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Saturday, December 09, 2006

Thoughts on Eternal Technologies (ETLT)

This post is to answer this message from Harbinus2 over on the Raging Bull message board. It helps to read the message before reading the stuff below.

The fact that investing in ETLT is difficult should remind us of some important quotes from Warren Buffett: avoid the difficult investments and stick to the easy ones. The high level problem with avoiding ETLT is that the price is so compelling. The high level solution is not to put too much money into it. It's like the situation when a rollover style lottery builds up a huge jackpot, making the expected value of a dollar lottery ticket much greater than a dollar. In that case you buy a ticket because it's a good gamble, but you don't put 20% of your money into buying a boatload of tickets.

There could always be some unpleasant liabilities tying back to CHCL. I don't know what those might be, but I don't think it's brazen fraud (but with any company, that's always at least a remote possibility). I had checked out the details about the large farm that CHCL owned and concluded that it wasn't the same one that ETLT now owns. I had also concluded that ETLT and CHCL weren't co-mingled. That whole thought process probably doesn't exist in my notes and this is one of those areas where keeping public notes gets difficult. One of my big fears is that I will follow some potentially-bad-but-unlikely issue down to a certain point and that someone else will come along and continue down a bit further and turn up some terrible information without me knowing about it.

When I bailed out of ETLT back here, I didn't need to rely on those things for a reason: there were more clear reasons justifying selling, although I was satisfied by the information that came out afterwards and bought back in. I considered any CHCL issues to be OK at that point.

As I mentioned here, I've sold part of my ETLT holdings recently. There isn't any single reason. It's basically a result of slowly accumulating weirdness with the company. I don't like the picture that's being painted. And as much as I want to avoid letting "Mr. Market" provide guidance to me, I worry about the massive selling that seems to be taking place. It just reminds me too much of ACLN. If someone decides that shorting a stock is "good to zero" (i.e. they believe the stock will become worthless), it doesn't matter what price they short at, assuming they have sufficient liquidity and are able to do naked shorting. If they normally deal in units of tens-of-millions, then with a tiny stock like ETLT, they'd be stuffing shares into the market at any price. I don't know much about trading and how people do naked shorting, so this might be totally silly. But there are an increasing number of characteristics about the ETLT business and the ETLT stock trading which match up bad stuff I've seen before.

In the book Judgment under Uncertainty: Heuristics and Bias, there has been academic research into the irrationality of relying on this sort of representativeness rather than more objective criteria such as strict probability theory. There are all sorts of simple examples which can be created to show how this representativeness method of thinking can be flawed. But I actually believe that in complex situations, especially when you have active participants who are trying to influence you, representativeness is a good way to avoid being "intelligently stupid". If some street hustler in a back alley offers you to play a game of Three Card Monte, you might assess the probability to be in your favor, but you'd be totally wrong. Much better to rely on the representativeness of the situation to other scams than to apply strict theory to a situation where you might not fully understand all the factors at play. This is why seemingly unintelligent old people can be so stubborn about things you know they don't really understand. They understand it in ways that you don't understand.

If I find another really good, easy investment, I'm likely to dump the remainder of my ETLT stock. If ETLT then goes up to $3, then congratulatons to those who held the stock. There are a nearly infinite number of way to make money investing.

UPDATE 12/11/06:
Here's a photo of an E-Sea machine.

Well thank you for your thought Bruce.

ETLT is a high speculative investment, that's for sure.

But if this company is for real, then I think that the best is yet to come.

They are beginning to file their results on time, they are improving a lot their website, Heron public responds to my Emails after max 2 days, Esea business seems to start it's way off,…

This is the kind of positive things I see since a few months now.

The volume is also increasing a lot these times and the stock behaves quite well I would say.

We do not have to forget we were at the 40cents range 4 month ago.

The management, if for real, has to improve drastically its communication. The positive is that it can’t be worse!!

I hope that the next quarter results will be in the same line then the Q3. Historically Q4 is always good and I hope they will be impressive this time. The key might be Esea. Management has to demonstrate that Esea alone is or might be a cash cow in the future and that this business is expanding all over China and south Asia. They have to get this export license and try to get contacts in Europe and USA.

Management never, as for today, has tried to pump the stock with false rumours and earning projections. That is on ore thing that makes me more confident.

We may achieve 15cent of net earning this year even at +-45million shares outstanding.

Well, I really hope that our day will come. But better communication, earning growth and export may bring us where we below.

I was in AOB for around 20k shares I bought at 1,15$ and sold it at 2,3$. Yes I missed the boat on that one. Aob was also absolutely undiscovered at that time but, as we see, things can also change very rapidly , in both directions. Nobody wanted AOB in the 1$ range but it is now trading at 12$ with millions of volume each day.

I still own ETLT stock, just not as much of it. The points you raise about ETLT are obvious by now. But they don't address the main issue I have with the company and they aren't sufficient to cause me to fully invest again. There are a lot of things in the world that might work out.

The nightmare scenario for ETLT would be to have the SEC call for a trading halt and then, like I had written earlier, for the bugs to crawl out of the woodwork. I have no idea what sorts of issues could arise, but I could guess at a few of them.
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