Reader Mailbag: Overstock, tZERO, and Crypto Hype

Reader Question:

How much is tZero contributing to OSTK's PR and balance sheets? How much actual business/revenue value are generally crypto companies generating versus stock valuation pump due to the hype around everything crypto?

It is hard to speak about crypto companies generally in terms of business value vs financial market hype because there is a such a wide range within the sector. On one hand, some companies are all hype (press releases without much in the way of products or revenue) and on the other you have some, like Overstock’s tZERO business unit, that have press releases, products, and revenue (just no profits).

There is no doubt that Overstock’s share price is being valued partly on its crypto assets. While the pandemic certainly boosted their home furnishings e-commerce business, going up against the likes of Amazon and Wayfair is a tough task (one that they have been losing) and 2021 is likely going to present tough comparisons year-over-year from a sales perspective.

As for tZERO, below is a three-year summary of the financial results Overstock has reported in their 2019 10-K annual report filing (full year 2020 results have yet to be released).

As you can see, tZERO does have some business lines generating revenue, but they are relatively small compared with OSTK’s $5 billion current equity market value. More importantly, the crypto business has been losing roughly $2 for every $1 of revenue it brings in. This is not surprising, as there are not a lot of profitable crypto businesses right now (exchanges are likely the highest margin given that trading volumes are strong, relative to actual utility of tokens more generally).

It should not be surprising then, that Overstock recently announced plans to contribute its crypto assets along with nearly $45 million of cash into a Limited Partnership managed by an external third party. You can read the details here, but essentially OSTK is funding the LP with cash (likely to cover operating losses) and taking a 99% stake as limited partner. The outside manager will be the general partner, make all operational decisions for an annual management fee of $2.5 million, and will receive a performance fee based on the sale of any assets from the partnership.

By making this move, it sure looks like OSTK has decided it does not want to continue to fund operating losses in its crypto businesses. The hiring of a third party manager with a financial incentive to sell the assets seems like a bet that it makes sense to sell while people are willing to fall all over themselves to plow money into a sector that has yet to show it can offer a return from operations (but rather, just by selling currencies to someone else for a higher price).

Perhaps most interesting is that in its deal with this new LP, Overstock has published NAVs for each of its assets within the partnership, and they total less than $200 million (less than $5 per OSTK share). The current stock price would indicate they are worth far more than that. We will have to wait and see how easy it is for them to be sold, and how much capital can be raised in the process.

Full Disclosure: The author of this post was short shares of Overstock at the time of writing, but positions may change at any time and the short position is 75% smaller today than it was at its peak during 2020

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Reader Mailbag: Playing the Covid-19 Vaccine

Reader Question:

Do you think it is too late to invest in the players involved in developing vaccines for Covid-19? If not, is it better to go with the large companies or the smaller upstarts?

I think there are two angles here. First, Covid itself. I doubt anyone really knows whether these vaccines will be effective enough to get rid of Covid (for the most part) within a year or two, or if we are dealing with a new virus that is constantly mutating and here to stay, in which case annual Covid shots are probably in our future. Since the experts would probably punt on this question, I will too. It sure seems too early to rule out annual shots that would likely be solid moneymakers for the companies involved, but I am not sold on the idea that we should place an investment bet on one of those trajectories, as there is still plenty we don’t know.

The more interesting topic in my eyes is the notion that this pandemic has accelerated the development of mRNA therapeutics, we have evidence that the mechanism works (at least in the short term, longer term data is not available yet), and thus it is fair to ask whether this has been a proof of concept phase that will also accelerate the development of similar compounds for indications other than Covid.

In my view, this seems very plausible, and maybe even extremely likely. If this is not just a one-time boon for companies like Pfizer, Johnson and Johnson, Moderna, and BioNTech, then it is probably not too late to invest based on that particular thesis.

So in that case, do you go with the big players or the smaller ones? I think the smaller firms have a leg up from a long term investment standpoint. The industry giants like Pfizer and J&J are so big that the impact of new technologies has a limit in terms of how much they can swing the earnings of these conglomerates. Add in the fact that they have existing products on a rolling schedule of patent expirations, and there are more offsets to the growing parts of their business. The same thing simply isn’t true for the likes of Moderna and BioNTech, and it is also entirely possible the former group eventually offers big money to acquire the latter group.

