December 2014

TheCROW’SNEST

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Ahoy, Crow’s Nesters,

Today, we dock the ship after a bloody wonderful year with The Crow’s Nest.

We have plenty of booty to add to our coffers: Our closed portfolio is up over 23%. Compare that to the 14% S&P return over the same time, and I’d consider that a success by any measure.

And we’ve done it almost entirely with safe, income-generating stocks that you can keep holding for years to come.

So raise a toast for the first full year of The Crow’s Nest.

We have a lot to get to, so I’d recommend grabbing a mug of grog, unscrewing your peg leg, and putting the parrot in the cage because this is a nice long issue that covers everything the crew has accomplished in our first full year.

Let’s spend this issue revisiting the positions and setting ourselves up for next year. It’s sure to be a good one.

Charting the Course

Best Position of the Year: Collector’s Universe (NASDAQ: CLCT)

This has been my favorite Crow’s Nest position since we started. How can you go wrong with an under-the-radar growth stock that returns a whopping 5.9% dividend — or, if you locked it down when I recommended it last year, a 10% dividend?

For any new readers, Collector’s Universe is the leading authority on the authentication of rare coins, baseball cards, and sports memorabilia.

We’re already up 100% on it, and it just keeps going...

Its Q1 2015 results just came out, and they were nothing short of stellar. It was yet another record quarter for the company:

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• First quarter service revenue came in at $16.2 million, up 14% over the same period last year. This again represents a record first quarter performance.

• With our goal of creating profit leverage in our business model, we can see that reflected in our operational profit numbers. Gross profit came in at $10.4 million or 64% which is 16% higher than the fiscal 2014 period and operating income before stock comp expense reached $4 million or 22% better than a year ago.

• Net income was up 10% over Q1 fiscal 2014. As we continued to make progress toward achievement of additional profit milestones in our long-term incentive plan. Because of that we recorded additional stock compensation expense and net add $0.21 of earnings per share, slightly better than the $0.20 recorded last year at this time.

I scoop up shares on the dips because this company could easily hit $30 this year. But even if it stayed flat, I just love it as a way to park my money in a company I understand, enjoy, and support.

And the dividend checks just keep rolling in...

You can read the earnings call transcript here.

Speaking of dividends, the bulk of The Crow’s Nest’s portfolio is focused on them. There are a few obvious reasons for this:

1) I like getting checks in the mail.

2) The compounding power of DRIPS makes them the safest long-term bets for gains.

3) By investing in dividend aristocrats — those companies that have raised dividends for at least 25 years in a row — you know you have put money in a company with a long track record of paying its successes right back to its shareholders.

Abbott Labs (NYSE: ABT)

Abbott Laboratories manufactures and sells health care products worldwide.

This dividend aristocrat has returned us a solid 28% so far this year... with a respectable 2.4% dividend to boot. And it still has room to run...

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Here are some highlights from its latest financial report:

• The company reported $0.62 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.59 by $0.03.

• During the same quarter last year, the company posted $0.55 earnings per share.

• The company had revenue of $5.10 billion for the quarter, compared to the consensus estimate of $5.62 billion.

• Abbott Laboratories’ revenue was up 4.7% compared to the same quarter last year.

Some influential analysts have raised their targets for the stock over the last week:

• Jefferies Group raised its price target from $50 to $52.

• Deutsche Bank upgraded shares of Abbott Laboratories from a “hold” rating to a “buy” and bumped its price target from $42.00 all the way to $54.

We are holding Abbott as an IRM(72) position in the portfolio. If you haven’t signed up for its dividend reinvestment program, you can do so here. We’re comfortable buying long term up to $48.00.

AbbVie (NYSE: ABBV)

AbbVie is an Abbott Labs spin-off. Launched on January 1, 2013, AbbVie is a global biopharmaceutical company with focus and capabilities to address some of the world’s greatest health challenges. AbbVie discovers, develops, and commercializes advanced therapies that have an impact on people’s lives.

AbbVie had a great end of the year, despite the fact that its merger with Shire went sour. If you recall from the September issue, the company had planned on acquiring Shire — which is located in the tax-friendly UK — as a “tax inversion” deal to lower its overall tax burden.

The deal fell through, but AbbVie still managed to return some great results, and it shows in our portfolio: We’re up 27% in just a few months.

Here are some highlights from its latest financial report:

• The company reported $0.89 earnings per share for the quarter, beating the

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analysts’ consensus estimate of $0.77 by $0.12.

• The company had revenue of $5.02 million for the quarter, compared to the consensus estimate of $4.82 million.

• AbbVie’s revenue was up 7.8% compared to the same quarter last year.

The stock leaped higher by 11% last month following its better-than-expected third quarter earnings.

This should keep rolling all the way to 2018, when AbbVie’s Humira — the biggest drug in the world — finally loses patent protection.

