Why Information Arbitrage?
We don’t take Information Arbitrage (Info Arb) lightly. It’s actually one of the most important aspects of our research that gives us a distinct advantage over the rest of the retail investor crowd.
It’s for this reason why when we come across it, we share it with our Premium Member base as quickly as we can. By the way, it’s a great way for any investor of any level to learn more about finding information that others don’t realize exists, and just might be the best way to profit in the market.
The nice thing about hunting for InfoArb in the microcap universe is that the market can be slow to react to the Arb, giving everyday investors the chance to capitalize on information disconnects. In the case of our current information arbitrage, we have information not readily noticed by most investors that we think will be the spark to catalyze a move in a stock that we’ve been seriously following for the last couple of years. We took a long position above current market prices back in 2018.
If you know anything about GeoInvesting, as long as we have conviction in a company, we are usually in it for the long haul. However, InfoArb can be a great tool to help capture short-term gains as you are waiting for your longer-term holdings to pay off. You’ll also quickly find out that we tend to be contrarians (bet against the crowd), which has led to out-sized gains in stocks that other retail investors first ignored, giving us the clear first mover advantage, especially when we find InfoArb for our Premium Members.
InfoArb Case Study: Contract Award and Form 4 Information Disconnects
Take, for example, Retractable Technologies, Inc. (NYSE:RVP), a company that designs, develops, manufactures, and markets safety syringes and other medical products for the healthcare industry. In early March 2020,
- We noticed that the CEO had been aggressively buying stock for a long period of time to the tune of 100’s of thousand of shares
- RVP announced the settlement of multi-year lawsuit with Becton, Dickinson And Company.
- At the time of the initiation of our coverage, RVP was trading at an enterprise to sales multiple of ~1.2x, well below other medical device companies with EV/Sales well north of 4x.
- It was a timely bet in light of the coronavirus, since stress would be put on the rest of the market to produce much needed needles.
- Finally, the coup d’etat occurred when we came across a government website that mentioned RVP was awarded a coronavirus contract, potentially valued at $83.9M (This was eventually realized, by the way). We immediately delivered this information to our premium members. However, the company did not issue a press release on this new development for several days.
InfoArb Case Study: Conference Call and Press Release Disconnects
Another example of InfoArb is that of Intrusion Inc (OOTC:INTZ), a company that develops, markets, and supports entity identification, high speed data mining, cybercrime and privacy protection products.
The initial Info Arb was that INTZ typically released bland press releases, leading to bad optics for the company. However, the conference calls were entirely different and pointed to an inflection point coming soon. We want to make clear that most investors have little interest in listening to conference calls in the microcap universe, which is a huge reason why we do. Others tend to just read the press releases. With respect to INTZ conference calls:
- We surmised that the inflection point was likely related to commercial opportunities.
- We eventually determined that the company had a history of offering Info Arb on its conference calls after listening to several, quarter after quarter.
- We then knew we were in a position to take advantage of future disparities between the live conference calls and written commentary.
- Management often elaborated on:
- New Product Lines
- New Contracts
- Stock appreciation was the result.
You might be asking, “Why show me past case studies? Every situation is different when it comes to Information Arbitrage.” While this may be true, that is the beauty of it. The discovery of new arbitrage is what makes this so exciting. It is a learning experience to build upon for future idea generation. We believe the current idea has shades of other InfoArb situations that allowed us to buy RVP and INTZ before the crowd.