Catalysts – A Summary (Part II of II)

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activist investors, Argo Group, Avangardco, binary outcomes, Carl Icahn, catalyst, Daniel Loeb, Expected Value, government regulation, Herbalife, IRR, junk bonds, litigation, major sale, NAV discount, Risk Arbitrage, Robert Chapman, share buyback, shareholder activism

Continued from here.

iv) Activist Investors are my next catalyst. Obviously, there’s no specific timetable here, but since most activists are performance-driven hedge funds, a 6 mth to 2 yr timeline is reasonable. Activists in the UK usually target asset discounts & realizations (so investment trusts/companies are ideal), while European/US activists are perhaps more biased towards operational change (which may require a longer investment horizon).

Most activists prefer to agitate for change behind the scenes, but some prefer to be more public: Carl Icahn (I read King Icahn at least once a year) is the king of the activists – he’s 77 now, but is more of top of his game today than he was 30 yrs ago! Other notorious activists (& 13D filers) are Dan Loeb of Third Point (and here, though he claims he’s mellowed now!) & Robert Chapman, who (presumably!?) introduced the first ‘fuck‘ in an SEC filing. More in-depth reading material includes ‘Risk Arbitrage‘ by Wyser-Pratte, ‘Extreme Value Hedging‘ by Orol, and certain chapters of ‘Free Capital‘ by Guy Thomas.

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Catalysts – A Summary (Part I of II)

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Alternative Asset Opportunities, asset allocation, catalyst, correlation, dividend tax treatment, Event Driven, Expected Value, fighting the Fed, Investegate, IRR, Liquidations, Margin of Safety, offer premium, portfolio allocation, QE, Recommended Cash Offer, Risk Arbitrage, risk-on risk-off, takeover offers, Takeover Panel, VIX, volatility, wind-down

My 10-part series on catalysts last year (stretching from Jan to Dec!) was well received, judging by the readership & links. I vaguely promised a summary to wrap up the series – as we’re well into the new year (already?!), it now seems appropriate to deliver that post (& hopefully it proves useful).

By the end of last summer, I concluded there’s little point fighting the Fed… A fortunate decision, as the market’s been decidedly risk-on since then! Though I must say, the power of central bank liquidity still surprises me. If you recall, last summer, we appeared to face a pretty bleak outlook both sides of the Atlantic: The fiscal cliff in the US & the sovereign debt crisis in Europe. [Hmmph, different stories…same destination!] Personally, I considered the cliff to be just like those periodic kerfuffles over the US debt ceiling – no genuine threat, but divisive political rhetoric could certainly roil the markets (& perhaps prompt a rating-agency response). On the other hand, the European crisis…er, what happened, where the hell did that go..?!

This risk-on attitude’s left my portfolio light on investments with shorter-term/lower-risk catalysts (i.e. event-driven investments). However, I still strive to pick new investments which (ideally) possess at least one longer-term/higher-risk catalyst. That type of catalyst doesn’t necessarily mean you avoid downside risk, but hopefully it stacks the deck in your favour vs. what the average value investment (complete with margin of safety) might offer. It may also accelerate the time-line for a stock’s realization of its intrinsic value/upside potential. Anyway, much of my event-driven exposure was ultimately re-invested in Alternative Asset Opportunities (TLI:LN) – so I simply exchanged a low return/relatively uncorrelated risk for a cheap/high return/totally uncorrelated risk! Go on, you might want to give it a try..! 🙂

Correlation…Schmorrelation!

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activist investors, agri-business, Asta Funding, beta, catalyst, Colony Financial, correlation, distressed assets, Europe, Event Driven, favourite stock, Fortress Investment Group, litigation funding, Margin of Safety, reading, Risk Arbitrage, risk management, stock ideas, umbrellas & ice cream, value investing, wind-down

Monday, I re-posted my appeal for your fave stock ideas, which was originally prompted by the dog days of summer. Those months when trading volume & news slows down, and you’re off for a relaxing holiday, are a perfect time to open your mind & embrace new ideas. Take along some good books for their historical perspective, magazines to dip into the current market/economy buzz, and (most importantly) stacks & stacks of annual reports. And just read, read, read..!