We’re buying AbbVie as a middle-term position in a dividend reinvestment program up to $75. You can enroll here.

Aqua America (NYSE: WTR)

Aqua America, Inc. operates regulated utilities that provide water or wastewater services in the United States. The company offers liquid waste hauling and disposal and water and wastewater services through operating and maintenance contracts with municipal authorities and other parties. It also provides water and sewer line repair services and protection solutions to households; backflow prevention, construction, and other non-regulated water and wastewater services; and non-utility raw water supply services for firms in the natural gas drilling industry. The company serves 3 million residents in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana, and Virginia.

It makes a great long-term dividend payer because utilities, by and large, are profitable in good times and bad. Even in a recession, people are going to pay their water bills before buying pretty much anything else. Add to that the regulated nature of utilities — where the government basically lets them act as monopolies — and you have a steady place to generate income rather safely.

The best part of enrolling in the company’s dividend reinvestment plan is that it actually pays you to do so: Shares accumulated through its DRIP are given a 5% discount.

Aqua America also holds a track record of consistently sharing profits with its shareholders through dividend payments. In the first nine months of 2014, Aqua America paid dividends worth $83 million compared with $76 million in the year-ago period.

We’ve already gained 22% on it since last year.

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We’re buying up to $28.

HCP: Health Care Property Investors (NYSE: HCP)

HCP is a fully integrated real estate investment trust (REIT) that focuses on real estate for the domestic health care industry. In particular, the company’s portfolio of assets is diversified among five distinct sectors: senior housing, post-acute/skilled nursing, life science, medical offices, and hospitals.

REITs, if you are unfamiliar with them, utilize a unique company structure with massive tax advantages.

A REIT is a company that owns and, in most cases, operates income-producing real estate. The real estate can be anything from office and apartment buildings to warehouses, hospitals, shopping centers, hotels, and even timberlands.

The whole idea is to give all investors the opportunity to invest in large-scale, diversified portfolios of income-producing real estate — not just the extremely wealthy.

It is the only REIT included in the S&P 500 Dividend Aristocrats index.

HCP has returned 26% for us this year. We’re still buying as a long-term dividend reinvestment position under $46.

Insys Therapeutics (NASDAQ: INSYS)

Insys Therapeutics, Inc. (NASDAQ: INSY) is an Arizona-based company that has been publicly traded for a little over 10 years.

Marijuana stocks have been one of the single greatest growth stories of the year. Insys is one company banking gains on this trend. Insys has developed multiple marijuana-based drugs. In fact, it has been doing this for years, and it is much farther through the tedious FDA process than some of its peers.

The company already has licenses in place to manufacture and distribute cannabis-derived products in the U.S.A. as well.

Insys recently received an FDA orphan drug designation on July 1, 2014 for use of pharmaceutical cannabidiols for a rare form of childhood epilepsy.

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More recently, it received the same designation as a potential treatment for glioblastoma multiforme, an aggressive, often incurable, and very common form of brain cancer.

An orphan drug designation paves the way for seven years of exclusive sales rights, tax breaks and incentives, and other special benefits.

Insys is also investigating uses for adult epilepsy, cancer-related pain, and addiction to heroin and other opiates.

We’re banking heavily on this trend. Its treatments should benefit from the continuing research behind marijuana-based medicines...

We’re already reaping the fruits, as Insys is up 24% since we recommended it in September.

We are buying shares of Insys Therapeutics Inc. (NASDAQ: INSY) under $45.00.

Closed Winners

I’m very proud of our closed positions. We have four double-digit gains and no losers. We’re up 23.41% — far better than the S&P for the year. Here’s what we banked gains on:

Company Symbol Buy Date Buy Price Sell Date Sell Price Gain/Loss

Vanguard Total Stock Market ETF VTI 2013-06-24 $80.22 2014-02-19 $96.50 23.29%

HollySys Automation Technologies HOLI 2013-12-05 $16.83 2014-03-28 $21.40 27.15%

Sprott Physical Platinum and Palladium Trust SPPP 2013-06-26 $8.10 2014-06-11 $10.29 27.04%

SPDR S&P Dividend SDY 2013-09-04 $66.68 2014-10-09 $75.27 16.14%

I’ll take that any day.

Now that we covered what we did right, let’s dive into what we did wrong...

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The Bilge Rats

You can’t win them all...

If any stock analyst tells you he knocks every pitch out of the park, I’ll show you a huckster that should be walking the plank.

That said, we’ve had a couple of stinkers this year... but, thankfully, they look to be longer-term positions that haven’t quite matured yet — they aren’t dead weight to be tossed overboard.

Uranium: Global X Uranium ETF (NYSE: URA)

I recommended this as a play on the most hated of all energy markets: uranium. We’ve seen some promising growth over the past few months, but the industry at large is still quite depressed.