Taking this thought experiment one step further, I think it is interesting to compare Moderna and BioNTech since they are both publicly traded and have Covid vaccines on the market. While Moderna’s equity market value is currently 2.5 times larger than BioNTech, the latter company has more employees and is expected to generate roughly 75% as much revenue ($7.84 billion) in 2021 (according to the current consensus forecasts on Wall Street) as Moderna ($10.5 billion).

Now, these revenue forecasts are probably only guesses at this point, and having more people doesn’t mean you will have more success in the lab, but given the valuation gap, it seems like there might be more investment value on a relative risk/reward basis with BioNTech.

I have been thinking about that comparison for a while, although I have not yet invested in any of these companies. However, it remains top of mind, especially as the market’s strength affords us fewer and fewer bargains by the day.

Full Disclosure: No positions in the companies mentioned at the time of writing, but that may change at any time

Reader Mailbag: GameStop and Possible Regulatory Reform

Reader Question:

Do you think regulators should make any reforms to prevent future instances of the GameStop saga (and do you think they actually will)?

I am usually a proponent of simple regulatory reforms that a majority of rational market participants would support. Before relating this to GameStop, let’s rewind back to the Great Recession more than a decade ago. As was explained beautifully in The Big Short, one of the biggest problems with the mortgage crisis was the pervasive use of credit default swaps, which is just a fancy type of “insurance for creditors.”

Having a way to hedge your investment is not inherently bad. The problem with CDS is that there were no limits on who could buy it and how much they could buy. Imagine Company A has $10 billion of debt on their books and the holders of that debt want to hedge against a bankruptcy filing. It is logical that regulators would allow insurance to be purchased on that debt, but the maximum insured amount should really only be $10 billion. The situation gets very dicey when anyone can buy this insurance (even those who don’t hold the debt) and they can do so in any amount another party is willing to write for them (e.g. $100 billion of insurance on a $10 billion bond).

If the debt becomes worthless, in this example, whereas the economic loss should have been limited to $10 billion, instead the markets have to absorb $110 billion of losses. So a manageable problem becomes a major calamity in short order, and can bring down an entire market.

So how does this relate to GameStop? Well, it has been widely reported that the short interest in GME stock at one point was ~140% of the public outstanding float. How on earth can more than 100% of a stock be borrowed and sold short? Well, because the short selling rules, much like the CDS rules, don’t place any limits on how many times the same share of stock can be lent out and sold.

Therefore, if I lend 1 share of GME to a short seller, they go out and sell it to someone else. The new long holder of my share doesn’t know if their share was lent out or not, they just know they are long one share. And they are allowed to lend that same share out to another short seller, who takes it and sells it to someone else. In this case, we are dealing with 1 share of actual stock that gets lent out twice. 3 people are long 1 share and 2 people are short 1 share, which nets out to 1 long share. but the short interest (2 shares shorted) is equal to 200% of the float (the original single share owned).

Just as limiting the use of CDS contracts to the principal amount of the debt being hedged, and to only those who actually own the debt itself, would be considered a logical, fair, and reasonable regulation (no, such a rule does not exist post-mortgage crisis… CDS operate exactly the same as before), we can easily argue that short selling should be limited in some way. How about only allowing each share of outstanding stock to be lent out one time, thereby eliminating the chance that the short interest ever rises above 100%?

Do I think such regulations will be enacted? No. These issues have a way of disappearing quickly enough that people are let off the hook for making sound reforms. In the case of the current GameStop situation, hedge funds will pull back on their shorts enough that extreme cases like this do not reoccur, and the regulators will likely punt on reforms again. Heck, GME is already trading sub-$50 per share.

Author’s note: Theoretically, a short interest above 100% is not actually accurate, even in cases like the one described above. In that example, there are 3 longs and 2 shorts, so the actual percentage of shorted shares is 67% (2/3). When viewed this way, continuous lending and shorting of the same share would result in a short interest approaching, but never exceeding 100%. There is an insightful article discussing this on the ShortSight web site.

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AMC Entertainment: What A Difference WSB Makes...

Well, it hasn’t even been 2 weeks since my last post on movie theater chain AMC Entertainment (AMC), but wow have things shifted. The massive trading interest in heavily-shorted GameStop (GME) from the Reddit/wallstreetbets contingent has made every heavily shorted stock a target for massive day-trading and speculation on the long side to try and squeeze the shorts.

