Premier Diversified Holdings has an investment in Medtech. We reviewed their tele-medicine product GOeVisit (Medtech) last year. Tele-medicine is a growing market. Investing in successful startup in the space could be a much needed home run for Premier Diversified Holdings. But how is Medtech executing? Spoiler alert, it does not look good.
Last year their competitor Akira had much better app store download and review metrics. Lets reflect on last years Apple App Store metrics and compare it to this year. Metrics for both are in the table below. Below the table are recent screenshots from the IOS App store for both apps.
App Store Reviews 11/2018
App Store Reviews11/2019
Avg Rating 11/2018
Avg Rating 11/2019
The numbers don’t look good
We can’t compare percentages here because the absolute numbers are so different. However on any dimension Akira seems to be chugging along with solid growth and high app satisfaction. Akira’s review count has grown over 5x. While GOevisit is still in the low single digits.
It is hard to infer what the actual review to download ratio is. More on that subject here. The ratio can vary based on many factors including the app’s vertical market. In addition if a marketing team engages with customers well they can influence the ration of reviews to downloads. I speculate that a healthcare app in a new market like tele-medicine thrives on word of mouth and evangelism of existing customers. Based on GOeVisit’s review, the few customers they have are not going to tell their friends to try the app.
Notable changes in Berkshire Hathaway’s Portfolio vs last year
Berkshire sold out of Oracle (ORCL). Warren explains why in this CNCB interview. Warren says he does not understand the cloud. An astonishing statement when you consider Berkshire is buying Amazon (AMZN) to the tune of almost $1B. My guess is Bill Gates called him up after seeing the 13-F. “Hey Warren, Oracle while showing signs of life is hardly even 5th place in cloud infrastructure. Plus AMZN is trying to kill their database business. You are always welcome to be a shareholder at Microsoft!” Warren has explained multiple times that not buying MSFT in the early days of his friendship with gates was stupidity. Today with Gates on the board of Berkshire he does not want to draw any accusations of insider trading or conflict of interests.
Befriend Bill Gates in 1991
Starts buying IBM stock in 2011
Starts buying Apple in 2016
Sells first IBM shares in 2017
Closes out IBM in 2018
Buys Oracle stock in 2018
Sells Oracle stock in early 2019
Starts buying Amazon
See our post on last years portfolio. See all positions at or above $1B in the pie chart and table below. I include Amazon even though it is under $1B. It is very close to $1b and a very noteworthy addition.
Premier Diversified Holdings Invests in Telemedicine
In this post I talk about telemedicine and an investment Premier Diversified Holdings has made in MyCare Medtech/GOeVisit. A company and product in the telemedicine space. In this post I will cover:
The structure of Premier’s investment.
What is telemedicine?
The potential size of the telemedicine market?
GOeVisit and how is it different than traditional telemedicine?
Outstanding questions and concerns I have.
The Structure of Premier’s Investment
Premier Diversified Holdings owns 33.05% of MyCare Medtech Inc per the MD&A published 8/29/2018 (available on CEDAR). Premier has made two investments in MyCare to date. The first was 200,000 units at $70K CAD and the second was 371,428 units for $130K CAD. That gives us a per unit cost basis $0.35 CAD. Each unit is comprised of a common stock share and 0.5 purchase warrant per common share. A whole warrant allows them to purchase shares at $0.50 CAD per share before December 31st 2018. As a result Premier has until the end of this year to decide if they will purchase an additional 285,714 shares of common stock at $0.50 CAD for a total cost basis of 142,857. If Premier decided to exercise the warrants they would be paying 70% premium to the price of their original investments.
Since Premier’s investment MyCare reached a funding agreement with an unknown entity for up to $3,000,000 of which $800,000 has been funded per the latest MD&A. MyCare did not sell common stock in this case. Instead they issued units consisting of senior unsecured convertible debentures and warrants. Unfortunately we do not have detailed information about the securities. So I can’t comment on the conversion feature of the debentures.
What is Telemedicine?
In a nutshell Telemedicine enables virtual visits with medical professionals. How many times have you slogged through traffic, sat in a waiting room just to spend 5 minutes talking to your Doctor? Imagine being able to do that virtually via an smart phone app or video conference.
Here are a few of the benefits telemedicine provides:
Access to care for patients in remote locations or patients with mobility issues.
24 hour access to care.
