Small Cap Value Report (26 Oct 2015) - GBO - I'm vindicated!, RSTR, PIM

Monday, Oct 26 2015 by

Good morning! No, it's better than that, it's a fantastic morning!

Globo has finally admitted that its accounts were indeed fraudulently misstated, as I suspected. So after a battle of nearly 3 years, I have been completely vindicated with my numerous warnings to investors that the accounts looked dodgy as hell, and all the specific red flags that I, well, flagged.

Click here to view my entire archive of 21 Stockopedia articles from Jan 2013 to date on Globo, collated into one 30-page Google Doc. It's quite interesting to see how it unfolded. I was bearish from Day 1, and had forgotten just how turbulent things got in Oct 2013, when the original bear raid was made on the company, but it somehow survived and carried on for another two years. Amazing really.

Some people listened, and saved themselves money by steering clear of this fraud. Other people thought they knew best, ignored all the obvious facts pointing to it being at least a semi-fraud, hurled abuse at me, constructed a false narrative in their minds that it was all an evil shorters' conspiracy, reinforced their incorrect views by discussing them with other similarly misguided people on bulletin boards, and have ended up looking complete idiots, on top of losing their money. No sympathy from me there I'm afraid.

I do however have a lot of sympathy for the more decent people who were sucked in unwittingly, through e.g. appalling puff pieces in the press, such as this horrendous Simon Thompson article from the Investors Chronicle on 5 Aug 2015 - "Short sellers in for shock treatment". To allow yourself to be used as a mouthpiece for a fraudster, trying to engineer a short squeeze, in my view shows shockingly poor judgment, and naivete. Not for the first time either, a similar thing happened with the China AIM frauds. Commentators need to be street-wise, and question everything, not just regurgitate stories from the PR people.

More on Globo below. The above is just for starters!

For anyone not aware, you have not one SCVR today, but three! Yes, I caught up on the backlog yesterday, apologies for my outage last week, and wrote belated reports, here are the links;

Thu 22 Oct 2015 - Small Cap Value Report

Fri 23 Oct 2015 - Small Cap Value Report - Globo special (NB. written before today's capitulation)

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112 Comments on this Article show/hide all

Grindertrader 26th Oct '15 93 of 112

In reply to post #109659

Because Roger used SharesocUK Twitter handle to promote his own opinions. I thought Sharesoc was helping investors?  

ED Croft..  I am not trying to disrupt the board and break your rules but There are some serious concerns.  If Stockopedia promotes the good work of SharesocUK and yet one of the directors uses SharesocUK as a platform to defend his own personal investing decisions then that is clearly wrong in my view.  

Since I am no longer a SharesocUK member..,  I guess now that has nothing to do with me

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Mark Carter 26th Oct '15 94 of 112

Globo (LON:GBO) seems to reflect in minature a general problem with AIM directors and companies.

On 29 September, it announced in its interims "revenue up 56%", "The Group continues to build on it strong recurring revenue streams", and "Profit before tax rose 37%". Hardly sounds like the sort of company that would have its shares suspended less than a month later, does it?

And this is kind of the problem. Words mean nothing.

Next time, ask yourself this: what is a company that grew revenues fourfold over five years doing on a PE of less than 3?

Cashflows from operating activities were consistently below net income, from which further capital expenditures were deducted. The company only once, barely, made any positive free cashflow. On top of that, there were plenty of placings.

Although the company had a high ROCE, it only achieved it by shovelling its costs onto the balance sheet.

The good news is that you don't necessarily have to be able to spot fraud yourself; you can simply do a search on Stockopedia to see if Paul Scott flags possible accounting frauds. If he does, then just move onto the next one. Investing is a percentages game. You don't have to spot the next Microsoft.

It is slowly dawning on me that investing really is "the losing game". In other words, it's less about the grand slams (although winning is of course important), and more about avoiding horrendous gaffs. Charlie Munger's advice is spot-on here: tell me where I am going to die, so I won't go there.

No doubt I'll still need reminding of this in a few month's time, as I am far from removed from making stupid mistakes.