It hit a nine-year low in May but has clawed back by 40% since then.

I expected uranium prices to rise based on Japan firing up its nuclear reactors. The nation was cleared to do this in July, but only two reactors out of the 48 that were shut down for safety reviews came back online. More will be opening next year, which should help take some extra supply off the market.

While there is still ample supply right now, nuclear power plants are being built here in the U.S., as well as in the United Arab Emirates, South Korea and Europe.

There are 69 nuclear reactors expected to be constructed by 2023, according to Cameco. The most active developer is China, which has 27 reactors under construction right now and another 10 planned to be built by 2030.

But alas, we’re still waiting for that big break. And we could be waiting for a while...

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So if you want to put some money on a long-term rise in uranium prices, we’re buying Global X Uranium ETF (NYSE: URA) up to $15 for now while we watch for some developments.

The Global X Uranium ETF (NYSE: URA) tracks the performance of the largest publicly traded uranium producers, processors, and explorers. When prices rise, it will too...

Silver: Sprott Physical Silver Trust ETF (NYSE: PSLV) and ProShares Ultra Silver (NYSE: AGQ)

What kind of pirate ship would we be running if there were no silver and gold amongst our treasure chest? But even pirates hit a sand bank once and a while. Truth be told, this year was far worse for precious metals than I ever could have imagined...

It’s been a downhill ride ever since silver showed some promise at the beginning of the year.

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Even some of the most ardent silver investors ditched their holdings to get into a stock market that has consistently hit all-time highs. If you had invested in the market index over the past three years, you’d be up 15%.

If you stayed in silver over the same time, you would have lost 30%.

It’s even worse over the past two years. The S&P is up a whopping 46%, while good old silver was massacred by 54%.

But it’s times like these that separate silver seekers into two camps: investors and stackers.

You see, there is a contingent of people who use silver as a tool to reap big gains over the short term and try to time the market for optimal returns. It’s incredibly hard to do, given silver’s reputation as the devil’s metal for its wild price swings.

The second camp, which we fall into, is the silver stacker.

We treat silver as a hedge against turmoil and a store of value in the face of ever-evolving and devolving currencies.

That being said, right now both camps could be facing a great time to load up on silver in anticipation of a rise in the coming year.

Simply put, silver prices have been decimated and are ripe for a comeback.

Here’s why...

The Cycle

We could very well be testing a bottom for silver prices right now. One indication of this is the historical cycle in which silver has peaked, crashed, bottomed then begun rising again. If you look at the last four cycles, silver has ridden a very similar wave.

Analyst Gary Christenson put together a great summary of this trend:

The last four cycles from crash low to high have taken from 1.75 to 2.5 years. That suggests an upcoming high sometime in 2015 – 2016. The last four cycles from crash low to launch low have taken 1.0 to 1.3 years. That suggests an upcoming launch low sometime in 2014. Following the launch lows, highs occurred

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approximately 0.5 to 1.2 years later. That suggests a high sometime in 2015 or 2016.

This trend would suggest that silver is currently bottoming out and is poised to begin ramping back up over the next year or two.

If you consider why silver has historically seen an uptrend, it is in the face of ballooning government debt, a retreating economy, and global turmoil. How are we doing on those fronts?

Debt: The U.S. national debt is sitting at approximately $18 trillion. To put that in perspective, that is around $56,379 per citizen and $153,726 per taxpayer. The debt is a runaway train with no conductor to slam on the brakes. While debt is around 74% of GDP right now, by 2039, the national debt held by the public will reach an astonishing 104% of GDP, according to the Congressional Budget Office.

Economy: While the government reports continue to point to a tepid recovery, it simply could not have happened without the government intervention in the economy. While quantitative easing has been an official success, we believe it is simply a band-aid on a bullet wound. If/when the Fed gets out of the zero-interest rate policy and shuts down the

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printing presses as it tapers QE, the economy simply will not be able to stand up on its own.

If they have to fire the presses back up and inject more free money into the system, it could be the final straw that breaks the camel’s back.

Global turmoil: I’m sure I don’t need to belabor this point. If you’ve turned on the news in the last year, all you’ve been treated to is a series of ever-disintegrating wars in the Middle East, deadly outbreaks of infectious disease, and widespread social unrest, courtesy of the standoff between police and disenfranchised minorities. I, for one, do not see any of these situations improving... They will get worse before they get better.

Stacker or Speculator?

While silver historically has moved based on industrial use, jewelry, and silverware, only recently has silver investing really played a major role in the silver price.

The most recent report from the CMP Group, “Silver Investment Demand,” gives a detailed history of this development:

The current period of investor buying, which began in 2006, is the third time that investors have shifted into this role of net accumulators of silver in modern market history. This shift has been and continues to have profound effects on silver prices.