Given the poor fundamental outlook and balance sheet at AMC, highlighted in my prior post, it should not be surprising that the company was heavily shorted. Like GameStop, AMC faces a tough competitive environment, though the latter has far less debt (GameStop’s balance sheet means they are not faced with bankruptcy risk in 2021, in my view, but if they don’t execute well in their operations, that could change in a few years’ time).

So, what happens when the Reddit crowd gets ahold of AMC stock? Well, from January 20th when I wrote my post, the stock surged from $3 to a high north of $20 last Wednesday. Not only did the little guys and gals make money on their trades during that time, but some of the big guys/gals they hate also made out well.

Silver Lake Partners, a large, well known private equity firm held $600 million of AMC convertible debt due in 2024, which was in a dicey spot with the convert price well into the double digits. Well, they acted fast last week, converting the debt into 44 million shares of equity as the stock surged into the high teens, and selling every single share the same day the stock peaked. That’s right, they go from being one of the largest AMC worrying creditors to being completely out at nice profit in a matter of days. Note to Redditers: that’s how you ring the register!

The fact that Silver Lake saw a chance to exit and didn’t hesitate only confirms my negative view of AMC’s financial condition and business outlook. In fact, although I rarely short stocks in my personal account, I initiated a very small short position in AMC stock this morning above $17 per share. It won’t be a life changing profit even if the stock eventually winds up being a zero (I don’t make large, risky bets like the Robinhooders), but why not be opportunistic like Silver Lake?

The borrow fee on AMC was small, as the company has been issuing shares like crazy in recent weeks to try and raise more capital to stave off bankruptcy. It’s hard to pinpoint the exact figure, given all of the financial engineering going on with them right now, but as of 10/30/2020 there were about 137 million common shares outstanding (compared with about 45 million shorted last month). Add in 44 million from Silver Lake’s convert, 22 million issued to convert $100 million of debt owned by Mudrick Capital, and 228 million new shares sold into the market as prices rose, and the new share count is probably north of 400 million.

At my short price, the equity value is nearly $7 billion. Now, the debt balance has gone down some with Silver Lake converting their $600 million convertible, but that is offset by a $400 million credit facility expansion recently announced. So the debt balance is probably still around $5.5 billion. A $12.5 billion enterprise value for a company that earned EBITDA of $670 million in 2019 and has been burning cash during the pandemic due to theater closures? That’s bonkers.

All in all, while this flurry of activity and share sales may give AMC enough cash to make it to 2022, the future remains bleak and the balance sheet is still a mess. The only way out longer term appears to be a material increase in sales and profits at their theaters post-pandemic (versus pre-pandemic levels, not 2020), and that is not a bet I would be willing to make.

Time for another reader mailbag blog post?

It feels like a good time to do another reader mailbag post. Submit your investing/market related questions in the comments below or via twitter (@peridotcapital) and I will do my best to answer many of them in a future blog post. As always, thanks for reading the blog!

AMC Entertainment Moving Closer and Closer to the Brink

When it comes to playing the return to normalcy post-pandemic, there are well positioned “reopening” stocks (typically those who entered the last 12 month period with strong balance sheets) and there are those who were on a problematic path already (high debt levels and challenged business models) with Covid-19 making it much worse. Picking and choosing, therefore, becomes paramount. A great example of a company in the latter group is movie theater chain AMC Entertainment (AMC).

Below you will see what the company’s financials looked like as of year-end 2019, during the “best of times.”

Full Year 2019 Income Statement:

Total Revenue: $5,471 million

Operating Expenses : $4,801 million (excluding depreciation)

Interest on debt: $293 million

Balance Sheet as of 12/31/2019:

Cash: $265 million || Debt: $4,753 million

Common stock outstanding: 104 million shares (stock price: $7.24)

With less than $400 million of pre-tax profit annually, there was not a lot of room to both reinvest in the business (movie theaters require a decent amount of maintenance capital expenditures) and figure out how to reduce nearly $5 billion of corporate borrowings. Add in the fact that in-person movie watching is in secular decline and it wasn’t hard to understand why Wall Street was only giving the company’s equity a market value of roughly $750 million.