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carmensfella 26th Oct '15 95 of 112

If you want the Board to look at something where you think there has been abuse then do please provide the detailed information for ShareSoc. We are not at this stage aware of anything other than Roger voicing and writing his own personal views and certainly not representing them as the Board of ShareSoc policy or stance on a given subject.

Can I suggest giving this a few days to calm down and for all investors to try to work together with ShareSoc on this as it is clearly a big issue..... there has been a lot of invested money lost and as with all the China frauds it does not sit well with investing in AIM companies doing business and based outside the UK.

We need to improve this situation and we need a strong voice that regulators, investigators, the AIM policy team and LSE take seriously.

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roque22x 26th Oct '15 96 of 112

I think what this highlights is that proper research should always be done on any shares bought which means that looking at a few ratios and TA is not always enough. Having someone like Paul looking at companies is part of the research we should pursue. We should not believe everything we read but we should try read as much as we can so that a balanced opinion can be gained. In this instance the red flags highlighted should have at the minimum sought us to examine more closely. I consider myself fortunate that when looking at Globo what seemed at first impressive, seemed later dubious. As the old maxim in Diy says measure twice cut once, I say research, research, research and then buy

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Edward Croft 26th Oct '15 97 of 112

In reply to post #109647

Joeyjojo - that's a terrific post, and I think your first here ? I hope you don't wait so long before posting again.

Over the years, I scratched my head regarding why the valuation never reached where I thought fair value was. As the valuation multiple got cheaper, I was blinded to the concerns that were raised by others.

It's great to admit these things to oneself.  I found myself in precisely the same situation in RC Group (RCG) back in 2007 which was similarly a fast growing, foreign listed AIM share in the software sector.   Things unravelled there rather differently, but I've worn the experience like a scar ever since and still talk about it regularly on these boards.   It's that experience that has helped keep me out of Globo & Plus500 as well as countless other Chinese AIM shares.

Back then I too couldn't understand why the valuation never reached where I thought it would.  I still remember telling my wife it was going to sextuple by Christmas ... I watched in horror as it halved. 

It was a huge lesson, and showed me that no matter how smart I thought I was I could still shoot myself in the foot with a whole host of self-deceiving biases. Everything I do now is a strategy to avoid getting too emotionally involved in stocks... by keeping the individual names at arms length and focusing on the portfolio drivers.   I hope I'm not deluding myself !

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Grindertrader 26th Oct '15 98 of 112

In reply to post #109671

what is the point? The email goes straight to Roger..

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Mark Carter 26th Oct '15 99 of 112

In reply to post #109677

And a reminder why you always need diversification.

What I now do is buy a position, sell it if I think appropriate, but never add to a position, either up or down.I had found that, either way, they never really helped.

With the stock ranking system, or using your favourite stock screen, there's bound to be plenty of suitable candidates to choose from.

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pka 26th Oct '15 100 of 112

In reply to post #109671

Carmensfella wrote: "There has been a lot of invested money lost and as with all the China frauds it does not sit well with investing in AIM companies doing business and based outside the UK."

I have a rule never to invest in an AIM company doing business and based outside the UK, with the aim of reducing my risk of buying shares in a fraudulent company. Fortunately, it has saved me from losing any money on Globo and the Chinese frauds. But perhaps my rule has caused me to miss out on some profits from other companies. Does anyone have any statistics on how well the shares in such companies have done over the years, compared with AIM companies doing business and based in the UK?

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imranawan 26th Oct '15 101 of 112

In reply to post #109683

Hi Mark

Interesting approach, so you essentially never average down, and never average up (buy into momentum). I tend to buy a small starter position, as I find timing an entry is never an exact science, so scale into positions.

Best wishes,

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Paul Scott 26th Oct '15 102 of 112

In reply to post #109620

Hi Roger,

Trouble is, your objections to short sellers who "overstate their case against a company while doing so", have in practically every case I can think of, turned out to be completely wrong, and the shorters were largely correct!

I have a much bigger problem with the tsunami of positive, very often falsely positive, views & information about companies with which I have to deal with - bombarded at me by the whole PR & broker apparatus of the City, and of course bulletin boards where anyone with a bearish view is literally hounded away under a torrent of abuse.

On the occasions when shorters do bravely put their heads above the parapets, they've nearly always (a) done far more detailed research than the longs, and (b) are usually proven correct in the end!

