Discipline — Chewing up MTSL

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Wating until Christmas?

3993920748_a7db9e8ccf_oAs I have written about in the past, it is exceptionally difficult to invest in MER Telemanagement Solutions, principally because the company’s equity, MTSL, is subject to speculative waves (read about this here) and because the company’s management and Board of Directors appear to be unable to report the company’s situation, outlook, and plans in a way that satisfies the overall market (read about this here.)

From an infinite-patience value investor’s perspective the second factor would normally not matter, and, in fact, the company’s inability to communicate in a convincing manner would actually be a plus, driving down the per share price of MTSL, and, therefore, creating an even larger value opportunity for investors.

Unfortunately, MER Telemanagement Solutions is in a unique situation where, for reasons that I will not go into here (if you want to know more, begin by reading this post and work your way backwards,) it is critical that the company, right now, develops a plan for 2014, clearly communicates such plan to its investors, and executes on the plan with an iron will. Not doing so will certainly delay the ascent of MTSL’s per share price, but, significantly, could also erode the company’s fundamental value.

The speculative waves are something that I have written about in the past, and I won’t elaborate further on this except to note that as a value investor it is extremely difficult to acquire a meaningful position when an equity is as volatile as MTSL has shown to be over the last year, or so. Simply put, if a target equity is not stable, it is foolhardy for value investors to secure any significant stake. Think of it as attempting to catch a dropping knife – clearly it is better to wait for the knife to hit the floor and stabilize.

With MTSL just coming off a speculative wave and a communication failure by MER Telemanagement Solutions’ management and Board of Directors, causing the per share price of MTSL to sink to a point that is very compelling from a value investor’s standpoint, one would expect to see resumed buying activity followed by a gradual increase in price. This, however, is not happening and here is why: Disciplined buying

A disciplined buyer moving the market?

You can check this out for yourself, but, for now, just take my word for it. MER Telemanagement Solutions is followed by a buyer who buys in a consistent and disciplined manner.

This mystery buyer keeps persistent buy orders of no less than 2,500 shares and always with a BID of five to ten cent (2.5% to 5% below the ASK.) Every day, all day long. And as soon as the ASK moves up or down the mystery buyer’s BID moves up or down correspondingly, The result is a highly asymmetrical BID/ASK situation all day long. Today, for instance, the BID hovered around 2,500 shares for $1.81 while the ASK hovered around 100 shares for $1.86.

In itself this disciplined buying is not a problem (in fact, I sort of admire the amount of discipline that the buyer is exhibiting, which, by far, exceeds the discipline of the sellers who continue to cave, lowering their ASK, seeking instant gratification.) It does, however, lead to strong volatility as one can clearly observe in the chart for the inter-day trading, which tends to look like a roller-coaster ride, and, as we discussed above, discourages value investors, effectively keeping the per share price low.

So the mechanics are such that the disciplined buyer is getting cheaper equity at the expense of price stability and with a delaying effect on the per share price appreciation. Pretty straightforward.

So what?

But hold it just one moment. Just because we are in the forest, we should not overlook the trees. Who is buying and how much is being bought?

We don’t know who is buying, of course. The filings for institutional buying are trailing so much that they are near meaningless here and, besides, it does not need to be an institutional buyer, so even if these filings were available in an up-to-the-minute form, we might lean nothing.

But, we can actually guess on how much is being bought by looking for relatively robust block buying aligned with drop in the per share price (remember that the mystery buyer maintains the ASK-BID spread, and, therefore, does not buy on an upswing.) Today, for instance, out of a volume of approximately 20 thousand shares, about 50%, or 10 thousand shares, could, I think, be attributed to the mystery buyer.

That does not sound like much, but here is the kicker. I have seen this buying pattern consistently over the last month and a half, or so, except for the last two weeks, when MTSL went through a speculative craze and, thus, did not allow for disciplined buying. Accordingly, if we attribute then thousand shares per day to the buyer for, say, 22 trading days, we are looking at 220 thousand share or approximately 5% of the issued shares. That is not peanuts.

This reminds me of when I saw an explosive buying pattern in Veramark Technologies’ equity, which was followed by the acquisition of Veramark Technologies in a privatization transaction (read about this buying pattern here.) The pattern there was, of course, completely different than the pattern that appears to exist around MTSL, but it is a pattern nevertheless, and, so, it must mean something.

I don’t know what this means, but disciplined, and, therefore, slow, buying must mean something important.

I am quite interested to see what happens next. In particular, I am interested to see whether this disciplined buying will continue and how it fits with the two short bursts of high-volume buying we saw earlier where MTSL evidently became the object of desire for someone, resulting in the rapid trading of 200 thousand or so shares per day for each occurrence (I wrote about this in an earlier posting, here.)

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