Personally, my focus over the summer’s been on correlation. Some investors are great at stock-picking, risk management & portfolio construction, while others are abysmal..! But, all too often, there’s precious little difference in respective performance. Because we’re all terribly correlated with the market, and with the economy – yep, we’re all making pretty much the same big bet! A preference for discounted assets, special situations & stocks with specific catalysts is my attempt to escape this correlation risk. Medium-longer term, I think this approach offers a genuine ‘edge‘ via lower beta stocks. Trouble is, shorter term, market correlation (especially in market setbacks) can simply trounce all other factors…

TGISVP – H1 2012 Performance – Firing On all Cylinders!

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Aer Lingus, AGI Therapeutics, Alpha Portfolio, Beta Portfolio, Botswana Diamonds, Cove Energy, Datalex, ISEQ, Karelian Diamond Resources, market-neutral, natural resource stocks, Ovoca Gold, Petroneft Resources, portfolio performance, Prime Active Capital, Providence Resources, Readymix, Risk Arbitrage, Siteser, Smart Alpha Portfolio, Smart Beta Portfolio, TGISVP, Worldspreads

Now H1 2012 is over, it’s time to revisit The Great Irish Share Valuation Project. Here’s my Q1 2012 performance post – well worth revisiting as background, but I’ll recap some important points below.

Let’s first look at individual stocks. I count 4 de-listings (which I’ll continue to include for performance purposes, at their final values): AGI Therapeutics (AGI:ID/LN) was a profitable Event-Driven investment for me, and inspiration for some detailed Risk Arb. posts. Siteserv (SSV:ID/LN) & Worldspreads (WSPR:LN/ID) both exited amid scandal – possibly criminal in the case of the latter, with alleged charges now including share price manipulation, in addition to accounting/actual fraud. Finally, Readymix (RYX:ID) succumbed to a Cemex (CX:US) bid, illustrating that the right investment thesis (an eventual takeout by the controlling shareholder) is not enough. Timing & the price you pay are equally important – despite the bid premium, RYX’s multi-year operational & price decline meant v few long term shareholders made any profit. Looking ahead, Cove Energy (COV:LN) seems set to follow the de-listers, but promises to provide some final drama!

AGI Therapeutics – Anatomy of a Takeover (IV)

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AGI Therapeutics, AIM stocks, compulsory acquisition, delisting risk, EUR/USD, Event Driven, Expected Value, Gross IRR, Irish shares, market-makers, Recommended Cash Offer, Risk Arbitrage, takeover offers, technical analysis

Continued from here.

OK, to recap the latter part of my previous article, I put forward 2 (hopefully strong) arguments why you should embrace (unhedged) FX risk in your event-driven investing (and, of course, elsewhere in your portfolio). With AGI Therapeutics (AGI:ID/LN), however, I essentially faced no FX risk on the deal in the end.

Remember, AGI traded in EUR (or GBP) but the takeover price was $0.1171 per share (and holders could opt for equiv. EUR proceeds). My solution was to round-trip surplus USD I had available. Yes, I’d incur a small FX spread to convert USD for my EUR share purchases, but by opting to receive USD takeover proceeds I’d eliminate subsequent FX risk, and end up back in USD cash.

Avon Products – All Pig, No Lipstick…

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Andrea Jung, Avon Products, bad debt, Brink's, capital expenditure, Coty, debt, free cash flow, intrinsic value, Johnson & Johnson, JP Morgan, M&A, offshore cash, Pension Deficit, Risk Arbitrage, share repurchase, Silpada, Venezuela, Wal-Mart

– Avon Products (AVP:US) has high quality beauty products, a long/distinguished history and a premier reputation in direct sales. It offers its 6.4 million direct sales reps. (‘Avon ladies‘) a compelling income/empowerment opportunity, while offering investors attractive global/emerging markets exposure (83% non-US revenues)

– Sounds like the start of an interesting investment write-up?! But what on earth’s happened to Avon in the past several years? Good God, it’s like hearing your dear old maiden aunt’s been raped by Somalian pirates..!

