Snapshot
My Implied Share Price: $33.05
Situation
I made 2 significant changes recently.
BWEN
Broadwind, Inc. (BWEN) made the decision to change businesses and changed from the wind business, which I bought it for, to the artificial technology business. It is a dramatic change however it was not the reason I owned the business. There are great opportunities in AI, but also great risks and competition.
After the BWEN announcement was made the stock’s share price doubled. With that, considering the risks and the fact that the new business was not what I bought it for, I took the opportunity and sold after the price doubled, and took my gains.
GTEC
On the other hand, the gains from BWEN were small compared to the huge loss I took by selling Greenland Technologies Holding Company (GTEC). The lost I took with GTEC ultimately amounted to about a $1.00 per share loss in My Implied Share Price, which is probably the biggest loss I’ve taken from any position in recent times.
My initial concerns with GTEC started after it announced another shelf offering to raise capital. But, I was even more concerned after the quarterly report came out and it did not mention the shelf offering.
Response
I decided to exit the GTEC investment because the overall risk profile and governance concerns began to outweigh the potential upside. Although the company reported cash generation and appeared statistically cheap, management’s actions raised major red flags for me.
The company had already significantly diluted shareholders and then raised additional capital only a few months ago, yet shortly afterward filed a $200 million shelf offering despite having only about a $13 million market capitalization. Also, the company announced this after the share price had dropped below $1, which put more pressure on the share price and delisting chances. The lack of a clear explanation for why such a huge financing authorization was needed seriously made me doubt management because they were not being transparent about capital allocation discipline or future goals.
I also became increasingly concerned about the company’s controlled structure (it is a “controlled company”), repeated delisting warnings, sub-$1 share price, and the possibility of future dilution cycles or reverse splits. While there was no formal going-concern warning, the financing behavior appeared inconsistent with the company’s claimed financial strength, because the current financials seemed strong.
In addition, the company’s significant China exposure gave me more uncertainty about whether the reported assets were real and the accountability to U.S. shareholders, like me.
Ultimately, I concluded that even if the stock could rebound speculatively, the long-term risk/reward profile no longer matched the type of investment I wanted to own in my holding company. Even though the loss was huge, I decided it was better to accept it, while it was still manageable, and redeploy capital into opportunities with stronger governance, clearer communication, and better shareholder alignment. This was another lesson learned.
Reflections
I feel comfortable and believe I made the right decisions for both of these situations.
For BWEN, in the past I may have held on to it because the stock price was moving up dramatically, doubling in a short time. But, I’ve learned to think independently and sell. On the other hand, with GTEC, in the past I may have held on to it instead of taking the loss, with the belief that the price may come back. I might have thought I could sell after I broke even. Or, I may have continued to be trapped, believing that the numbers look good, as it’s supposedly a profitable company. However, I’ve learned to make the best decision based on what’s presented in front of me. And, even if a company looks profitable on paper, value is also based on the ability to receive the value and the chances of getting that value.
Here, there is no certainty that anyone would ever pay for that value, as the company is so dependent on China, is not well desired, and does not pay a dividend. Plus, management’s inability to communicate with shareholders make it unfeasible to take up such a large share of my holdings, or any share at all in the face of the risks.