Portfolio Allocation (XIII – Alternative Investments)

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activist investors, Alternative Asset Opportunities, alternative assets, Argo Group, asset managers, catalyst, CLOs, correlation, distressed investing, Event Driven, hedge fund seeding, hedge funds, hedge funds of funds, Livermore Investments Group, mortgage hedge funds, portfolio allocation, proprietary trading, Raven Russia, Tetragon Financial Group, thematic investing, volatility

Continued from here.

For now obscure reasons, this series was originally called ‘Hitting the Century‘. At this point, I’ve bowed to the inevitable & given it a more sensible name. It’s still a v leisurely stroll through the topic of portfolio allocation. I usually touch on stocks I actually own quite briefly, as the main objective is to expand on the logic (& attractions) of my specific portfolio allocation. Also, since my approach to investing is better described as thematic rather than (say) geographic, I generally highlight a selection of stocks which may exploit particular theme(s). As a reminder, here’s the allocation pie-chart I’ve used for the series:

Hedge (7%):

Hedge funds were a far larger component of my portfolio. This reflected a gradual migration over the years from open-end funds (many moons ago), to closed-end funds & investment trusts/companies, and finally into hedge funds. This was accompanied by an increasing reluctance to delegate my investing & investments. [Which may surprise you, as investment companies still play a significant role in my portfolio. However, this tends to now reflect my delegation of a specific/specialist investment theme – or simply the selection of a fund itself as an attractive investment, due to the presence of a large discount/catalyst/etc.]. Hedge funds, however, appeared to potentially offer the magic combination of lower volatility/correlation & better long-term returns. Sure, maybe they’d under-perform a bull market, but who cared – they simply ignored down markets, right?!

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Hitting The Century (XII – The Distressed Consumer)

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ATMs, consumer receivables, correlation, credit checks, debt agreements, discount stores, distressed assets, distressed consumers, distressed investing, European sovereign debt crisis, gold, healthcare, home shopping, life settlements, litigation, marijuana, Mosney, pawn shops, payday loans, pre-paid cards, scratch cards, student loans, sub-prime, trailers, unsecured loans, vice stocks

Continued from here (& here). In this post, we’ll turn our attention to the distressed consumer.

You may just consider this exploitation of the great unwashed – but in reality, they’re often the most expensive customers (pro rata) to acquire & service. (Illegal) immigrants also fall into this category – a fairly unavoidable cost of freight they pay in light of their status. [As US-listed Hispanic plays become increasingly touted & expensive, distressed consumer businesses are a cheap back door play on a sub-set of that population]. Also, the amounts involved with these customers is (inevitably) small. Actually, businesses are really targeting a much bigger & more lucrative opportunity – the democratic exploitation of an enduring human frailty:

Financial stupidity…

The obvious place to start here is with the usual vices – drinking, smoking, gambling, luxury goods… 😉 But these sectors are huge & everybody’s doing ’em – I’m going to skip anything so mainstream (but I’m fascinated how highly rated they are!). I probably should consider drugs too, with marijuana access now increasingly legal & convenient across the US – but the real stupidity here might actually be investing in marijuana stocks!?

While I’m at it, we could make a case for including healthcare – people who make poor financial decisions surely make even worse decisions about their long-term health? [Especially with the communist approach to healthcare in the US & most other developed nations: All good deeds go unrewarded, and the worst 20% consume 80% of the resources… Which simply encourages everybody to race to the bottom (of the ice-cream tub). Look, I’m all for providing a safety net, but not when it’s stuffed with cheese burgers!] Let’s skip healthcare as a whole other mess… In similar vein, a trillion dollars of US student debt could have mutated into the biggest distressed consumer play around – since everybody seems to have now decided they can’t/won’t pay any longer – but that’s underwritten by a suckered population also.