During the eight years between 2006 and 2013, investors have bought about 862.1 million ounces of silver on a net basis, compared to net sales of 1,701.0 million ounces of silver during the previous period between 1991 and 2005.

Research shows that this trend of silver investing will continue and even speed up as time goes on. You can see that interest in the sheer volume of silver coins that have been flying off the shelves at mints around the world. In 2012, 105.9 ounces of silver coins were scooped up by investors. That number increased to an all-time record of 136 million ounces in 2013 — coinciding with the drop in silver prices. While it dropped around 10% this year, we are still well above historical averages.

The Silver Institute is predicting that “current trends suggest investors might accumulate as much as one billion ounces of silver over the next decade. This would be expected to push annual average silver prices to a fresh record high.”

So what differentiates a silver speculator or investor from a silver stacker? CPM’s managing

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director Jeffrey Christian puts it like this:

By most definitions and certainly in my mind, investing is much more a buying and holding activity, stacking silver if you wish, than it is the shorter term activities. Those shorter term activities sometimes are called speculating, and sometimes that is all they are. More often these transactions are taken by longer term investors seeking to earn a slightly higher return on his or her investments by switching among assets frequently — like the frenetic driver constantly shifting lanes on a highway in the hopes of getting there a little bit faster.

Personally, I keep my eye on the road ahead and keep buying. If I see some discounted gas on the journey, I’m going to fill up. If I can ride the headwinds, I will, but it doesn’t change my overall destination.

I’m not sure what the price of silver will be next year. I’m even less certain about what it will be in 10 years. But I do know one thing...

I’m going to keep on stacking, and at depressed prices like these, my stack simply gets much bigger, much faster.

We’re buying both positions at these depressed prices, with our eye on 2015 and 2016.

The Bilge-Sucking Blaggard

Now let’s turn the glass to the single-worst position in the portfolio: Solazyme.

This is the elephant in the room that has trampled upon a stellar portfolio at large.

Solazyme really burned me... we’re down 75% in short order after a simply disastrous announcement regarding its brand new plant in Brazil. I had been banking on that announcement to be a positive update on how well production is going. It was far from it...

The results really couldn’t have been worse.

The long and the short of it is that we still believe the company can make good on its goals of providing tailored oils for several of the world’s biggest markets. But it has taken a major setback and now has to rethink its product line. I briefed you in the last issue, but I wanted to expand upon what really went wrong here...

Here’s the rundown from the CEO Jonathan S. Wolfson. He started the quarterly conference

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call by saying what any good CEO would in disaster-control mode:

We believe Solazyme is in a very strong position to commercialize broadly in the years ahead.

Over almost 12 years at Solazyme, we believe that we built a company and a technology that will produce numerous disruptive products that are better for the planet and will ultimately deliver a multi-billion-dollar profitable commercial entity.

We’ve assembled almost all of the major puzzle pieces for success, including a powerful technology platform resulting in broad, differentiated and valuable products; 3 commercial manufacturing facilities; deep partnerships with some of the world’s largest companies; a strong balance sheet; and proven products in a number of commercial markets with many more to come.

Despite some challenges in Brazil, our technology and process is running in all 3 of these facilities, including Moema. And specifically, as it relates to Moema, the current production challenges are based on initial plant process and equipment optimization and not on the core technology or manufacturing process.

I’d say “challenges” is quite an understatement. The challenges he is talking about are the following:

• Power and steam consistency continues to be an issue.

• There is continued work to do on the downstream operations to allow them to run continuously and in an integrated fashion. Specifically, we are focusing on some correctable issues with the conveyance system.

• They are working to achieve consistent processing with the process, the timing of which is taking longer than we expected.

These challenges are forcing Solazyme to reproach its entire business model, which is typically not something you’d like to do out of necessity, on the fly, due to production issues.

Wolfson goes on:

Real-time consideration of these factors has led us to make some adjustments in our manufacturing and commercialization strategies to drive capital efficiency and commercial success. Our view is that the destination is largely the same and we think quite possibly even better than it’s always been, but the journey will change a bit, specifically, will narrow our production focus to smaller volumes of higher-value products at both Moema and Clinton/Galva.

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We will be prioritizing cash management and product margin over a rapid capacity ramp. We, therefore, no longer plan to produce at nameplate capacity within 12 to 18 months.

So that is the major announcement — no nameplate capacity in the near future, meaning the company’s production costs are going to be higher than it had hoped.

You can read the whole transcript here.

So before we run and jump off a bridge, here’s what the company does have going for it: It took such a hit that it is actually trading below the amount of cash it has on hand. That essentially means the company has more cash than its entire market cap.

It last traded at $203.4 million dollars, and it currently has around a $250 million cash balance.

