Fools may not be selling nanotech venture capitalist Harris & Harris (NASDAQ:TINY), but with the shares down more than 50% so far this year, most others are:


Harris & Harris

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Data current as of Oct. 29, 2008.

Why? I've no idea, but my favorite conspiracy theory features Yahoo! Finance.

Yes, Yahoo!, I'm looking at you
Look at the key statistics page for Harris & Harris. Scroll down to where it says "total cash." There, you'll find a miniscule number: $688,120. For me, that's a lifetime of Cheez Whiz. For Harris & Harris, that's barely enough to cover a follow-on round of funding for one of its 30 portfolio companies.

Trouble is, Yahoo! misses the $61 million in U.S. Treasury securities Harris & Harris claims on its books. Adding those in gives the company more than $62 million in cash and equivalents as of the end of June.

Which almost brings us to the math. First, you should know that, as of the end of Q2, Harris & Harris was on pace to burn through $4 million -- or $1 million per quarter -- in operating cash and capital expenditures this year. Subtracting that leaves $61 million, but with a qualifier: Harris & Harris participated in a follow-on funding round for Cobalt Biofuels last week. We don't know how much capital the firm committed in the deal.

History says the Cobalt deal wasn't likely to be worth more than $1 million. Subtracting that leaves us with a cool $60 million, or $2.32 per share.

Actually, I lied ...
Ready for the rest of the math? As of yesterday's close, Harris & Harris' portfolio of tiny tech investments was valued at just $1.88 a share, or $48.6 million -- 47% below the $92.3 million that the firm's valuation committee had established in June.

And yet CEO Charles Harris told me in a recent interview that he wasn't surprised by how far Harris & Harris' shares have fallen. "In the venture capital industry, in a sense, we've been in a bear market for the past eight years," Harris said. "We've had plenty of time to get accustomed to a downturn."

When Harris speaks of a downturn, he's talking not just about the credit crunch but about an illiquid IPO market. It's a huge problem; Harris & Harris doesn't collect big yields like American Capital Strategies (NASDAQ:ACAS) and Apollo Investment (NASDAQ:AINV) do. Rather, the firm depends on public offerings and mergers and acquisitions to generate cash returns.

Not that the credit crunch helps matters ...
Harris further points out that his firm's shares tend to move violently, far more than the market. He's right. Harris & Harris' beta -- a measure of volatility -- is over 2, which means that, on average, the stock moves twice as much as the market does. Plenty of other high-beta stocks have suffered as much or more as Harris & Harris so far this year:



YTD Loss

MasterCard (NYSE:MA)



Deckers Outdoor (NASDAQ:DECK)


(53.6%) (NASDAQ:AMZN)


(39.5%) (NASDAQ:BIDU)



Sources: Motley Fool CAPS screener; Yahoo! Finance as of Oct. 29.

Good companies, rotten returns.

Your question, answered
So should you be buying Harris & Harris? I have been, and so have insiders. The firm's Net Asset Value -- the aggregate worth of all held assets after liabilities -- was $5.95 per share as of the end of Q2.

That probably won't hold. Valuations will instead be adjusted downward. But a 47% drubbing of the core portfolio, a portfolio that's investing in tiny innovations in biotech, clean tech, and everyday tech? I doubt it, and yet that's what it would take in order to make yesterday's close equivalent to fair value.

Mr. Market's hair is on fire. And he's hosting a fire sale to celebrate.

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Fool contributor Tim Beyers recently returned from a tour of Silicon Valley with his Rule Breakers teammates, during which they visited more than a dozen established and emerging innovators, including a Harris & Harris portfolio company. Care to learn more? Just tell us where to send you our updates. It's 100% free.

Tim owned shares of Harris & Harris, American Capital, and Apollo Investment at the time of publication. Harris & Harris and are Rule Breakers recommendations. Amazon is a Stock Advisor selection. American Capital and Apollo Investment are Income Investor picks. Apollo is also a Hidden Gems Pay Dirt recommendation. The Motley Fool's disclosure policy, like Yoda, is tiny but mighty.