Right, let’s move on – picture you’re an average distressed consumer:

Hitting The Century (XI – Distressed)

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alternative assets, Argo Group, asset managers, bankruptcy, BDCs, business development companies, Colony Financial, de-leveraging, distressed assets, distressed consumers, distressed investing, Fortress Investment Group, income/dividend bubble, JZ Capital Partners, litigation funding, private equity funds

In my last post, I briefly highlighted some difficulties a private investor might face with classic distressed debt investing. Recognizing these limitations, I usually prefer to stick with distressed debt asset managers & investment vehicles. However, there’s many other firms in orbit around this opportunity. Even better, my definition of distressed investing stretches to include what I call the distressed consumer. Consider it exploitation of the poor, if you wish – but the real bonanza is actually much more equal opportunity. To be blunt, it’s really about the exploitation of the (financially) stupid… And stupidity’s an enduring human frailty to bet on, despite the frequent & pointless efforts of politicians to legislate it away.

Let’s begin with the business end of things:

Picture you’re an ailing company whose business & finances are beginning to seize up. You’ve executed on most of the usual cost-control & cashflow measures already, but you still need more juice… Your book of receivables might yield some quick cash – Intrum Justitia (IJ:SS) can help. PRGX Global (PRGX:US) may unearth new and unexpected savings, waste & fraud for you. [PRGX is now expanding into US healthcare. Considering the unconscionable levels of fraud, waste & over-billing in that industry, this could offer them a huge new growth opportunity]. You might have been pinning your hopes on launching/winning a crucial lawsuit, but now you can’t afford the legal expense & uncertainty – Burford Capital (BUR:LN), Juridica Investments (JIL:LN) & IMF Australia (IMF:AU) can lower your risk & provide the necessary funding. Maybe you should also start selling anything that isn’t nailed down – call Ritchie Bros Auctioneers (RBA:CN).

My Dirty Little Dividend Secret…

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Alternative Asset Opportunities, Anton Bilton, commercial property, credit risk, distressed investing, Event Driven, fixed income, high dividend yield, income/dividend bubble, Leverage, Net LTV, priority claims, QE, Raven Mount, Raven Russia, RUSP, Russia, Tetragon Financial Group

I’ve made no secret of my disdain for dividends, or that category of dividend/income investors who seem to be just plain mental..! Especially the US variety of the breed, it must be said. 😉 I was even moved to write a dividend series: ‘Chasing Some Dividend Tail..?’, Parts I, II & III. I recall some of you enjoying it – and believe me, it was just as much fun writing it! But as with all moral arbiters, there eventually comes a mea culpa – ‘I have sinned, oh Lord…but I was seduced in a moment of weakness!’ And here’s mine, replete with tears:

Oh Lord, I couldn’t resist – I fell for a stock flaunting a (near) 13% dividend…the damn hussy!

Let me introduce you to:   Raven Russia Limited (RUSP:LN)

Note I don’t mean their ordinary shares (RUS:LN) – I invested in their preference shares (RUSP:LN). I bought them in late 2009, so my purpose here isn’t to produce a new write-up – but rather to offer what might hopefully be a useful primer for analyzing & buying similar instruments. [Well, at some point – in the current climate, good credit opportunities are becoming increasingly rare. But see this Tetragon Financial (TFG:NA) write-up – though TFG sports a v different level of risk]. Of course, that’s really only useful if I can reproduce my original analysis & perspective – with the help of the financials & my notes from that period, I think I can do just that (hopefully eliminating the benefit of hindsight as much as possible).

2013 – The Great Irish Share Valuation Project (Part VIII)

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Aer Lingus Group, Anton Bilton, distressed investing, equine DNA, Greencore Group, IMC Exploration Group, Irish shares, Irish value investing, ISEQ 20 ETF, iShares MSCI Ireland ETF, New Ireland Fund, Orogen Gold, Pension Deficit, Ryanair Holdings, Smurfit Kappa Group, TGISVP, The Great Irish Share Valuation Project, Uniq plc

Continued from here.

Company:   Greencore Group

Prior Post:   Here     (valuation, see here & here for commentary!)