This can be seen as a sign of a great value stock.

Billionaire David Tepper once bought out a company that was trading for less than the cash on the company’s balance sheet and remarked, “It’s nice when you can buy cash when it’s cheaper than cash.”

That being said, a business still needs to have a future to consider, regardless of how much cash it has... and how fast it may burn through that cash.

So here’s the plan for Solazyme going forward:

The company started with a strategy of selling huge amounts of its oils as commodity replacements and had planned on utilizing a low-cost production strategy to market to huge swaths of consumers.

That has changed drastically...

Over the period that these dynamics have developed, we’ve also evolved to a more sophisticated and informed view of the richness of our product portfolio and high-margin potential. This view has been supported by progress in the development of a broadening portfolio of specialty oils and products with tremendous market opportunities. These factors have led Solazyme to a key decision point strategically, a shift away from focusing on maximizing volumes at our current facilities and instead moving to a focus on selling high-margin products and maximizing returns on our capacity investments.

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It will be now be focusing its energy on producing low volumes of high-value, high-margin products. These three products have shown the most promise in the short term:

Algenist:

Algenist is a burgeoning anti-aging skincare brand. It delivers anti-aging innovation from Microalgae, one of the oldest and most nutrient-rich algae in the world.

It is made from two microalgae ingredients: Alguronic Acid® and Microalgae Oil

The product line includes 25 products, headlined by top-selling Genius Ultimate Anti-Aging Cream and Concentrated Reconstructing Serum.

It is the company’s highest value product and increased its availability in stores by 41% year-on-year growth in the quarter. It should hit about $26 million in revenue this year, and the line should pass $30 million in sales in 2015 if its 20% growth rate continues.

It would be a solid gun in Solazyme’s arsenal, but it is simply not a big enough market to support the company on its own.

AlgaVia:

AlgaVia is Solazyme’s algae-based health food ingredient. The company turns its algae into a serious superfood. It wants to redefine the future of food by using its algae-derived ingredients to boost the nutritional profile of typical food while maintaining great taste.

If it can pull it off, I think it represents the biggest opportunity for the company to expand into huge markets. At very low margins too...

It is broken up into two products:

AlgaViaTM Whole Algal Flour is a nutrient- and lipid-rich whole food ingredient that provides a solution for improving nutritional profiles in a multitude of food categories, such as bakery, beverages, sauces, dressings, and frozen desserts. Algal flour is very low in saturated fat, cholesterol free, and can considerably reduce calories, while providing the same overall mouth feel and consistency as full-fat foods.

AlgaViaTM Whole Algal Protein is a new, whole-food source of protein. This microalgae-derived protein contains fiber, healthy lipids, and micronutrients.

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The protein’s whole cell properties allow for easy formulation into a broad range of applications for protein fortification and increased nutrition.

It is being used by large food companies such as Archer Daniels Midland, Bunge, and Unilever, and its products are sold at Whole Foods and General Nutrition Centers. AlgaVia Lipid Powder has also been chosen by a growing number of customers to enable their food product launches across several U.S. categories, including non-dairy creamers, powdered beverages, and gluten-free baked goods

If it can strike up some bigger deals to get AlgaVia into more products and stores, it could potentially save the company single-handedly. It’s early on in the process, though, so time will tell.

Encapso:

Solazyme’s newest product could end up being one of its biggest. It is targeting the drilling fluids market — and it is a massive market. In fact, Markets and Markets forecasts that drilling fluids will “grow from an estimated $10.6 billion in 2013 to $15.2 billion by 2018. This represents a compound annual growth rate of 7.5% from 2013 to 2018.”

Solazyme has introduced a cutting-edge technology to meet the demand: Encapso, the world’s first encapsulated biodegradable drilling lubricant.

Encapso is an environmentally sound encapsulated drilling lubricant that could open up a new revenue stream in the ever-expanding drilling fluids market.

There are some new partnership announcements: It’s signed its first commercial partnership for Encapso with Versalis, the chemical arm of global oil major Eni, which will be expanding market access for Encapso.

And the achievements have been encouraging. From Wolfson:

We’ve now been in over 30 commercial wells with 10 unique operators across 7 basins, including new work in Alaska and Canada and Texas. We’ve also expanded recently into the Middle East.

Recently, we’ve had 3 very successful results in Alaska, the Permian Basin in Texas and Canada. In Alaska, Encapso achieve record performance in a well drilled by a multinational partner. In the Permian Basin, Encapso was recently used by a global exploration and production partner, where we were able to save 2.5 days versus an offset well and exhibited a 40% increase in rate of

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penetration or drilling speed and a 16% reduction in torque, extremely strong performance.

And in Canada, Encapso was used for 2 new wells and was associated with a 50% to 80% increase in rate of penetration relative to the incumbent liquid lubricants.