Saving patient’s time by reducing the travel and waiting overhead associated with visits.
Leveraging artificial intelligence to increase care efficiency.
Reduced care delivery costs.
How Big Is The Telemedicine Market?
It should be no surprise that telemedicine is growing fast. One report I came across estimates the market is almost $30 Billion. Further it estimates a CAGR (compounded annual growth rate) of 19% from 2017-2022.
GOeVisit Smart Exam
GOeVisit Smart Exam is a telemedicine product from MyCare Medtech. According to their Frequently Asked Questions, the Smart Exam platform can be used for diagnosis, treatment and prescriptions:
GOeVisit SmartExam can diagnose, treat and prescribe for more than 300 minor illnesses ranging from coughs, colds and flu, to general medical concerns, minor injuries and pediatric care, all through a mobile app
Further they explain that they use artificial intelligence to as part of the patient interview process to get more thorough information than traditional physical visits or video based telemedicine visits due to the adaptive nature of the platform:
The intelligent software dynamically interviews patients, using the patient’s answers to gather more, relevant information and support providers in the care delivery process. SmartExam’s artificial intelligence capabilities result in more thorough patient interviews than in-person, or video-based remote care solutions.
From what I remember this is a shift from GOevisit’s original strategy. I first looked at their website after reading about Premier’s investment. If my memory serves correctly there was mention of video based telemedicine. I found an old copy of the company’s website on the wayback machine. But unfortunately they only have the front page. I was unable to find an archive of the page that describes the process for a virtual visit. Clearly though they have pictures of video sessions all over the place.
A shift in strategy in of itself is not a red flag for a startup. In my experience it is pretty common. After executing on the idea you get more information which can influence strategy. A few benefits to this new strategy are:
Forcing patients to go through the adaptive interview app will likely result in more consistent data that can used to drive the back end AI.
Easier to scale the number of patients you can support when you don’t need a human directly interacting with every patient in real time.
Overall you will be able to quantify the patient experience better. Doing that type of analytics on a video stream is a hard problem on many fronts. By simplifying it to interview questions and data entry you can get meaningful info out of the data such as the responses and response times.
Video conferencing can be intimidating. I have noticed that some people are reluctant to use video conferencing apps such as Apple’s Face Time. On the flip side video for some can feel like a more personal experience and similar to an old school visit.
To drive this strategy shift GoEvisit is leveraging a platform built by Bright.md. Smart Exam is Bright.md’s AI backend. If you have first hand experience with Smart Exam please contact me with details of the experience. I imagine that a typical experience looks likes this:
Patient answer questions in Smart Exam about symptoms or issues.
Smart Exam adapts questions based on patient response to zone in on a diagnosis.
Smart Exam sends data along with diagnosis to medical professional.
Medical professional reviews data and diagnosis to confirm.
Once medical professional approves the results are sent to the patient.
Bright.md’s website says that the platform can diagnose 400 different ailments and it can rolled out in 10 weeks. Other health care networks are rolling it out per Bright.md’s press releases.
Looking at the Apple App Store and Google Play Store reviews the results are not encouraging.
The ratings look ok at 3.5 stars. However as of this writing all the comments on the Apple App Store are negative. The negative comments could be planted by competitors or someone who has a bone pick to with the company. But the truth is only 13 people have rated it and there is not one positive comment. Although it must have mostly positive ratings to get a 3.5 stars rating. Needless to say with only 13 ratings it does not appear to have gotten many downloads.
At first glance the Google Play store looks a little bit better. Again 3.5 star rating. Only 14 reviews. But there is a mix of negative and positive comments! Unfortunately at least one of those positive comments is from Clay Swerdelian who was VP of Corporate Development for GOeVisit at the time he wrote the comment.
If we look at a GOeVisit competitor Akira it seems they are doing much better. 4.8 average rating on the Apple App Store and over 394 ratings. A big difference.
GOeVisit’s shift to leveraging Bright.md’s platform sounds encouraging. However if the app ratings or lack there of are any indication it looks like execution is lacking.
Will Premier exercise their warrants at the end of this year? Sanjeev has indicated on the Corner of Berkshire and Fairfax message board that Premier has working capital and no funding commitments to existing investments. Does that mean he plans to let the warrants expire?