You complained most heavily about shorting attacks against Blinkx (LON:BLNX) and Globo (LON:GBO) because you held shares in them personally. You repeatedly attacked shorters, accusing them of spreading misinformation, etc, when actually they turned out to be correct!

We have a dysfunctional market, where investors are repeatedly being sold faulty or fraudulent companies, by a bent system in the City, and terrible, almost non-existent regulation. Against this, shorters have proven to be the only effective regulators, sniffing out the problem companies, and warning people about them (and yes, making a profit personally where we get it right, just like longs do).

Therefore I think you need to drop the blinkers on short-selling, and recognise actually that in most cases shorters have correctly identified & smoked out dodgy companies & management. That is actually providing a vitally needed service to the market.

In my case, I'm really proud of what I've achieved in correctly warning investors about numerous dodgy companies. I note your positive comment about me personally in your Blog today, thank you for that. I'm sorry for hurling some insults at you on Twitter the other night, when I was drunk, but you deserved it! Water under the bridge now anyway, and I look forward to discussing these issues with you shortly at the next ShareSoc Masterclass.

Also, I reinforce comments by others, that you do an amazing job on most issues you deal with at ShareSoc, on behalf of shareholders. Pity about this blindspot on shorting, but I'm sure we can gradually coax you towards a more sensible viewpoint on that!

Regards, Paul.

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cyberbub 26th Oct '15 103 of 112

As someone of Greek descent who grew up in Greece, I am horrified and saddened to see yet another hit to the reputation of that already-battered country with this Globo (LON:GBO) scandal. Strangely the news is completely absent from the finance pages of the couple of Greek newspapers I have had a look at today... I wonder why?

Globo seemed ostensibly like a different beast to Naibu and the other blatantly fantasy-world Chinese companies, being based in an EU country and with genuine verifiable products, offices in the USA etc. So it's not surprising that many investors though it was 'kosher'. Well, arguably it was (more or less) kosher operationally, but financially it looks like not just highly irresponsible management/accounting but now downright fraud.

I did hold some Globo shares briefly, but sold out at a small loss when I decided to heed Paul Scott's warnings about the seriously dubious accounts. So thanks Paul, you made your case and stuck to your guns!

As many have said, there are an awful lot of people and organisations who could (and most definitely should!) have flagged up Globo's problems much sooner, rather than allowing them to crash and burn. The company could probably have been rescued and perhaps hundreds of jobs saved, if that had happened. While shareholders would have lost a large chunk of their investment, at least it would not have been a (seemingly inevitable now) complete wipeout. All we can hope now is that at least some of the jobs can be saved, if someone comes in and picks up the shattered company for a song? Cold comfort for shareholders though.

Auditors, Nomads, and especially the NEDs (who have been mentioned very little so far, but are there specifically to oversee the executive team) - all have been in severe dereliction of their duty, and, along with the senior executive team, I hope they get what's coming to them. However I fear that they probably won't :-(

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purpleski 26th Oct '15 104 of 112

In reply to post #109593

Nice to hear there is one other, thought I was alone in being the only person in PI community who didn't subscribe!

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billytk 26th Oct '15 105 of 112

Well it's certainly been a lively day on here. I never had a position in Globo (LON:GBO) or Quindell (LON:QPP) for that matter but it's always interesting to watch these things unravel from the sidelines. I often considered taking a short out but it's so difficult to get the timing right as these things drag on for years. Far better for your sanity to stay out of these 'dubious' companies. As the saying goes "The market can stay irrational longer than you can stay solvent". This can so easily apply to shorting stocks and finding yourself massively under water with a position; what with all the volatility, the PR spin and the bulletin boards.

Well done to Paul and TW again, you deserve far more recognition than you receive but have thankful readers for highlighting all the red flags along the way.

Shame on the nomads, the brokers, the directors, the LSE and the auditors. Do you think Cannacord quit with immediate affect in outrage that the cheque for services rendered just bounced?