He goes on to say that the company’s ability to function in these oil-based systems could potentially double its market opportunity both in North America and internationally.

In short, it’s a complicated scenario for the company, and there is no easy answer here: Sometimes you eat the bar, and sometimes the bar eats you.

Now, I’m not blowing smoke and telling you that we’re going to go gangbusters on Solazyme in 2015, but I do feel like it will claw its way back by focusing on its high-margin products like AlgaVia and Algenist.

If it gets Encapso churning, it could make for a very reasonable three-prong approach to profitability.

I’m not one to take 75% losses unless I really have to, and I still see potential to scrape some of that money back. My feeling is that Wall Street just hammered the stock well past reason. In fact, shorts on the company reached insane levels leading up to all of this...

With that, I offer you these options three:

1) Sell Solazyme for your year-end tax loss to offset any gains you may be taxed on.

2) Double down and dollar-cost average your position. We bought at $11, and it is sitting at an all-time low of $2 something. If you dollar-cost average, your position will sit somewhere in the neighborhood of $7 a share, which is totally attainable within the year. In fact many estimates put it in that realm.

3) Simply hold it long term and wait for it to get back to a respectable position. This could take quite a while.

For the record, we’ll be waiting on making any moves until we see some sort of sign that it has received contracts for Encapso and expanded its other high-margin lines. Keep your eyes peeled for updates.

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Tying Down the MastIt’s that time of the year: holiday parties, mistletoe, a bit too much eggnog — a combination that’s enough to cause trouble for anyone (... or maybe just me?).

In any case, between the yuletide and New Year’s resolutions, the end of the year is a prime time to take inventory of your finances...

And the best place to start is with your tax return.

You could be giving up far more money than necessary to the giant suck-hole that is the U.S. government. If you are any kind of pirate, you know damn well we give the IRS no quarter.

Do yourself a favor and take advantage of tax-saving strategies. There are a number of different areas you need to look at — including retirement savings, investment income, itemized deductions, home improvements, and health savings accounts.

Of course, this is just a small list, and you really do want to make sure your refund is as large as possible, right? At the very least, you want the government to get less of your hard-earned money.

Maximizing Your Write-Offs

When it comes to getting the most from your taxes, one of the first things you need to do is practice due diligence on possible deductions.

Most experts seem to advise looking into deferring your income until the following year (or possibly later). This could mean something like delaying a big bonus at work, an extra-special commission, or just any decently-sized chunk of money that you could convince an employer to pay you in the coming year rather than now.

Consider Investing in a Roth IRA

Contributions are made to this account on an after-tax basis, but all the income made in the

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account can grow tax-free, subject to certain very easy to satisfy requirements.

If you have extra cash, the best thing to do is to max out your Roth IRA. You can contribute $5,500 per year tax-free (or $6,500 if you are over 50).

The next thing to consider is possible itemized deductions. Two great areas to start with here are home mortgage interest and property taxes.

Not only do homeowners get to include their property taxes along with their mortgage interest as a write-off, but you can also deduct interest on debt that was incurred to buy, build, or substantially improve your principal residence and one other personal residence.

Take advantage of these deductions if at all possible. You may want to consider kick-starting that end-of-the-year home improvement project.

If you have a health savings account (HSA), you can max that out as well. Keep in mind you do not have to use the funds for health care needs; you can actually invest the money within the HSA for your retirement.

Jorie Pitt, an associate financial planner at AHC Advisors, told MarketWatch:

You get a tax deduction for your contribution and you get tax-deferred or tax-free growth on the contribution and the investment earnings depending on the future use of the money. If you use the HSA assets to pay for qualified health-care costs now or in the future the contribution and the earnings are withdrawn tax-free. If, after the age of 65, you use the HSA assets for non-health care costs then the contribution and the earnings were tax-deferred and the money will be taxed upon withdrawal from the HSA.

The limit for HSA contributions is $3,250 for individuals and $6,450 for families.

Planning for Your Individual Situation

Of course, each person and each family will be slightly different. You may have had some major life-changing events in the past year, like buying or selling a home, getting married, or even going through a divorce. All of these things can have impacts on your taxes, so you should take the time now to consider how to work around all of them and get the maximum return.

Maybe you have some stocks that performed all over the map during the past year?

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Tax Selling

A quick caveat: If you plan on selling losing stocks for tax purposes, I recommend speaking with your accountant or financial advisor to find out the best approach. Simply put, when you sell stocks for a gain, you are taxed on that as “a capital gain.” However, if you sell for a loss you can claim that loss on your taxes as a “capital loss” to offset whatever gains you may have.

It also helps to have held the stock for a full year to lower your tax-liability.

Now, I am not an accountant, so I seriously recommend you have this discussion with them before making such moves.