Does GOevisit have the right team to execute? On LinkedIn I can’t find any employees with significant tech experience. It is a red flag to me that I can find any full time tech people on LinkedIn. The platform and app need to work well and provide a great user experience. That can be very hard to achieve when outsourcing everything.
I don’t know much about health care in Canada. As a result I have some questions about the GOeVisit model which I can probably answer after some research. For example in the US it seems that care providers are building their own experience with Bright.MD. However in the Canadian market there seems to be stand alone entities. Almost like virtual versions of the emergent care clinics you see in the us. Why is that the case? I need to do some more digging to find out.
Low cost passive index funds allow investors to get exposure to a diversified basket of assets at a very low cost. Typically the funds track stock or bond indexes such as the S&P 500 Index or the Barclays US Aggregate Bond Index. Two well known funds are the Vanguard Total Stock Market Index and the Vanguard Total Bond Market Index. These Vanguard funds are the cornerstones of many “lazy” low cost portfolios. Money saved in fees means more money to reinvest and hence increase compounding of returns. Low index fund fees are a friend to passive investors and competition between fund management companies is driving fees even lower.
The table below shows an example of some low cost index fund ETFs along with their expense ratio and tracking index:
As you can see the fund’s expense ratios are between 3-5 basis points. For an investment of $10,000 a basis point represents a fee of $1 per year. Or $3-$5 per year total for these funds. That is cheap.
Are All Index Funds Cheap?
Are all index funds cheap? The answer is no. There is at least one we have come across that is outrageously expensive. The product has plenty of cheap competitors and offers no differentiation yet it still carries high fees. That fund is the Rydex S&P 500 index fund from Guggenheim Investments. The fund comes in three share classes of mutual funds:
Mutual Fund Ticker Symbol
In this case the expense ratios are over 1.5% or 150 basis points. To compare apples to apples lets look at some equivalent S&P 500 index funds from competitors.
Mutual Fund Ticker Symbol
The Rydex fund’s expense ratio is 12x higher vs the Vanguard equivalent product and 50x high vs the Charles Schwab equivalent. In fact the Rydex S&P 500 index fund expense ratio is comparable to some actively managed mutual funds. In addition you may be subject to additional fees called “loads” which can be taken at time of purchase or time of sale.
The True Cost of High Fees
1.58% may not seem like a big deal in the grand scheme of things. But the true cost comes over a long time horizon. Assume you invested $100,000 over 20 years and earned 7% per year over that time period. The chart below illustrates in that situation what your investment would be worth and how much you will have paid in fees. The results are staggering!
Investing in the lower cost funds makes you roughly $100,000 richer. You save roughly $50,000 in fees. In addition the money you saved stays invested into the fund. The power of the extra money compounding over the life of the investment is powerful.
Despite how similar the products may appear on the surface not all index funds are created equal. Even if they track the same index. It is critical as an investor that you perform due diligence and know what you are buying.
Berkshire Hathaway filed it’s 13-F a little while ago. When Todd Combs and Ted Weschler joined Berkshire I was excited if for no othe reason than the 13-Fs would get more interesting. But I think it is fair to say that Warren has been the big surprise in recent history with his Apple spending spree. The ballpark value of Berkshire’s APPL position is 10% of its market cap. Below is pie chart of BRK’s public equity positions with a value of 1 billion or greater.
What is going on with Premier Diversified and Zed Therapeutics?
Back in September it was announced that PDH ( Premier Diversified Holdings ) picked up some shares in Zed Therapeutics. Specifically 5,144,000 shares for a consideration of $25,720.00. This values the shares around $0.005 CAD. The stake is almost 37% of Zed’s common stock. As a result we get a back of the envelope estimate of $70K total marketcap for Zed Therapeutics. Zed Therapeutics also added Premier’s CEO Sanjeev Parsad to the board of directors.
What is Zed Therapeutics?
At the time of this writing the Zed Therapeutics website appears to be down. A cached google result shows an under construction site:
Zed is based in Alberta, Canada. The companies self reported focus is “Medicinal Hemp” (vs “Medicinal Marijuana”). This appears to mean that their products will be focused on CBD with low or almost no THC. CBD aka Cannabidiol is found in marijuana and often associated with its healing and pain relieving characteristics. CBD reportedly does not cause a high. The high normally comes from the THC in Marijuana. Hence if you produce a product with CBD but no or little THC then you have something of interest to people who want the relief benefits of Marijuana but don’t want to get “stoned”. According to the press release Medicinal Hemp products have around 0.3% THC or less.
