Something that has been impressed upon me over the years as I learn more about business and investing has been the invaluable role that bullshit-detection plays in money dealings. The jungle is everywhere and while man may have found a way to tame his baser desires and impulses enough to enjoy a broad civilization, individual men will always tease the edges of appropriateness by attempting force by other means, namely deceit, misdirection, opacity, feigned confusion, intentional blundering, etc. If you can’t smell bullshit and if you have no means to fight back against a bullshit-peddler, he will run you over and probably try to take you for all you’re worth along the way.
Some people say, “That’s just business!” but that’s been invalidated by numerous contrary, personal experiences where no bullshit occurred and business occurred nonetheless, and more efficiently and for more wealth for both parties, overall. Bullshit is just a grey-area form of aggression, a remnant of the jungle from which we can never fully emerge.
My attendance at the first annual Solitron Devices shareholders’ meeting in nearly 20 years was a descent into that jungle. Here I and several other shareholders came face-to-face with Shevach Saraf, President, Chairman of the Board, CEO, CFO and, among many other titles and distinguishments I should say, a highly intelligent, sophisticated bullshitter.
My personal predisposition is to assume a person is trustworthy until they demonstrate they clearly are not. This is a little different than treating a person as trustworthy– I maintain skepticism and try to be alert at all times, but I don’t start a person at 0 and then work up to 100 on a “trustworthiness” scale, but rather the opposite. As a result, in dealing with Saraf and other representatives of the company in the past, detailed at considerable length here in the past (1, 2), I tried to explain various indiscretions, unkindness and general belligerency displayed by these parties in terms of misjudgments, misperceptions and a potentially historical apprehensiveness, rather than some kind of malintent.
At this point, the veil has been lifted for me and I believe I can confidently state that the bullshit is a calculated tactic and it is laid on, thick, with due purpose.
In the particular case of the shareholders’ meeting, the bullshit started with the “rules for the meeting”, which restricted each participant to a maximum of two questions no longer than one minute in length, with a twenty minute maximum duration. As with most bullshit, this was done in the name of “giving everyone a chance to speak”, but was really a rather naked attempt to intimidate shareholders and prevent them from stating their minds and engaging in significant follow-up questioning. No shareholder present (all 9 of us!) ever demonstrated any concern about domination of the Q&A period by any other shareholder. At the end of the Q&A, Saraf attempted to enforce the twenty minute maximum but was ultimately stymied by a shareholder who requested a longer, informal, follow-up Q&A period, which after 5 minutes of deliberation outside the room with counsel, was ultimately granted.
The second strand of bullshit is woven through the scandalous insinuations that Saraf made of his shareholder base. He deemed it fit to specially remind the gathered investors that he had no plans to do anything illegal and so he would not offer any insider info during the meeting. This is a strawman Saraf seems to trot out often– ask the man anything about the company at all, no matter how innocent and legally-sanctioned it may be, and he proceeds to launch into accusations of villainy aimed at getting an illegal upperhand while putting himself and the company in legal jeopardy. He also made a warning about supposed shadowy elements that were spreading false rumors and lies about the company on the internet, but he did not think to mention who was doing this or what specific claims were made which he could clarify as to their falsity. The impression one is left with is that there are no false rumors or lies being spread and this is yet another attempt to intimidate via bullshit.
Then we had to wade through Saraf’s numerous self-contradictions and general evasiveness in answering questions, most of which began with the expression, “Let me put it this way…”, which in my experience has always preceded a barely-obscured threat, as in, “Let me put it this way, if you don’t do what I am asking you to do, someone might get hurt.” The infamous EPA liabilities which have left the company hamstrung to do anything with the company’s excess capital and which according to regulatory filings earlier in the year seemed to have been extinguished, or due to be extinguished completely, by or around March or April of 2013, were suddenly at one point 30, another point 60 and another time some 72 days away from being resolved.
More bullshit: Solitron has a “sunset technology”, but there’s also the possibility they spend $5M+ of the company’s cash stockpile retooling their factory for new silicon wafer standards; the sequestration has been bad for business, but the company has also gobbled up marketshare from competitors who have gone out of business; the company is at 50% of plant utilization, but wars in Syria and elsewhere are good for business because it means equipment will need to be replaced that Solitron services; the company has struggled with rising inputs costs, but they build everything on spec and have a guaranteed profit-margin built in by the Pentagon; shareholders are now “welcome to contact any board member and ask them questions about the company” but in the past “PLEASE KEEP IN MIND THAT ALL INVESTOR COMMUNICATIONS SHOULD BE DIRECTED TO THE CHAIRMAN OF THE BOARD OF SOLITRON DEVICES, INC.“; Chinese and COTS parts have created huge price competition for the firm, but the firm’s buyers actually require specially-tested, high quality parts only Solitron can produce, and new DNA-marking of chips prevents the use/substitution of foreign knockoff parts, etc. etc.
I could go on and on. The point is it’s just a bunch of bullshit.
And Saraf isn’t the only one peddling it. His vaunted board showed their own knack. Saraf was asked, as a large shareholder, if he was concerned about the price of the company in the open market hovering around cash value. Not only did he evade the question and not answer it, but his new appointee, Mr. Kopperl, piped in with the pithy “Does anyone really know what moves stock prices?” When asked how he makes his investment decisions, Mr. Kopperl said, “Sometimes I buy value, sometimes growth.” But if no one really know whats moves stock prices and you’re philosophically agnostic as to what kind of decisions a company could make that would be good or bad from a valuation standpoint, how could you even invest?
And how would this bolster the company’s claim that the current composition of the board represents people capable of maximizing shareholder value?
It was suggested to Saraf that more disclosures from the company about its business would help the market better understand the company and its prospects and arrive at a fairer valuation. Saraf did not acknowledge whether this transparency would be beneficial to shareholders interested in seeing the marketplace better assess the company’s prospects, but he did say that he wasn’t interested in putting out a press release every time the company got a new certification or secured a contract. Bullshit!
The most puzzling event of the day was the withholding of votes for Schlig and Davis (and their subsequent dismissal with no replacement nominees named), and the approval-by-vote of the two new directors, Gerrity and Kopperl. These guys are black boxes as far as I am concerned. They sound like country club buddies and there was no explanation as to why they were qualified to represent SHAREHOLDER interests though, Saraf was quite clear, their industry experience made them qualified in his mind to represent company interests, which essentially means Saraf’s interests as things have been run so far.
Large shareholders seem to be more confident. They’re convinced Saraf is more cooperative than he seems and that he will do the right thing when it’s the right time to do so. I think the laws of the SEC are a legal cover for bullshitmongers. From where I stand, it’s an almost impenetrable fog. But maybe when you own 5% or more, you have other methods of cutting through the bullshit.
It is indeed going to be a Long War without them.
If you want more, here’s Nate Tobik’s take at OddballStocks.com.