The area is full of possibilities. You could take some of the stock or even fund shares and donate those to charity in order to bump up another deduction on your return. This works great if the shares have increased in value, since you also avoid paying tax on their appreciation.

If the stock has been at a loss (maybe an even better reason to consider donating), sell the stock first so that you can claim the loss as a deduction and then make your charitable donation... You’ll get two deductions at once.

Those of you who are aged 70 1⁄2 can make cash donations directly from your IRA to qualified charities. These can be up to $100,000 in total, and they are completely federal income tax-free. They do not get reported as charitable write-offs on your tax forms, although they will still definitely help your tax profile and allow you to keep more of your money. Be sure to check with a professional on this one, since there are some unique requirements.

If you are self-employed, another great idea is to consider employing your children. This means income can be shifted from you to your child or children so it is not subject to the kiddie tax rule.

You will likely see payroll tax savings, since wages paid by sole proprietors to their children (aged 17 and younger) are exempt from both Social Security tax and unemployment tax. Plus, your children could then start contributing to their own IRA account. (Of course, the wages paid must be reasonable, given their age and what they actually do.)

Again, this should encourage discussions you should have with your accountant or financial advisor.

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Plundering

Last month, I brought you the T-bird Pharmaceuticals recommendation. I’m happy to report we’re already up 20% on that position. Not too shabby for less than a month — but I’m aiming for some serious blockbuster gains over the next few months.

If you didn’t read our Q&A with CEO Robert Gagnon, you can do so in last month’s issue here.

Here’s part two, where Robert lays out the plans for making T-Bird a banging business in 2015.

Crow’s Nest: So once a patient is tied to a licensed provider, they can’t just jump around and buy whatever medication they need or want?

Robert: No, so when the patient gets their document, it is tied to us... They send the prescription, and we go through the process of verifying them. But once they get loaded in the system, they can log in and buy stuff just like logging into Amazon and buying shoes...

Once they are onboarded, it’s typical e-commerce.

Crow’s Nest: So you are really focused on the sticky customers... bad pun not intended.

Robert: Exactly. That’s our market right now... the market encapsulates an entire user group. When you look at the broad community for pain management, for instance, it’s a $30 billion global marketplace. 75% of people seeking medical marijuana are looking for pain relief. So we look at the broad topic products and then go after that market as a substitute for NSAIDs [nonsteroidal anti-inflammatory drugs] and other pain management approaches.

It can be far better than conventional therapies in some cases. That will eventually shake out...

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Crow’s Nest: When I met with talk show host Montel Williams, he blew me away with his anecdotal evidence of how he treated his multiples sclerosis. He essentially attributed his entire recovery to medical marijuana.

Robert: Yes, the plant is currently very misunderstood regarding the potential medical upside. But I think that there is sufficient anecdotal client evidence: “I tried this and it worked for me.” That has already given it such a huge groundswell for this product... the individual stories and beliefs.

We just need to show that care is being used — that we’re producing a plant-based product rather than essentially a building block for chemical production.

Crow’s Nest: How large is your mailing list right now for potential clients?

Robert: Well, we cannot legally offer the product to more people than we can provide for. So as we develop out our customer base, we want to grow at a rate that we can supply. If you can’t supply, you run into the PR problem with disappointed customers that could retract their documents and simply go somewhere else.

You also have to keep in mind that these folks are some of the most vocal, connected people around, so you have to be very mindful not to disappoint anyone. Displeasure is shared openly on these social networks.

So that’s why were taking this a step at a time and want to make sure we make all of our customers happy. We’ve been extremely cautious to keep our expectations reasonable and focused. That’s the nature of our business model.

Crow’s Nest: That seems like a sound way to develop a solid product. Speaking of your customer base, I read in your presentation that you can break even with as little as 400 patients?

Robert: Yes. It comes from our start-up background. Scaling out is more important than building up and trying to backfill.

*Thunderbird estimates the overall Canadian market is estimated at 450,000+ patients (and may be as high as 1,000,000).

Crow’s Nest: How about the pricing? You guys seem to be branding yourselves as a premium product.

Robert: We’re in the competitions range, but we’re not fighting for the bottom price rung; you cannot be both Wal-Mart and Saks Fifth Avenue. You have to choose what

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your brand is going to be...

From the beginning, our motto has been quality, purity, and security. Those three values are our touchstones, and when we approach the market, we have to be cautious that price point never becomes a resource drain on the corporation: We’re not filling a ton of orders without making make much money on it.

We focus on the revenue-generating customers, and what we’ve aimed for is the quality prospect.

Crow’s Nest: Quality over quantity. Is the premium focus foreshadowing the eventual legalization of marijuana in general, allowing you to adapt quickly to more lax regulations?

