Tuesday, November 21, 2006

Con Artists at Cornerstone (CRF)- Of course the best short idea in the universe did not have shares to borrow at $19.39!!!!

You might be interested in checking out CRF(see also CLM), a closed end fund that trades at 170% of its NAV (was 190% recently before a drop). It owns a bunch of Dow stocks as its top holdings (nothing special) and is only 85% invested. The kicker is that the fund carries a current yield of +11.5%, which equates to paying out nearly 21% of its NAV. Clearly this is not the modus operandi of a "going concern" closed end fund, however the meat of the story appears to originate with the fund's largest holder Ron Olin and his relationship with Doliver Capital and a firm called "Deep Discount Advisory"....oh the irony! My best guess is that these firms are engaged in selling shares of CRF to small investors in cash/retirement type accounts where they cannot be margined. There is a distinct lack of large holders, with the thirteen largest stockholders (behind Ronald Olin and related entities) holding a mere 2% of the outstanding shares. Thus, there are no shares to borrow for a short position against this overvalued asset, which is a shame since there appears to be an obvious incentive for Mr. Olin to market his overpriced stock to unwitting investors, who are no-doubt focused on the current yield of the fund (rather than the all-important NAV).

This essentially amounts to selling people a one dollar bill for $2, not exactly a fair trade...especially when you consider the distinct lack of special assets in the fund. Note, being 15% invested in cash has not stopped the fund manager from charging fees on the assets under management. To put it another way, in the chart below, figure that the "white line" should be trading somewhere south of the "blue line"...which implies a 40% plus drop is in the cards for this turkey sometime in the near future (assuming the Dow Jones average does not double...in which case it could remain flat!)

Thought given your position this might be worth passing along, as this would be an excellent case where short sellers would be able to save future investors from "getting their faces ripped off" by Mr. Olin. Note, I am short zero shares due to the clever scheme that has been set up here. (PS- note that CRF is a long-dated fund that traded at a discount prior to the 2000's, but since undergoing manipulative marketing it has been on a rollercoaster ride)

Friday, November 17, 2006

Best Investment Idea of the Year- Overweight recommendation on Chipotle Gift-Certificate Cards (literally)

Sell your house, take out a second mortgage, this is the idea you've been waiting for..... For a pittance of a sum, you can buy a $25 Chipotle gift-card and receive a coupon for a free burrito. Based upon an implied value of $5.50 per burrito, this works out to a 22% return on investment. While the coupon must be used before year-end, estimating by my current rate of Chipotle consumption...that would be good for at least 10-20 trips before year-end (and the gift cards remain valid for at least another year). Thus, the rate of return on your investment increases substantially when you discount the fact that you would have eaten at Chipotle a couple hundred times next year, whether you had bought the gift certificates or not. Essentially, that money is a future "sunk cost", so taking advantage of the gift certificate is equivalent to getting free money.

Wednesday, November 08, 2006

Hydril Update- I couldn't take it anymore and sold my Hydril at $69.30, as it continues to rally out of control. Nearly a 40% gain from $50.50 entry price. Too bad I never got to my full position, because it rallied so quickly. Next time I get to buy this good of a company on the cheap (while the cycle is still in their favor), will put on a full-position in the name right away. Meanwhile, my hold-discipline on FRK is not paying off yet, as the stock has fallen off of the $46 high from a week or so ago. Not too worried, have been reading that the Cemex bid for Rinker Group would need to climb nearly 10% for certain fund managers to consider accepting that offer....which would bode extremely well for the prospects of the less-expensive Florida Rock.

QOTD from Will Rogers- "A holding company is a thing where you hand an accomplice the goods while the policeman searches you. "
More Dirty Politics.....

Monday, November 06, 2006

Bubblin' Crude- HYDL- Hydril Corp

Ben Graham (1976-FAJ)- "The stock market resembles a huge laundry in which institutions take in large blocks of each other's washing...without true rhyme or reason."

The spasmic market decimated Hydril's stock price following the decline in oil and nat. gas prices. I do not believe that I have any crystal ball or special edge in forecasting future oil prices. However, as seen by all of the johnny-come-lately hurricane forecasters predicting another "storm of the century" in the year AFTER Katrina hit, it appears that many "expert forecasters" offer much ado about nothing. After seeing Berkshire's reinsurance profits rise 5-fold, I have a bold prediction myself(with a 99% certainty) that Buffett will have a very funny, smart-ass quip in his upcoming 2006 annual report about the various weather experts and forecast models!

Onto the subject at hand, am up significantly on HYDL. Originally wrote up at $55/share, but the stock fell so fast at the beginning of October I wound up buying a half position at $50.50. Following an awesome wedding for my brother in Austin last week, I was incommunicado for the last 10 points of stock movement (luckily, as it did not tempt my fate to sell my shares). HYDL earnings will likely be limited in the near-term, as excess drill-pipe capacity needs to be worked off by E&P companies. At $50/share, HYDL traded at 7x Ebitda with a huge order backlog and a strong management team ( I worked with them as a private lender at Principal, top shelf guys...even when the market was not overly favorable towards them). Am not buying any more here and debating whether to sell some (just so I can say I made 30% within a month :) ). The RSI on this was near 20 and way oversold in early October and is now nearly 70 (overbought).

In other news, notable LBO/buyouts that have occurred today include SWFT (Swift Transport- Walmart trucking co.) and ELK (Elkcorp exploring strategic actions and company bid....stock is up 23%), ELK was a name I had ordered up annual reports on due to its valuation and the fact that all of my neighbors get their roofs replaced every 5-7 years unnecessarily (insurance money). Interestingly, SWFT first peaked my interest more than a year ago based on the insider buying by their CEO at $22/share. Their CEO is back for the rest of the company with a $29/share bid that may increase. No position in either of these companies unfortunately.