There is not a lot of information about Zed Therapeutics online.
The shares were issued to us and 3 other insiders of MyCare who supported the company in the early days. We (PDH) personally are not going into the medicinal hemp business…MyCare is. The $0.005 per share is the minimum that has to be charged for the issued shares. That is not the price of what any other shares will be issued at for ZED Therapeutics. Cheers!
MyCare (aka GoEvisit ) is a PDH investment. It sounds like MyCare and it’s investors helped Zed earlier and this is equity in exchange for that help. What is not clear what kind of help they provided. Given the stake is close to 37% of the company I would assume the help was via cash. I also expect that this position will probably see pretty heavy dilution in the not so distant future. Parsad alluded to more stock being sold in his message board post albeit at higher prices. Higher prices would obviously increase the mark to market value of PDH’s position but also dilute at the same time.
What does this mean for Premier?
It is hard to say what to make of this investment. Without knowing any deeper details the Zed Therapeutics investment seems to be a speculative position that company acquired in exchange for helping out a startup. This is a very hot space for speculators and traders but it is not clear that anyone in the business has any durable long term competitive advantages.
Learning is a critical part of becoming a successful investor. While reading is probably the primary way most of us increase our circle of competence, I find high quality investing podcasts to be a great supplement to my reading. In this blog post I will discuss what I look for in podcasts and suggest a few investing podcasts.
Elements of a Great Investing Podcast
The signal to noise ratio for finance and investing podcasts is not good. There are a ton of finance and investing podcasts vying for your attention. I subscribe to very few of the investing podcasts I sample because I don’t find them engaging. The best time for me to listen to podcasts is when I am alone in the car or walking my dog. I like listening in these situations because I can’t do other things like read so I feel I am maximizing my time. If I like a podcast I will stay engaged and listening intently. However if I find my mind wandering off and not paying attention to the podcast it is usually because the podcast is missing some key elements. Your tastes may vary but I have observed that the above all the following elements are most important to me.
The bar for podcast production is high. If your audio quality is poor, the volume not balanced between all participants I am not going to stay focused on what you are saying. Multi person episodes that include choppy and static filled Skype sessions are very hard to follow. There have been a few podcast episodes with poor quality that I endured but only because the content or interviewee was extremely compelling.
I am huge fan of the long form interview format. Most of the podcasts I listen to follow this format. I am a fan of biographies and find I learn best from other people’s real world experiences and lessons. The success of this format is dependent on the next point…
To do a high quality interview you need to have a large amount of context about the subject. Preparation is so critical. One common thread I have seen across the podcasts I like is that the hosts do their research and due diligence before the interview.
I love podcasts that teach me something or really challenge me to think differently. Walking away from a podcast episode thinking “I never considered that or Maybe I was looking at this the wrong way” is an incredibly rewarding payback for the time invested in listening.
A big part of this is high quality guests with unique ideas. Some of the characteristics of podcast guests I like are:
Skilled at explaining complex ideas to lay people.
Unconventional or contrarian viewpoints that are backed up with research.
Good story tellers.
My Favorite Investing Podcasts
Invest Like the Best
Patrick O’Shaughnessy is CEO of O’Shaughnessy Asset Management. OSAM is a well known quant/factor shop started by Patrick’s father James O’Shaughnessy. James O’Shaughnessy is a pioneer in quantitative investing and author of many books including What works on Wall Street.
Patrick O’Shaughnessy’s podcast Invest Like the Best is a long form interview and discussion format podcast. Patrick finds some of the most interesting people inside and outside of finance to discuss investing and life. The guests are wide ranging and sometimes the episodes may appear to drift away from investing and finance. But that is actually one of the great things about this podcast and its mission. Life, investing and the world around us are so intertwined. Patrick really goes out of his way to try explore how becoming better at life makes us better investors and how becoming better investors makes us better humans.
Meb Faber is co-founder, CEO and CIO of Cambria Investments and Cambria Funds. Among other things Cambria offers ETFs based on their quant strategies. Meb’s format is also long form interview with some question and answer and one off episodes on a topic. I really like the laid back vibe Meb has, it makes you feel like you are in the room with him and his guests.