Robert: The way we look at it is Ferrari never has to put their products on sale at the end of the year, while Hyundai does. Different market, different approach. It’s building a product where we can sell everything we have, versus growing as much as possible and trying to go out and find a client to buy it all.

Ferrari didn’t start by producing a cheap economy car. But Hyundai did and have spent decades trying to outgrow the legacy of the Pony. So trying to resurrect a brand after experimenting with a cheap product, it is very difficult to do.

What we have basically done is say, “We going to produce a good range of products across a range of prices.” But our focus is producing a top shelf-quality product, which exceeds anything else you can buy. While you may be able to get a cheaper product on the street, you won’t be able to get a clean, safe product produced under pharmaceutical conditions.

If we secure the premium ground, we’re able to better position ourselves for a changing marketplace.

Crow’s Nest: Being the only regulated company from British Columbia — which is essentially the global gold standard for marijuana quality — it seems like you’d be in a good position.

Robert: Yes, we basically have a Cola-Cola brand at the international level, and we didn’t have to pay a dime for it.

Crow’s Nest: Thanks for your time, Robert. It was great talking to you.

Robert: Thank you Jimmy, likewise.

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IR manager Kam Thindal also confirmed to me that the company is currently looking to start a scientific medical advisory board... including some members from the medical and research fields, one of which has a background in conducting and participating in these types of clinical studies.

The company recently brought on an industry heavyweight with experience in the medical and biotech fields.

Dr. Bin Huang joined the company as President and Chief Operating Officer — a key part of its growth and commercialization strategy. From the press release:

Dr. Huang began her career as a Research Scientist with Allelix Crop Technologies focusing on improving canola growth traits such as yield and disease-tolerance. She has also worked at GMP Securities as a Partner and top-ranked Biotech analyst. Dr Huang’s management experience includes serving as President & CEO of Cytovax Biotechnologies Inc. and WEX Pharmaceuticals Inc., both of which were Canadian public companies engaged in the development of pharmaceutical products. As CEO of WEX, Dr. Huang led the clinical development of Tetrodotoxin for cancer pain under the auspices of both the FDA and Health Canada, oversaw drug manufacturing in Canada and Asia, and secured commercial agreements with pharma partners. With both WEX and Cytovax, she was responsible for raising both private and public capital, managing capital markets relationships and ensuring public company compliance.

Dr. Huang received her Ph.D in Plant Cell Biology from the University of East Anglia, UK, her MBA from the University of Toronto and her BSc in Plant Genetics from Wuhan University, China.

Noted Dr. Huang, “I am very excited to join a company that has a strong foothold in this new and growing industry, and in particular one that wants to bring a strong pharmaceutical approach to its business. I am very impressed by how much the founding team has accomplished in such a short period of time and in an extremely cost effective manner. Capital efficiency and maintaining margins will be paramount as Medical Marijuana companies go to scale.”

Here are the big numbers for T-Bird:

T-Bird Pharma Inc. (T-Bird) is the first and only publicly listed, federally approved licensed producer of medical marijuana from British Columbia (BC). It is one of only 13 licensed producers in Canada.

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Here’s what it offers:

• A technology-driven approach to growing medical marijuana and security that is both scalable and efficient.

• Premium pharmaceutical-grade products grown in a sterile, dirt-free clean room environment.

• Development of proprietary technology and software, which will allow for break-even with 400 patients.

• Shipments to patients targeted to begin late 2014.

• Focus on premium BC-developed strains with a portfolio of over 60 high-grade medicinal strains (including popular named varieties).

• BC ‘bud’ is a world-renowned global brand.

• Most undervalued of the four publicly traded licensed producers.

• Experienced and aligned leadership.

We’re buying under $0.75

I want to deliver my personal thanks to all of you reading this. A captain is nothing without his crew, so I couldn’t be more grateful that you’ve all signed up for this voyage.

I’d love to hear how you did this year: the good, the bad, and the ugly. Please shoot me a line at customerservice@angelpub.com to let me know. Your feedback is crucial to our 2015 voyage, so please honor me with your insights and wishes.

We’re all brethren of the coast... Let’s work together to make next year the most fruitful adventure yet.

With that, I leave you with a toast to a safe and happy holiday season...

Our lager,

Which art in barrels,

Hallowed be thy drink.

Thy will be drunk,

At home as it is in the tavern.

Give us this day our foamy head, And forgive us our spillage,

As we forgive those who spill against us.

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And lead us not to incarceration,

But deliver us from hangovers.

For thine is the beer, the bitter, and the lager.

Godspeed,

Jimmy MengelThe Crow’s Nest

The Crow’s Nest, Outsider Club LLC Copyright © 2013, 111 Market Place, Suite 720, Baltimore, MD 21202. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. The Crow’s Nest or Outsider Club LLC does not provide

individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after

consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable

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