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ed_miller 27th Oct '15 106 of 112

On the subject of appointing auditors, is there any reason the stock exchange could not appoint auditors, agree their compensation and charge the costs back to the member company as part of their listing costs? The exchange's auditor appointment activities would then be overseen collectively by a committee of the exchange members. This would avoid corrupt controlling shareholders getting on to Audit Committees. Anyhow, the current system has inherent problems as Buffett points out since whilst technically auditors are appointed by an Audit Committee and answerable to the shareholders, in practice auditors often work for a chief executive able to hire or fire them, and decide their pay, with the Audit Committee unable or unwilling to stand up to an over-reaching, or simply corrupt, chief executive.

Oh, is that the time? Night!

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Gostevie 27th Oct '15 107 of 112

In reply to post #109698

Paul wrote to Roger:

Water under the bridge now anyway, and I look forward to discussing these issues with you shortly at the next ShareSoc Masterclass.

That is excellent news. £25 from me to a charity of Paul's choice if he and Roger shake hands on stage, and I know that carmensfella is going to match that. Maybe others will as well, if only as a very small and deserved thank you to Paul in recognition of the sterling work he has done warning readers of the problems at Globo, and to Roger for all the unpaid time and effort he puts into ShareSoc. Any takers?


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cig 27th Oct '15 108 of 112

In reply to post #109701

But do you want these "jobs" saved? The point of an open market economy is that bad businesses go down so that resources can be more productively allocated. It does seem Globo had products but pretty mediocre ones (look at app store reviews, ignoring the obviously fake reviews they bought) in a crowded field. Globo's staffers are probably better employed elsewhere, for their own sake and everybody else's. It's a booming sector, it shouldn't be hard for them.

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cig 27th Oct '15 109 of 112

In reply to post #109689

If you're diversified enough, you get implicit scaling on average even if you don't scale individual positions (the good timing cases make up for the bad ones). Is individual fine-tuned scaling the best use of your time and transaction costs budget?

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dangersimpson 27th Oct '15 110 of 112

In reply to post #109599


However, Roger's personal hostility to short sellers has caused ShareSoc to appear on the wrong side of the debate (even though most of the ShareSoc board do not share his views)

I think you've hit the nail on the head there. When ShareSoc appears to be highly critical of short selling research and then that research appears to have been largely correct it can look like ShareSoc is fighting for the wrong guys. This is why investors are impassioned about this issue.

ShareSoc should make its collective position known on short selling.

Not just short-selling because I'm sure that will be considered ok but the issue of activist short selling research. Something along the lines of:

'We applaud the efforts of all who seek to uncover financial wrong doing. We value all investment research both long and short as long as it is based on factual evidence.'

If Roger or any other ShareSoc director wants to highlight where they believe there are factual innaccuracies in reports (long or short) that is great. What they shouldn't do (certainly in the name of ShareSoc) is state that they believe a report is intentionally misleading - unless they have evidence to this then they are potentially libelling the report writer. While it is highly unlikely that a short hedge fund would actually action this you can see that accusing financial firms of market abuse without evidence is bad form for a shareholder organisation.

I think this would help ShareSoc acheive it's aims.


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marben100 28th Oct '15 111 of 112

In reply to post #109746

Hi Mark,

I note your & Leon's comments and, personally, agree. I will raise this matter with ShareSoc's chairman (Stan Grierson) and see how we can best make our collective position on short selling clear.

I am pleased to confirm that we will now be discussing lessons from Globo, as well as Quindell at the forthcoming Masterclass. I am also quite sure that Leon, who is chairing the Masterclass, can arrange for the handshake between Roger & Paul that Gostevie seeks - and make sure that there are no punches thrown! :0) [seriously, I am sure that the debate will be civilised, educational and entertaining]

I am also pleased to announce that the fourth panellist for the Globo/Quindell debate will be highly regarded smallcap fund manager Dr Paul Jourdan of Amati Global Investors.

There are only a few places left, so book tickets now and don't miss your chance to be at this fascinating event. Full details & booking info are here:



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Gostevie 9th Nov '15 112 of 112

In reply to post #109722

The ShareSoc Masterclass was excellent, and although Paul and Roger didn't absolutely agree on everything (who does?), they did indeed shake hands as promised, like the gentlemen they both are. A £50 donation has today been made to the MNDA in recognition of the terrific work Paul and Roger both do on behalf of private investors. Receipt available upon request.


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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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