Superinvestors and the Art of Worldly Wisdom comes from Jesse Felder of the of The Felder Report. This is another long from interview format podcast. I just started listening to it and I have been impressed with all the episodes so far. As someone who has been a value investor for over 10 years it is refreshing to hear interviews with people I have never heard of before. So far I have listened to 5 episodes and the production quality is decent but not as good as other podcasts I listen to regularly. But it has not detracted as much because the quality and uniqueness of the guests so far has been great.
Business Wars by Wonderly is a departure from my preferred podcast format. It is a podcast that tells the stories of the greatest business battles of our lifetime. Nike vs Adidas, Coke vs Pepsi and Paypal vs Ebay are a few of the stories I have listened to so far and I have enjoyed them all. Each battle is a multi episode series. Unlike previous podcasts I suggested Business Wars keeps each episode fairly short which it makes it nice for short trips and walks.
Sequant Re sounded like a very compelling opportunity for Premier (PDH) shareholders. The company focused on the ILS (Insurance Linked Securities) market. By securitizing the financial burden of insurance ILS allows re-insurance to be easily distributed among many investors. Typically before ILS re-insurance was handled by a few specialty insurers. ILS also offer investors a product with low correlation to other assets such as bonds and equity.
Sequant aimed to underwrite re-insurance through ILS and provide easy access to ILS portfolios for investors. Guy Cloutier an insurance industry veteran started Sequant Re. He was formerly of American Safety Re. There is an interesting connection here because American Safety Re’s parent company American Safety was purchased by Fairfax Financial and Premier’s CEO Sanjeev Parsad has a long standing relationship with the folks at Fairfax. Fairfax eventually sold of the reinsurance business of the American Safety.
Sequant Re Liquidation
After three years the board of Sequant Re has decided to throw in the towel. Premier Diversified Holdings (PDH) owns almost 50% of Sequant’s equity and will be writing it down from 2.5M to zero.
According to Sanjeev’s message on the COBF board, Sequant failed to recruit any large institutional partners. That ultimately lead to stopping the bleeding and calling it quits. Given Guy Cloutier’s history in the re-insurance biz and the connection Sanjeev has at Fairfax it seems like finding a partner for a good idea would not be so hard. Or maybe the idea was not compelling enough? It will be an interesting story to hear if we ever do.
In this Artemis article Guy was quoted as saying that their partner backed out due to US tax implications.
“We spent a considerable amount of time and resources in discussions with a potential significant strategic partner. At the end of the day, they did not proceed due to their perceived US tax implications.”
This is a big blow to Premier. The loss is a massive amount of money for a business of their size. On the plus side they have stopped the bleeding and will not need to fund Sequant any longer. Insurance Linked Securities are continuing to experience growth. It is an interesting area of insurance and finance that I will continue to keep an eye on.
Vanguard announced a change to their REIT Index fund’s investment objective. The fund has historically tracked the MSCI US REIT Index. Starting mid 2018 the fund will track the MSCI US IMI Real Estate 25/50 Index. Is it possible these upcoming changes present an opportunity?
What are the major differences?
There are some big differences between the two indexes. Lets take a look at the top 10 weighted companies of each index:
US REIT (OLD INDEX)
US IMI REAL ESTATE 25/50 (NEW INDEX)
SIMON PROPERTY GROUP
AMERICAN TOWER CORP
SIMON PROPERTY GROUP
CROWN CASTLE INTL CORP
DIGITAL REALTY TRUST
Let’s take a look at the big changes in top 10 positions. As a result of these changes Vanguard will be making American Tower ($AMT) and Crown Castle ($CCI) top 10 positions in their fund. American Tower and Crown Castle are highly correlated. Combined they will account for 10% of the fund. A typical passive index investor would probably prefer to avoid this level of concentration. For our purposes one thing matters. Vanguard will be buying a bunch of stock in $AMT and $CCI.
Back in 2008 I started an investing blog called compoundinglife.com. I knew almost nothing about investing and the financial world was crumbling all around us.
When I started buying stocks in the summer of 2008 I considered it a short term opportunistic trade. There was panic everywhere and it seemed like the perfect time to get in and then get out a few years later. Little did I know at the time that I would fall in love with investing. Learning about markets, businesses, valuation and a pile of other things got me very excited.
10 years later I am still investing, still learning and still loving it. With that I will kick off the new blog and see it where it takes me.