And then the pandemic hit. With theaters forced to close, and no new movies being produced anyway, AMC started on a path of massive red ink. For the first three quarters of 2020, the company burned through $950 million. As you can see from above, they didn’t have enough money sitting in the bank, so they borrowed more, to the tune of $1.1 billion. And the fundraising efforts continue, with another $100 million of 15% interest debt raised this week.

The writing seems to be on the wall here. With $670 million of EBITDA in 2019 and more than $5.8 billion of debt on the books now, the leverage ratio at this company (nearly 9x on a pre-pandemic operating environment) cannot continue for too long. I suspect funding sources will dry up soon, as more people realize that even with vaccines on the market, the infection rate and reopening trade will be slow, months-long events.

And even if we woke up tomorrow and it was safe to go to the movies, are people really going to have in-person movie watching at the top of their post-pandemic entertainment wish list? Have we not had enough screen time in the dark, on comfy seating, inside, for the last year? It seems like the best case scenario for AMC, which is unlikely to occur, is still not that great.

With the stock at $3 per share today (up from below $2 at the worst point), it is priced for the most likely outcome to be bankruptcy and that appears to the right, though zero would be the end result here. Whether it takes 3 months or a year or two, I don’t know. Regardless, when playing the “reopening trade” in your portfolios, be sure to discriminate and not just pick up the most beaten down, low priced stocks that have been hit hard by the pandemic.

Instead, focus on the businesses that entered 2020 with strong balance sheets, which allowed them to raise fresh funding at good prices and not overextend themselves to get to the other side. Those are the stocks that will be best positioned whenever we get back to normal.

App-Based, Commission-Free Trading Fuels Bubble-Like Behavior

With each passing week I get asked more and more if we are in a stock market bubble. Since there is no one set definition, that is not the easiest question to answer. But if comparisons to the late 1990’s are the closest comp (the only bubble in stocks I have seen firsthand), it is hard to argue against the notion that trading action in the last year or so looks and feels like that period, though it might be narrower in scope.

In the large cap space, you have real businesses that are simply trading at sky-high prices, much like AOL, Cisco, and Dell 20+ years ago. Tesla is the easiest example, as they entered the S&P 500 as the 6th most valuable component of the index, which is just bizarre. Rather than topping out at 20-30x sales in they 1990’s, there are plenty of large cap tech firms now fetching 40-80x sales. Really tough to model the financials to map onto those kinds of expectations.

The small cap action is even worse, with Robinhood traders flipping penny stocks and bankrupt companies like it’s a video game, not a financial market. The latest example is related to Tesla indirectly; a penny stock called Signal Advance, Inc (SIGL). Elon Musk tweeted out a cryptic message “use signal” (referencing a messaging platform) and somehow people took that as an endorsement of this company, which is not related in any way. This was on Thursday 1/7 and SIGL stock surged from 60 cents to $5.76 per share.

Okay, so some people were just trying to be quick on the draw and make some money, fine. But then Friday’s trading session comes around and SIGL stock trades as high at $10 before closing around $7. That is not what is supposed to happen in a rational market. If SIGL was 70 cents two days prior, and it has been confirmed that literally nothing has changed with the company, the stock should go back down. But it didn’t.

Okay, okay, but surely when Monday rolls around and more people understand what is going on after reading about it over the weekend, the stock will drop, right? Not in a bubble. On Monday, SIGL shares rose to nearly $71 per share before closing at $38.70 each, up 438% on the day.

This is what a bubble looks like. Stocks don’t trade based on any fundamentals, but rather on near-term demand. Amateur “investors” are day trading these names on their phones, not using any kind of analysis or valuation, but rather just based on the notion that a stock might keep going up, so why not buy it? If SIGL can go from 70 cents to $7 in two days, when why not to $70 the day after? It’s gambling and the fact that you can trade commission-free on your phone only makes it easier for the silliness to continue.

So what can we expect to happen? Well, typically these traders just move on to the next stock after the last one stops going up, which will cause the price to be more rational. We have seen it with cryptocurrency stocks and marijuana stocks and now the hot sectors are things like electric vehicles (Blink Charging shares going from $1.25 to over $50 over the last 12 months) with Tesla’s meteoric rise. And obviously we can add bitcoin to the list, which is having its second insane surge in recent years.

