What I don’t say about short selling

This blog post is an attempt to clarify some things about this blog that may not be obvious.

I’m not a fan of writing about individual short positions.  You may see less of it in the future.  In general, I am trying not to get into conflicts with the wrong people:

  • CEOs who sue short sellers.
  • Eccentric CEOs who rant about Sith Lords, stalk short sellers, threaten their children, etc.
  • Regulators
  • The scumbags behind egregious frauds.
  • Etc. etc.

I really don’t want to get sued (or worse).  Often when writing about a bad company, I will tone down the rhetoric.  I won’t say that a particular company is clearly a fraud even if it ticks off almost every red flag that a fraud can have (see my post on spotting frauds).

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LMCA update May 2014

Previously, I predicted that Liberty would repurchase its shares.  I was dead wrong.  Instead of buying back shares, Liberty decided to buy $124.5M in Charter shares at around $138.8 per share (press release).

I believe that Malone wants to play defensively by gaining more voting control over Charter and ensuring that Tom Rutledge can run the business without interference from other Charter shareholders.  (I honestly can’t think of any other reason why LMCA would buy CHTR shares instead of LMCA.  In the past, Liberty has bought back shares in the $110-$130+ range.  Its stocks have gone up since then so Liberty’s intrinsic value is higher now than in the past.)

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Closed my Altius Minerals position

  1. The share price has gone up a lot.
  2. Altius is no longer buying back shares due to #1.
  3. A lot of Altius’ intrinsic value is tied to Alderon and whether or not its flagship Kami mine is financed.  I absolutely do not trust Alderon’s management or the engineering firm (BBA) which prepared their feasibility study.  I previously estimated that Kami’s all-in costs would be $120/ton.  I believe iron ore spot prices are currently slightly less than that, so by my estimate a Kami mine doesn’t make sense right now.  I recognize that my estimate is not very good and that it is virtually impossible for me to perform due diligence on the Kami project.  I lack the engineering expertise and do not have access to technical data.
  4. No news is bad news.  If Kami were economic (and my estimate overly pessimistic), some sort of financing deal might be in place by now (e.g. a takeover by a larger mining company).

March 2014 portfolio update: Feeling the squeeze…

Unfortunately, I’ve had a bad start in 2014.  My long positions and my short positions are moving against me.  I suppose that this is bound to happen because stocks are never perfectly correlated.  (If they were perfectly correlated then there would be no point in trying to pick stocks or to profit from short selling.)

While I have a large number of short positions (30+), I have managed to find many stocks (mainly Chinese and solar stocks) that have quickly moved against me.

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Avid update

Today Avid dropped around 29% on basically no news.  It issued a press release saying that Avid shares would be delisted, which they had already said would happen.

At a market cap of 192M, I think that Avid’s valuation is reasonable.  While management is poor and the company hasn’t made GAAP profits in years, the assets are valuable.  Avid’s video editing systems and Pro Tools are leaders in their field; Avid itself has strong turnaround potential.  There is the possibility of a takeover as an Avid and Autodesk combination would make a lot of sense.  Avid’s customers would certainly welcome such a merger/takeover.

*Disclosure:  No position.  I covered earlier today and missed most of the drop in price.

NRCIB: Closed my position for silly reasons

  1. The fundamentals of NRCIB have not changed much since my original writeup.
  2. The price has gone up by roughly a third.  I have decided to take my profits and to reinvest them elsewhere.
  3. It bugs me a lot that the borrow on NRCIB is around 4% and is much higher than NRCIA.  (This bugs me mainly because I cannot lend my shares out.)  It would make more sense if the cost of borrow was the other way around as I believe that the price ratio between NRCIB and NRCIA should be roughly 6:1.  The current ratio is around 2.7:1  ($39.29/$14.73).  The arbitrage trade is to short NRCIA and to go long NRCIB.

*Disclosure: No position in NRCIB or NRCIA.  I never shorted NRCIA because I dislike arbitrage trades that involve risk.