Friday, October 31, 2008

Message to Jay Taylor: Enrol for 'Financials 101'

Yes girls, you KNOW he's cute

I found out yesterday that newsletter writer and sheep-herder Jay Taylor told his flock to sell Fortuna Silver (FVI.v) on October 16th. Well that's fair enough, I have no problem with that, we all make our own value decisions. But when I saw why he'd called sell on the stock I just burst out laughing. Here's the full alert sent to me yesterday by a kind reader:


Taylor says sell Fortuna Silver

Fortuna Silver Mines Inc (C:FVI)
Shares Issued 85,331,659
Last Close 10/29/2008 $0.48
Thursday October 30 2008 - In the News

Jay Taylor in the Oct. 16, 2008, edition of Gold, Energy & Tech Stocks tells readers to sell their Fortuna Silver Mines Inc., recently 61 cents. Mr. Taylor said buy three times between August, 2005, and August, 2006, at prices ranging from 61 cents to $1.35. He said sell half on April 16, 2007, at $3.25. Assuming a $1,000 investment for each of the three buys, selling half of the $3,000 investment at $3.25 would have yielded a profit of $3,620. Mr. Taylor upgraded Fortuna to a buy on June 12, 2008, at $1.96. Assuming a $1,000 investment at $1.96, and taking into accounting the remaining $1,500 investment after the April, 2007, sale, selling the total $2,500 investment at 61 cents would yield a loss of $1,229. Mr. Taylor says he is selling this stock because of a rapidly deteriorating global economic environment, and not because of a loss of interest in the company. The newsletter writer has decided to sell those companies in his portfolio which do not have a considerable amount of cash on their balance sheets. By doing so, he hopes to turn these negative markets to his favour or at least avoid further losses. He plans to keep an eye on Fortuna for a possible repurchase when there are signs that the current global decline has abated.

© 2008 Canjex Publishing Ltd.


So, Mr. Taylor is selling FVI.v because it doesn't have a considerable amount of cash on its balance sheet. IS HE TOTALLY MAD? Right now FVI.v has around C$50m in cash, which is more than the company is worth according to market cap (about C$41m). I'm not talking about working capital either (that's much higher), I'm talking about cold, hard cash that FVI.v has tucked away in deposit accounts collecting a useful slice of interest. Not only that, but FVI.v is the owner of a mine that actually makes money...y'know..positive free cash flow. It's not some explorer with no income stream that will continue to fracture cash while it waits for the market to turn again.

If, as is truly the case, FVI.v has more cash than market cap this can only mean one of two things about Jay Taylor:

1) He doesn't have a clue about Fortuna Silver
2) He doesn't have a clue about how to read a balance sheet or financial reports.

And as Taylor did an extensive interview with FVI.v this year (you can see the video at the company website), it seems clear that the guy must know about the company. So therefore the only possible conclusion is that he's a zero when it comes to reading financial reports.

A little knowledge is a dangerous thing, and those that pay Taylor healthy monthly subscriptions for newsletters that contain badly researched and patently false information should muse on that old saw. Call sell on FVI.v if you want, Taylor, but don't write factually incorrect and misleading statements to back up your erroneous analysis. Jeesh, what a dumbass.........