How does it end? Well, market corrections typically do the trick. All of the day traders were wiped out in 2000 after the dot-com bubble burst because there was no way to make money anymore. Free app-based trading is here to stay, unfortunately, but once these penny stocks stop going up, traders will move on to something else and the marketplace will self-correct. There are plenty of examples of these huge stock price increases, but for those companies without the sales and profits to back up the valuations, there are few examples of the values holding for the long term. A few days, weeks, or months maybe, but rarely a few years. The majority of people who try and rise these things up will wind up selling at a loss. After a while, they stop trying.

Yes, it will end. No, it’s not healthy. And no, as a value-oriented investor I do not own money-losing penny stocks or software companies trading for 50 times sales. But that’s okay. There are thousands of securities to choose from and a diversified portfolio only needs a few dozen or so. If I want to gamble with my money, I much prefer going to a card table or sportsbook at a casino, though I understand that the pandemic has hurt the appeal of such forms of entertainment. Perhaps that too has boosted the appeal of stock trading for the time being.

DoorDash IPO Highlights Relative Value of Uber Shares

With the DoorDash (DASH) IPO having gone far better than anyone thought, making the stock untouchable at this point from my vantage point, the real takeaway for me is how cheap Uber Technologies (UBER) stock appears on a relative basis. According to Uber management, they expect margins in the rides business to be 50% above that of the food delivery business. This is undoubtedly due to the restaurant being the middleman for Uber Eats, with no third party involved in the legacy Uber rides division. With that in mind, consider the data below when valuing DASH and UBER, with the latter only operating in the food delivery space:

Uber 2019 “Rides” Revenue: $10.9 billion

Uber 2020 “Eats” Revenue (1/1-9/30): $2.5 billion

Current UBER equity market value at $53/share: $93 billion

DoorDash 2020 Revenue (1/1-9/30): $1.9 billion

Current DASH equity market value at $158/share: $62 billion

Based on the current business mix of both companies, how should Uber be valued relative to DASH? Is ~50% more a reasonable amount? Something to think about for sure.

Full Disclosure: Long shares of Uber at the time of writing, but positions may change at any time

Airbnb and Doordash: So Much For A More Efficient IPO Pricing Process

This week was supposed to be a coming out party for a new IPO pricing process dubbed the "hybrid auction.” Newly public companies have long complained that large first day gains for their stocks enriched institutional investors with immediate profits, with no corresponding benefit to the listing firms. Given that an IPO is often desired to raise additional growth capital, being forced to “leave money on the table” is a big disservice to these young firms.

Inefficient IPO pricing is not surprising given the actors involved. Companies are advised by investment banking firms, whose job it is to allocate stock to their large institutional clients. The incentive, then, is to keep your clients happy and instantaneous profits on day one certainly accomplishes that. While a higher IPO price would give the banks a bigger take on the total deal value, a company can only go public once. The ongoing long-term relationships the banks have with their buy side clients are far more profitable and important. As a result, the banks have little reason to price IPOs as close to market demand as possible. It is a simple conflict of interest situation.

This new “hybrid auction” idea was supposed to help with this problem. Rather than picking a price and then taking orders from investors, the new model does set an initial price indication, but it asks would-be buyers to not only submit how many shares they want to buy, but also allows them to offer the price they are willing to pay. The idea is to get a better gauge of demand by seeing just how high buyers will offer if they think a higher bid will increase their odds of getting stock.

Perhaps you can see the problem already. A buyer of an IPO wants to get the lowest price possible to maximize their potential profit. By giving buyers input into the price they end up paying, they have an incentive to keep the price low, without being insulting or risking missing out to other buyers. So, the most likely outcome is that buyers submit strong bids, maybe even a bit higher than the indicated price range, but without getting too aggressive. Therefore, the real demand is never determined, because you would be crazy to bid anywhere near the highest possible price you are willing to pay.

The results this week were therefore quite predictable (huge first day price spikes) but I think the end result was even worse than most would have guessed. DoorDash (DASH) priced at $102 and opened at $182 (+78%). The Airbnb (ABNB) deal was even worse, with an opening trade of $146, a stunning 115% above the $68 IPO price.

So what is the solution? Well, Google (GOOG) had the right idea back in 2004 when it opted for a dutch auction for its IPO. The company saw a first day price increase of just 18% because it decided to actually sell its stock to the highest bidder (what a novel concept!). A dutch auction simply sells the available stock at the highest price possible. Potential buyers submit a max buy price and a desired quantity and the IPO price is set to be the highest price such that there is a bid for every share being sold. For some odd reason, companies have not copied the Google approach. Until they do, they stand to keep leaving a ton of money on the table with nobody else to blame but themselves.