AGI Therapeutics – Anatomy of a Takeover (II)

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AGI Therapeutics, binary outcomes, Gross IRR, Gross Return, intangibles, intrinsic value, John Paulson, junior resource stocks, Risk Arbitrage, Warner Chilcott, Warren Buffett

Continued from here. OK, we’ve run through the key components of the AGI Therapeutics (AGI:ID/LN) offer. You now have a pretty good idea of the terms, attractiveness, timeline and likely success of this deal. But how does it stack up from an investment perspective? Well, as I said, let’s not approach this backwards – as with any investment, no matter your excitement or conviction about the company/stock story, intrinsic valuation comes first:

AGI’s most recent balance sheet (Jun-11) is pretty simple – they’ve $9.251 mio of Cash on hand, while Net Payables of about $0.3 mio are offset by a subsequent sale of patents to Warner Chilcott (WCRX:US) for about $0.3 mio also. This sale probably wiped out some/all of the $0.241 mio in recorded Intangibles, and there’s really nothing else to the B/S. btw I tend to ignore balance sheet Goodwill/Intangibles/etc. anyway when calculating Intrinsic Value. You should be able to confirm/calculate the value of intangibles from other sources – like reserve reports, industry comps, superior/sustainable earnings etc. – if you can’t, it’s usually best to ignore these ‘assets‘ (try tell this to your average junior resource company investor, sigh…).

AGI Therapeutics – Anatomy of a Takeover (I)

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AGI Therapeutics, Ark Therapeutics, Carl Icahn, catalyst, Daniel Loeb, Recommended Cash Offer, Risk Arbitrage, Seth Klarman, TGISVP

This post, and this one here, are good required reading. Yes, AGI Therapeutics (AGI:ID/LN) was the Risk Arb investment to which I was referring.

This is the one Irish share I did not disclose owning during TGISVP. My apologies, readers – but AGI trading volumes were atrocious, and I was still building a position with great difficulty. However, when I got to covering AGI during TGISVP, I simply tagged its fair value as simply being equal to the Recommended Cash Offer – so no issues there, I believe. Now that I recently received my final batch of proceeds from the AGI takeover, I thought it might be useful/interesting to walk through my thinking and exact positioning throughout the process.

How About Another Catalyst? (Part VI)

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ABC Arbitrage, activist investors, Biglari, Bourbaki, Carl Icahn, Christopher Mills, Crystal Amber, Damille, GPG, Harbinger, Laxey, Risk Arbitrage, Ron Brierley, Sherborne Investors, Terra Catalyst

Continued from here:

I’m not suggesting you swap your whole portfolio into an activist tracker portfolio! There are some websites/blogs out there suggesting this approach, but I’m not convinced. This probably just reflects my (mild) aversion to ‘mechanical’ investing approaches. I also think if you actually tackled this kind of project in the manner it deserves, you’re probably a pretty experienced and disciplined investor already!

The other problem is that many activists, by definition, are often taking on poorly performing companies, possibly with equally poorly performing management. (Another reason activist hedge funds always have their eye on the clock!). Or they invest in a situation where, for the life of me, I can’t see any apparent value. Do you really want to coat-tail on an investment like that?

How About Another Catalyst? (Part IV)

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Expected Value, Greencore, IFG Group, IRR, Margin of Safety, offer premium, preliminary approach, recommended offer, Risk Arbitrage, takeover offers, Takeover Panel

Continued from here:

iii) Takeover Offers are a catalyst with a much shorter duration than Liquidations or Wind-downs, usually within 2 to 8 months. In the UK, for example, Takeover Panel rules keep things on a fairly strict timetable. In terms of risk, they probably fall somewhere between the two: Your Gross Return is reasonably stable/well-defined, but price volatility and the chances of failure are a lot higher.

It’s not so prudent to give examples of current takeover offers, as price volatility and news flow can change things all too quickly. But I’ll give a brief update on a current Risk Arb situation in which I’m investing, and share my own observations and approach to this type of catalyst: