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).

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Xmas Trimmings, etc.

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ASFI, Asta Funding, BIW, CLNY, Colony Financial, Conwert, correlation, CWI, distressed assets, FIG, financial crisis, Fortress Investment Group, intrinsic value, Karl Ehlerding, KWG Kommunale Wohnen, Leverage, majority control, Merry Xmas, Price/Book, Stavros Efremidis, TRIB, Trinity Biotech

Asta Funding (ASFI:US) $9.37:   I’ve marginally trimmed my stake from 3.8% to 3.6% – consider this to be purely risk ‘house-keeping‘. This realizes a +22% gain vs. my write-up price on this small slice, and a +31% gain vs. my actual net entry price (which inc. the impact of dividends). I never got around to an Asta follow-up, as the share price (& NAV) just steadily chugged higher. Despite the rising share price, I’ve been bemused (even encouraged) by the general air of neglect still attached to this stock. Even ASFI shareholders have expressed a distinct lack of enthusiasm for the company’s progress in the past year! This is particularly in reaction to the company’s diversification into personal injury & divorce financing. Which puzzles me…

I’d counter this distaste in a number of ways: i) This new direction was prompted by Asta’s reluctance to pay up to acquire new distressed consumer receivable portfolios*. Personally, I’m delighted – how often do you see management take an absolute, rather than a relative, approach to value? [Picking up distressed debt at 9 cts on the dollar, while everybody else pays 10 cts, doesn’t mean you’ve bagged an actual bargain!] And to resist pissing away idle cash burning a hole in their pockets is quite admirable too. Of course, returning capital (via share buybacks) is a great alternative – Asta’s pursued this to a limited degree during the year. However, considering current metrics, I consider the short term return/attraction of a buyback is fairly even balanced against the potentially higher returns on offer from a (gradual) investment of their cash into distressed assets.

An Investment To Die For..!

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Alternative Asset Opportunities, catalyst, CDC, correlation, credit risk, Event Driven, Grim Reaper, intrinsic value, IRR, Leverage, life expectancy, life settlements, mortality tables, NAV discount, policy premiums, SL Investment Management, TLI, Traded Endowment Policies, Traded Life Interests, viatical settlements

Cash/bonds just bore me… Event-driven investing is a far better alternative. It’s low risk, low correlation, and it offers attractive annualized returns. But the safest short term event-driven investing is time & research intensive, and low absolute returns present a risk (‘picking up pennies…‘). Longer term event-driven/catalyst investing usually offers far better absolute returns, but at a price: i) increased market/economic correlation, and ii) no assurance your returns will be positive. I’ve written about this here. My solution: All I want is a low risk & uncorrelated investment which guarantees significant increases in intrinsic value over time. That’s like asking for the sun, moon & stars…but here’s a snap-shot of the ultimate in event-driven investments:

German Residential Property (Part III)

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absolute return, Austria, dividend yield, financial crisis, financial derivatives, German bunds, German property, Germany, home ownership, income/dividend bubble, intrinsic value, land grab, Leverage, Margin of Safety, Mr. Market, NAV discount, Net LTV, Price/Book, REIT/MLP sector, relative value, rental yield, residential property, safe-havens, special situations

Continued from here.

OK, now we’ve looked at German residential property fundamentals. The current supply/demand & home ownership rate, rental yields, safe-haven status, and particularly the low valuations, certainly appear to offer a persuasive investment case. So, how do we exploit it?!

As I’ve said, I’m perplexed by the general investor obsession over direct property investment. What a hassle! And let’s correct a key misconception: People say they prefer direct investment as they can leverage it up – something you can’t, or shouldn’t, do with an equity investment! Yeah, sounds logical…but it’s complete rubbish! That coveted (?!) leverage is already embedded in listed companies (and far more efficiently/cheaply than you could obtain).

Let’s say you’ve a spare 300 K knockin’ around. You could buy a 1 mio property, with the help of a 70% mortgage (and years/decades of property/tenant headaches to come!). Or you could invest in the equity of a listed property company that owns 1 mio of property (with the same 70% leverage). All at the click of a button & an occasional read of their financial reports. What an easy choice… OK, but who knows where the hell the share price might trade?!

German Residential Property (Part II)

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arbitrage, Berlin, commercial property, correlation, Debt/GDP Ratio, Deutsche Mark, Eurobonds, Europe, European sovereign debt crisis, Eurozone, GDP growth, German bunds, German property, Germany, Highway to Hell, Leverage, Manhattan, Margin of Safety, Net LTV, quantitative easing, rental yield, residential property, safe-havens, unemployment rate

Continued from here.

Economy:

Germany’s by far the largest & strongest (major) economy in Europe, with an average real GDP growth rate in excess of +3.3% in 2010 & 2011. Growth remains positive in 2012, while 2013 GDP growth’s forecast to be +1.7%. Far better than most EU growth rates in the same period…

It’s one of the few countries with a primary budget surplus. Actually bested by Italy, what a surprise! Germany’s Debt/GDP ratio at 81.6% isn’t much better (also surprising) than the EU average of 88.2%. But the majority of citizens (& investors) remain supremely confident in Germany’s ability to manage its own finances – and rightly so, I believe. [An important point to make: Now, really, an 88% Debt/GDP ratio? What crisis..!? I think not. I’d venture we can trace the current market hysteria squarely back to the bumbling & foot-dragging of Europe’s politicians. A clear message for US politicians as they merrily race down their own fiscal/debt Highway to Hell. An inability to learn from history’s unfortunate, but perhaps forgivable – an inability to learn from today’s headlines, however, just makes you a complete f**king idiot,sir!]

TGISVP – Hot? Not?!

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Alpha Portfolio, Barron's, Beta Portfolio, binary outcomes, Fastnet Oil & Gas, FBD Holdings, garbage stocks, intrinsic value, junior resource stocks, Leverage, Margin of Safety, Petroneft Resources, portfolio allocation, portfolio performance, risk management, Smart Alpha Portfolio, Smart Beta Portfolio, stock screener, TGISVP, Total Produce, Trinity Biotech, US Oil & Gas, value investing

In my last post, I was delighted to see the TGISVP Alpha & Beta Portfolios continue to expand their level of out-performance vs. their ISEQ benchmark. Particularly pleasing was the sight of my favourite, the Smart Alpha portfolio, far outpacing the others with a 21.1% YTD absolute return. But we’re still only 9 months into the experiment, so clearly we need a far longer horizon to confirm if this performance edge is sustainable.

It also makes me wonder if there’s a lesson to be learned here..? No, not whether value investing out-performs in the long run – I’m fully convinced of that already! [And if you’re not, please please read some of the numerous papers published on the topic]. But whether a mechanical approach is perhaps better?

Ha! No, I’m certainly not planning on becoming a stock screening convert..! But I wonder: Even if you’re a v competent & disciplined value analyst, even if you’ve conquered much of the fear & greed involved in investing, perhaps that demon mind still trips you up at that v last hurdle, or two..? When you’ve a nice stack of portfolio candidates lined up, why do you then take a shine to some & not to others? Why does one special stock really get your heart racing, far out of proportion to its obvious prospects? Why do you end up triple invested in one stock vs. another, when they both lined up pretty much even-stevens in terms of risk/reward?

Livermore Investments (I)

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activist investors, Baker's Dozen, CLOs, closed-end funds, delisting risk, Everest Capital, intrinsic value, investment companies, Leverage, Livermore Investments, NAV discount, Net LTV, Owner-Operator, principal-agent problem, private equity funds, real estate, safe-havens, share buyback, TER

Livermore Investments Group Ltd. (LIV:LN) is one of my 2012 Baker’s Dozen stock picks. And doing v nicely too…up +79% YTD! This post isn’t just specifically about Livermore – LIV also offers great perspective on owner-operators, share buybacks & shareholder value. Oh, and – shhh, draw the blinds – I’ll whisper it: De-listings...

LIV is a London-listed (closed-end) investment company. Its portfolio is focused on 3 different investment areas:

i) Real Estate:   The major holding is $38.2 mio (net of related debt) invested in Wyler Park, a commercial/residential Swiss property. It’s fully let, on a gross 5.1% rental yield, with development potential for another 37% of floor space. The other significant investment is $14.7 mio of convertible debt in SRS Charminar, an Indian real estate company. Unfortunately, the stake’s been subject to long-running litigation. But with ample initial over-collateralization, and an agreed settlement this year, continuing uncertainty’s now hopefully related to timing & expenses, rather than recovery value. Net of interest rate swaps, total net property investment is $45.9 mio, or about 32% of NAV.

How About Another Catalyst? (Part VIII)

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acquisitions, catalyst, intrinsic value, IRR, Leverage, major sale, principal-agent problem

Continued from here, and here’s the first post in the series.

Well, what the hell have I been up to..? Yes, I know I’ve owed a couple more posts on catalysts for some time now. But that’s the luxury of being a blogger, I’m master of my domain! Oh, er…I mean I can write about whatever I fancy each day/week. But damnit, Carstairs, a gentleman always finishes what he starts..! OK, OK, here we go: btw While I believe my final two catalysts are genuine catalysts, note they’re harder to spot/evaluate, riskier and may require a longer time frame to crystallize. [You may have noticed I’ve broadly laid out this series in terms of increasing risk & timelines].

Learn to Love the Distress

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Apollo Commercial, Colony Financial, Goldman Sachs, Kinder Morgan Energy, Leverage, PennyMac, REIT, Starwood Property

I’m no big fan of US REITs (or MLPs). I can’t count the number of excitable headlines/articles I’ve read about REIT/MLP yields…but still wonder if there’s a decent investment amongst the entire bunch?

You’re certainly not going to find one in the non-traded REIT sector. You may have never heard of these, but you can bet they know all about them down at the senior centre. What’s the sales pitch for this garbage? Hey, we’ll take 10% up-front in commissions, we’ll charge you again to redeem (if we even let you redeem), you’ll have no idea what your shares are really worth…but, gee heck, look at the yield!! Oh, and we’ll never point out that much of your yield is simply a return of capital. Perfect for the old dears… Read this v entertaining REIT forum. But this isn’t just a US phenomenon, there’s plenty of similar horror stories in Europe too.