One innovation is worth mentioning as having been successful and that is the “direct listing.” Many private companies are profitable and don’t necessarily need to raise additional growth capital via an IPO. However, they still might want to be a public company in order to provide their shareholders and employees liquidity and also have a currency with which to make acquisitions. In a direct listing, the existing shares outstanding simply begin trading on the stock exchange, which opens them up to everyone. The market price is immediately known and there is no “first day pop” because no actual IPO price needs to be settled on (no new stock is being sold, so no price for a sale is needed).

The only possible downside for a direct listing is that all of the shares are dumped on the market at the same time and so it could be met with a large wave of selling early on. While not indicative of any problem at the firm, optics are important and a falling stock price will always raise questions. The solution, however, is quite simple. A rolling lock-up expiration - say, 10% of the stock each month for 10 months - would require holders to sell slowly over time to cash out, and therefore would have a minimal impact on the stock price.

So here we sit and Airbnb and DoorDash have two problems; 1) they left billions on the table, and 2) their stock prices are so high that it will be harder for them to attain the financial expectations that are embedded in the current price. Both of those are detriments to the very people they were trying to help with the IPO (their shareholders).

Will Stocks Really Trade at 22x Forward 12-Month Profits By December 2021?

Goldman Sachs just raised their year-end 2021 price target for the S&P 500 index to 4,300. That implies a 20% gain over the next year or so. The call got a lot of attention, perhaps unsurprisingly, as they expect an above-consensus profit figure for the index next year of $175 (current consensus calls for $165). Just as bullish, they expect stocks can fetch 22 times forward 12-month profits (estimated at $195 for 2022), which is where the 4.300 figure comes from.

There is a lot to unpack here. At first blush, both the valuation multiple and the profit estimate appear wildly optimistic. Predicting $175 of S&P profits in 2021, when 2019 was a record-breaking year registering just $157 seems a bit silly to me at this point. Historically, it takes more than 1 year for corporate profits to fully recover from recessionary declines (e.g. 3 years for the dot-com bubble and 2 years for the financial crisis). The pandemic seems severe enough that a shorter than average recovery might not be in the cards. Personally, I would be very surprised if corporate profits in 2021 surpassed those earned in 2019 (2022 would be a far more convincing thesis).

The other issue here is assuming a forward P/E ratio of 22 times, assigned to record-high profits. I understand interest rates are at record-lows, but if the economy really does recover swiftly in 2021, the 10-year bond rate will almost certainly rise from the current sub-1% level. If we return to 2% on the 10-year bond (where we ended 2019), there should be some downward pressure on valuations.

Stocks rarely trade for 22 times forward profits. Between 2010 and 2019, during which the 10-year bond hovered in the 2-3% range, the S&P 500 ended each calendar year at an average of 16 times forward profits, with the range being 13x-20x. In fact, I have data going all the way back to 1960 and the only time the S&P 500 has traded for 22x forward profits or more, during an economic expansion, was the dot-com bubble of the late 1990s.

If I was a strategist who was tasked with publishing S&P 500 targets (thank goodness I’m not), and I felt pretty bullish about where things were headed, I might be willing to project a 20x forward P/E. As far as profits go, let’s say 2021 matches 2019 and 2022 brings a profit increase that is double the historical average (12% instead of 6%) to account for pent-up demand from the pandemic. In that scenario, 2022 profits would be $176 and the S&P 500 at year-end 2021 would be quoted at 3,520.

I know what you are thinking; the S&P 500 is already trading at 3,560 today! See the issue? The market right now is pricing in a very optimistic outlook for the impending recovery. Put another way, for stocks to register above-average gains over the next 1-2 years (as Goldman is predicting), corporate profits need to show stunning gains and blow through 2019 levels by a wide margin.

Is that scenario completely out of the question? Of course not. Would I have a high degree of confidence at this point that such an outcome is the most likely? Not at all. Unfortunately, the market being near all-time highs now, before the economic recovery has really begun, means that a lot of good news is already priced into equity prices. Of course, markets are supposed to be forward-looking, so this is not surprising. But it should, and usually does, impact future returns.