Double Bird Strike and the Margin of Safety

January 20, 2009

"I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern ship building has gone beyond that." Captain Smith, Commander of Titanic

Contrast the attitude of Commander of the Titanic and the pilot of the US Airways plane that crash landed in the Hudson River.   Plane-bird collisions are common but an extremely rare "double bird strike" caused immediate catastrophic failure of both engines.  Investors today need to ask the question, "Are the stewards of my capital more like Captain Smith or Sullenberger?"

Captain Sullenberger is a pilot with over 30 years of experience flying all kinds of planes including gliders.  He also is an air safety consultant. The story of how Captain Sullenberger kept his powerless plane aloft, missed the George Washington Bridge by 900 feet and saved all of his 150 passengers is best told in the video http://wcbstv.com/hudsonplanecrash/us.airways.crash.2.909669.html

His training and attitude gave him and his passengers a margin of safety.  Many superlatives are being used to describe Captain Sullenberger, but his family and people who know him best all use the word humble to describe him.  I believe the story of the crash resonates today because of the parallels with our current financial crisis.

How does this relate to Acorn Energy?  Energy businesses are experiencing a "double bird strike" of plummeting oil prices and closed capital markets that limit capital expenditures.  Energy is the world's most capital intensive industry.  Acorn's customers are looking to cut back wherever possible.  The three aspects of Acorn's margin of safety are 1) our substantial cash on hand 2) our strategy of owning capital light businesses that address pain points in the energy sector and 3) our managers' past experiences in downturns and prudence in growing their businesses while operating at or near breakeven.  Many promising energy technology businesses are going to fail in the coming years because their management didn't have the experience to create a sufficient margin of safety.

Whether you are piloting a boat, a plane or a company it is important to be aware that disasters can happen.  Humility and great leadership like that exhibited by Captain Sullenberger, allows a margin of safety and makes the critical difference between a tragedy like the Titanic or the "miracle on the Hudson".

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Acorn Energy CEO John Moore shares the lessons he is learning as a value investor in emerging growth companies.