Ticker:   GNC:LN

Price:   GBP 95.75p

Well, I guess my perspective on Greencore last year was horribly wrong..! I’ve long considered GNC a distressed company, but the market clearly disagrees. So much so, the share price rallied almost 70% in the past year – my price target (of GBP 32.5p) was certainly left choking in the dust! But if my distressed premise is correct – and, objectively, I can’t see how you’d disagree with me – this rally isn’t so surprising. What..?! But companies like this are always a binary proposition – they simply die, or they survive & maybe even thrive eventually. And if everybody still feels blithely happy about them, they present a temptingly cheap buy. Greencore’s also a nice scary reminder of how dangerous shorting can be – poor underlying fundamentals are often ignored far longer than you can take the pain…

Argo Group – Awaiting Results

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% of AUM, alternative assets, Andreas Rialas, AREO, ARGO, Argo Group, Argo Real Estate Opportunities Fund, asset managers, distressed assets, distressed investing, emerging markets, European sovereign debt crisis, Expected Value, intrinsic value, Kyriakos Rialas, Price/Cash, share buyback, shareholder activism, tender offer, The Argo Fund

Argo Group’s (ARGO:LN) Final Results should be released shortly (I’ll try confirm the exact date). In my most recent Argo posts, I published two letters I’ve sent to Kyriakos & Andreas Rialas (CEO & CIO, respectively). I encourage you to review both letters before continuing:

Here’s the first letter (from Nov-2012)

Argo’s share price rallied +6.2% in the following week.

And the second letter (from Dec-2012)

This was sent on behalf of myself, Guy Thomas & some other (smaller) shareholders, representing an aggregate 5% shareholding in Argo. The letter focused on a single specific shareholder distribution proposal. ARGO subsequently rallied +6.5% (in the following week). [In fact, the share price is now up an impressive +36% since my November letter. Despite the rally, I believe Argo remains just as compelling an investment proposition – I currently have a 5.4% portfolio stake].

My recommendations & proposal require little (further) explanation, and I expect shareholders will enthusiastically support all efforts to realize & enhance Argo’s intrinsic value. But I will revisit them in the context of an upcoming results preview – plenty of current & prospective shareholders have emailed me about Argo, so I hope you’ll find this useful. Let’s first consider Argo’s existing funds:

Hitting The Century (X – Distressed)

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asset allocation, Asta Funding, ATM fees, Colony Financial, corporate-media-retail complex, correlation, credit card debt, debt collectors, distressed assets, distressed consumers, distressed investing, Fortress Investment Group, hire purchase, pawn stores, payday loans, pre-paid debit cards, Rent-A-Center, rent-to-own, Sex and the City, student loans, stupidity, Tetragon Financial Group, unbanked, vice stocks

Continued from here.

Remember this series? Yep, I’m spending an unconscionable amount of time getting through it. FFS, I started last June, promising a closer look at my portfolio construction, allocation & metrics. [‘Hitting The Century‘ as it was my 100th post. And ‘Pretty Panties‘ because I was so bemused by the prior response to the phrase]. Instead, you get a bloody epic – like The Hobbit. Oh well, blog rules…how ’bout I try finish by next June?! 🙂

Honestly, I expected it to turn out like this. But I’m delighted at the great reader response – I guess I’ve been trying (ad nauseam) to pound the message home that portfolio construction/asset allocation is just as important as stock-picking. [Studies suggesting asset allocation accounts for 90% of returns have been debunked, but more recent studies certainly confirm an average/minimum 50% of returns are derived from this source]. Unfortunately, this is forgotten/ignored by a lot of investors, even great stock-pickers… Admittedly, they may (occasionally) practice some kind of ex-post allocation – better than nothing, but an ex-ante approach is vital if you really want to end up with a safer, more diversified & higher return portfolio.

OK, let’s trot on – here’s a familiar pie-chart as a quick reminder (sure, it’s a little out of date – but have you noticed my portfolio turnover?!):