GTAT – GT Advanced Technologies Stock Price

85

GTAT – GT Advanced Technologies Stock Price: Are you in the market for a case study resource that you can use to compile your very own investment policy manual? If that’s the case, brace yourself because the next one will destroy your heart.

GTAT - GT Advanced Technologies Stock Price

 

GTAT – GT Advanced Technologies Stock Price

You can get a lot of knowledge from it, and you might save your own family a great deal of misery by doing so, but it will mean looking at the wreckage of the lives of other people, so you might want to prepare yourself for the experience.

I was able to find it owing to one of you (thanks, Andrew! ), who included it in the contact form that was given to me. I was following up on a commitment I made to a few of you to check if your messages were going through (I’m still working on that; an update will be provided later), and I happened to see it as I was doing so. It is astounding from a human psychology standpoint in addition to being wonderful from a practical and economical point of view.

The evening that I clicked the link, I was so enthralled by the fabrication that I spent the entire evening flipping through the approximately 535 pages. In terms of risk management, capital allocation, tax-efficient compounding, and basic analysis, it is a live, breathing embodiment of everything that I write about that is the reverse of what I write about. It is a testament to the power of temptation, and it proves that individual investors, including those who are poor, are frequently just as greedy, and no more moral, than the most avaricious investment banker who has been demonized in the popular culture over the past few years. 

Before we get started learning about it, and before I publish the link for you to start your own case study, I have a request: I would appreciate it if you would refrain from commenting on that forum. Only look at it; don’t touch it. Those individuals have suffered devastating financial losses, amounting in some cases to the totality of their life’s savings. Even though we have the ability to conduct a post-mortem examination for our own reasons, doing so in order to make them feel even more regretful is not only cruel, but it is also unlikely to be of any use given that they have just experienced the most harrowing lesson of all.

Ready? Let’s jump right into this, shall we?

The GT Advanced Technologies 

The forum in question was intended for “investors” in a firm known as GT Advanced Technologies; however, I do not apply the definition of the word “investor” as presented by Benjamin Graham in this instance. Everyone believed that Apple was going to include sapphire glass on the iPhone 6 and the iPhone 6 Plus, and they expected GTAT to be the principal supplier of sapphire glass to the company. The management of GTAT was unable to execute on time, therefore the plans were adjusted such that the sapphire glass would instead be utilized on the next Apple Watch and eventually in later generations of the iPhone.

What should have been a little speed bump on the road led to a surprising, out-of-the-blue filing for Chapter 11 bankruptcy and the almost total decimation of the common stock with almost no warning at all. The firm’s management reiterated their earnings guidance, not more than a few weeks ago, and the corporation had a positive net worth, hundreds of millions of dollars in cash, and a good possibility of making a lot of money in the future when they filed their most recent quarterly report.

How is it even possible that this took place? It was a mistake made by Lehman Brothers and AIG. The management of GTAT had not only made terrible decisions about the financial structure of the company, but it had also entered legal agreements that obliged it to provide enormous quantities of liquidity with very little to no advance warning and under unfavorable conditions.

They primarily funded long-term operations with short-term capital, negotiating a nine-figure, multiple-installment working capital loan from their most important customer, Apple, and then giving Apple the right to demand accelerated payment at virtually any time. This allowed them to fund long-term operations with short-term capital. A contract with such a high risk of failure would have been preferable to even the long-term issuance of trash bonds with no coupon payments attached to them.

There were a number of red flags that ought to have been obvious to anybody who had prior experience with forensic accounting or fundamental security analysis. There was an excessive reliance on a single provider, which requires a significant discount to the asset’s intrinsic value to be justified in the majority of cases if you are seeking risk-adjusted returns because you are inherently dependent upon the financial health, goodwill, and ongoing support of an entirely different company.

There was an over-reliance on a single vendor. If you can’t trust the numbers, you can’t value the company, which is one of the few things that will make me walk away from a company regardless of how good everything else appears (if you can’t trust the numbers, you can’t value the firm). The auditors warned shareholders in the SEC filings of a material deficiency in the internal accounting records. A warning was included in the SEC reports to the effect that the financing arrangement would prevent the company from being able to operate as a “going concern” due to a lack of available funds (if you ever see those words, your eyebrows should shoot up).

In the event that Apple was unable to successfully launch the iPhone 6 and iPhone 6 Plus, there were no substantial backup plans or alternative sources of money available. The CEO apparently has a history of what looks to be a near megalomaniacal drive to swing-for-the-fences, having already run one corporation into the ground. This desire is believed to have led to the CEO’s downfall of a previous company. Since Apple did not make any minimum purchase commitments and did not have an exclusivity clause, demand projections were wholly based on conjecture.

Given the company’s capital structure and the absence of any purchase obligations, a position in GTAT could under no circumstances be regarded as an investing activity, as that term is defined in Security Analysis and The Intelligent Investor. It was a guess, and to tell you the truth, it wasn’t the worst one you could come up with. This was a situation in which the appropriate idea was implemented incorrectly by the wrong people. It’s possible that a lot of people could have become ridiculously wealthy if management hadn’t been so careless. If one felt the need to gamble, there are certainly more risky methods to accomplish so.

Unfortunately, things did not go as planned this time. However, there are a lot of individuals on this topic that don’t seem to understand the difference. On its pages, you’ll find examples of every possible fault that might occur in a portfolio. People who take speculative positions in tax-sheltered accounts, which is almost always a bad idea because you lose the huge benefit of tax loss credits that would make recovering much easier in the future; people who buy stock on margin; people who risk more than they can afford to lose in the event of a total wipeout; and people who do not keep particular types of capital piles, such as college savings, exclusively in investment operations.

When Andrew emailed me this link, he first pointed me to this page about a month before the bankruptcy declaration. At that time, many were talking about how foolish it would be for them to buy index funds or invest in the traditional sense.

GTAT - GT Advanced Technologies Stock Price

Andrew linked me to this page. The following morning, he refers to this page, and they come to the realization that the stock isn’t trading. You follow their reaction after they find out the shares have ceased trading. It has been announced that bankruptcy has been filed. They were informed that the conference call that they had been anticipating would not be taking place. You may witness all five phases of loss and grieving between it and the conclusion of the thread (535 when I read it), beginning with denial and ending with acceptance. These stages include rage, bargaining, depression, and acceptance.

Related Posts