd be very surprised that it's not -- unless you're going to do tens and tens and tens of millions of dollars, it's not as accretive as you think it is. But I could show you that.

Conversely, we go back into the market every single quarter and buy stock with our own money out of our own pockets. You've seen that. So we put our money where our mouth is. Buying back stock, the -- what we would have to do is lay that out against the opportunity to make, hopefully, 100% of your money in companies like Potbelly and Quantum and Maven from here. And that return profile is just -- it's not very attractive, buying back our stock. It's just not.

So I don't know what to say, other than maybe I'll be the only shareholder in 5 years because I'll -- the management team will have bought back every share from every investor that doesn't want to own it, and that's fine by me. We'll take it private ourselves. I don't know.

I don't think our equity price should trade at cash and have a $4 million value ascribed to our private portfolio when we do real marks and the marks say, the -- we've got $35 million worth of assets there. Maybe the exercise is sell the whole private portfolio. If we could do that, we would. We've said that 1,000 times.

We should debate, and I said in our letter, as any good management team should, we should debate share repurchase. We should debate dividends. We should debate M&A. We should debate all of it, and we will and we have. And we will continue to do so.

I'm not here for any other reason than trying to win for you and all of us as shareholders, and that's the truth. And I certainly don't think our share price reflects any of the turnaround that this company has seen over the last 3 years. I think it's actually ridiculous.

And so in 1.5 days, when the market opens up for our management team again, we'll go pile back into the market and buy stock at $1.90 because it's down $0.07, even though our book value is $2.90. So I'll show you the chart, if you want. Just e-mail me afterwards. Honestly, buying back stock makes no sense.

Yes. And Zach, the other thing that I would add to Kevin's comment is it's also not as simple of an analysis in that once stock is bought back, it's gone, right? The money is gone. And so it's not just do we think that is a better investment today, but we can recycle -- I mean, I'm not telling you anything that isn't self-evident. But it's an important factor in the analysis, which is to recycle our capital. We have a substantial amount of loss carryforwards that allow us to shelter that capital, those gains from tax for the foreseeable future.

And so it really comes down to if we -- it's not only just today, but it's also going forward in the future as we look to recycle that capital. Is that a better investment than our stock where once it's repurchased, literally that cash is gone. And that given the restrictions on issuance of shares versus closed-end funds, it makes it difficult to get back.

To me, it's about applauding -- it's like anything else. You should pay a higher -- you should pay less discount for managers that do a good job for shareholders, and the company should have a wider discount for managers that do a terrible job from a performance perspective. I don't think our performance in our new strategy over the last years has been -- warrants having a valuation that's less than almost any other closed-end fund that we look at. I just don't.

I get the private portfolio is there. Investors have a difficult time putting a value on it. I totally get it. I do. I'm not -- I've said that 1,000 times also. But I don't know. We show 100% returns over 3 years. It's pretty good. That should -- and we think the market should pay us close to 90% or 95% worst case, if the whole business was cash and liquid securities, just on our ability to generate returns for people. But that's not only for me to determine. That's for the market to determine and the market has determined I'm worth -- we're worth $1.92 today. whatever. It is what it is. We'll -- as a Board, we've got to solve for that over time.

Yes. And I totally understand [you] on that. My last question is just on -- you guys are a very small team. Do you -- have you communicated anything about contingency planning? In this lovely pandemic world that we're in, what happens, God forbid, that there's illness? Do you guys have plans to -- is there a broader team that can -- an advisory Board or anything that you fall back on? Or do you have folks that are identified or a contingency plan if something were to happen?

Yes. We (multiple speakers)

Something happens to me, nobody would care. Joking. No, as a Board, it's -- we -- of course, Boards always have to look at succession and planning for worst-case scenarios. You'll see on our Board, our last 2 Board members have discrete Wall Street experience. This has been discussed at a Board level. Look, if something happens to me, the Board is going to have to solve for that, and they'll have a plan for solving for that.

Daniel, I don't know what else to answer. We don't have someone in waiting for me or for Daniel, who either has a job and is ready to quit his or her job and come here or standing on the sidelines, waiting for one of us to leave. I mean that doesn't work, right, in any organization.

So the only thing that we can do is I want this business to be around a lot longer than we're going to be here. Our Board knows that, and our Board has a mechanism for how to figure that out. Daniel, I don't know what else you wanted to add.

Yes. The only thing I'll just add to that is we do have a robust business continuity plan. We've been all working remotely. No issues there. It really is just -- like any other company that's out there, we do have the plans in place that if anything were to happen, especially since we are a small team, we do have the policies, procedures and everything else ready to kick in right away, and the company wouldn't miss a beat.

So it's -- we -- if the company needs to -- as we learned from founder of the firm back in the day, Charlie Harris, he always established it, the company is the entity, and we are employees of the entity, and the company continues on and the same philosophy, as you heard from Kevin, is here.

Yes. Look, the cash is going to be here for the next person, if it's not me or if it's not Daniel. And the Board is going to have to bring in a competent portfolio manager who knows how to run money. And there's a lot of those. I left BlackRock once, and I knew that when I left, they'd replace me with somebody else because life goes on. And we're all replaceable. So -- and I don't think it's any different here.

By the way, I'm not going -- unless I missed out on something. Just for the record, I'm not going anywhere unless somebody removes me.

Likewise here. Same here. The queue is empty. I think we're -- we've answered all the questions.

Okay. Everyone, thank you so much for your time today. It's been a trying year for everybody, a weird year for sure. And I'm looking forward to having this year end and getting to a place where we all start moving out of our homes and back to work and to some level of normalcy. I pray that is 2021. I'm hopeful that it is. I think the vaccines that were announced are -- the effectiveness is terrific. And getting that out for manufacturer is going to be the logistics. And the logistics around that is going to be the main issue between now and the next few months, and hopefully we'll get there. And I'm just looking forward to this year ending.

In the meantime, we've got a good, solid month and change to try and generate returns for you, and we'll try and do that. You all know that -- where we are. You can text, you can email, you can call us. We'd be happy to talk to you about anything that you want to talk about at any given point in time.

Thank you for your time, and good luck investing. Thanks.

Thank you, and you can now disconnect.