In another thread, someone was querying as to whether or not ACAS would re-instate the buybacks once any "corporate restructuring" is completed.
That probably depends on: 1) the nature of the restructuring and... 2) the resulting price-to-NAV following any restructuring.
Still, the logic of doing buybacks in lieu of dividends remains following any restructuring, given that the stock continues to trade at a sizable discount, and the capital loss and operating loss carryovers remain in place.
Let's begin with the ongoing reality that a dividend makes no sense, given the current makeup of this company. ACAS dropped it's RIC designation and became a C-corp for a very good reason, so that it could use it's earnings to avoid paying a dividend, as a RIC is required to do, and buy back stock for 70 to 75 cents on the dollar (depending on whether you include internal discounts to NAV along with those pertaining to ACAS itself).
As long as the company has plenty of capital loss and operating loss carryovers to avoid paying taxes as a C-corp, reverting to RIC status only adds unnecessary limitations on the company.
From my own perspective, I believe that only a minority of this company's discount to NAV is applicable to the lack of a dividend. There are plenty more investors in this company who understand the logic of management's decision to add more value to the company via buybacks than it ever could with divvy's, than there are investors so hellbent on getting a dividend that they would ignore value.
The company, today, is citing a new probe to "evaluate it's corporate structure" as the reason for suspending the share buybacks. In layman's terms, this means a re-organization of some kind. The company has discussed the possibility of doing this in previous, quarterly conference calls, and the concensus was that it was most likely to occur this year. Personally, it was my hope that I'd be able to pick up a final traunche of stock in ACAS below $14 before such an announcement. It looks like I'll just have to be happy with the 90% of targeted stock that I've already purchased.
My view? A spin-off is likely, or less likely, but highly possible, is an offer to purchase ACAS by another private equity firm. This far below NAV, it's attractive to suitors, and there are plenty of BDC's buying into Europe currently, making ACAS's European investment arm quite attractive.
I first noticed that industry-wide, the dayrates for mid-water floaters were hitting multi-year record highs early last fall. So, it came as no surprise to me that Transocean attributed it's higher, overall dayrates in the 4th quarter to those being provided by it's mid-water rigs.
Given Transocean's sizable inventory of mid-water rigs, this was a significant development.
The reason for the increased popularity of mid-water rigs had everything to do with the very high dayrates being paid for ultra-deepwater rigs as 2013 began. Announcements of contracts having dayrates exceeding $600k/day were becoming common for 6th-generation drillships, and the exploration companies were looking to curb some costs.
So, as 2013 progressed, anybody with a deep-water prospect that was shallow enough to employ a mid-water rig and incentivized to substitute the cheaper rig, and use the ultra-deeps only where necessary.
If the current, outsized number of high-spec rigs without contracts persists, look for the popularity of mid-water floaters to begin subsiding if dayrates for those high-spec rigs begin to wane, but for the time being, Transocean's inventory of older, mid-water floaters hasn't actually been the drag that most analysts Say they would be when they opine about RIG's older-aged fleet.
There is a major brokerage analyst out there with a sell rating on ACAS (not zacks). I'm wondering what HIS rationale is.
Hopefully, ACAS performs better this year than the horrid year they had in 2013. I'm particularly concerned that they are not executing with their owned, portfolio companies.
I see that this yahoo board substituted #$%$ for Mr. Montier's use of the word "krook" (substitute a c for the initial k).
Just wanted to point out that Montier wasn't inclined toward expletives.
A poster by the name of awallejr brought to mind 2 truisms that were authored by a couple of history's most famous investors:
Montier's "Hindsight Bias":
When we reflect on the past, we imagine that we knew what was going to happen when we didn't. I would say: "You didn't know it all along, you just think you did". This allows us to imagine, for example, that we knew the tech boom of the late "90s was a bubble and that everyone who suggested otherwise was a idiot or #$%$. It also makes us over-confident about our ability to predict what will happen next.
Buffett's "Outcome Bias":
We tend to evaluate decisions based on outcomes instead of probabilities. Thus, we congratulate ourselves for stupid choices that happen to turn out well and vow never again to make smart choices that happen to turn out badly. Thus, our errors get reinforced, and our wise decisions rejected.
I would add that much of what causes in-experienced investors to succumb to Buffetts' "outcome bias" is the confusion of "beta" for "alpha". Over time, most of a stock's movement is explained by it's "beta" relationship with the market as a whole, with a much smaller proportion of it due to "alpha". Thus, oftentimes, the market will push a mediocre stock higher, but the in-experienced investor will mistakenly attribute the performance to the unique attributes of the company.
NMB, there is quite a bit in your analogy that I disagree with, but your presentation was excellent and worthy of a solid, thumbs-up. It shifted my thinking a little, and few posts on a message board will do that.
Much of the concern that I have that leads me to conclude that ACAS is still a contrarian work-in-progress is the continued and consistent under-performance of it's owned portfolio companies. You are right about the possibility that writedowns on AGNC and MTGE may fully reflect their exposure there, but last year was a solid economic and business environment for ACAS's portfolio companies to thrive, and they achieved quite the opposite.
I generally disagree with your synopsis in that I saw 2013 as a disappointment with ACAS, but I still own a sizable position due to the fact that I DO appreciate the efforts I see the company making to realize their potential... many of which you have pointed out very well. But so far, the results aren't there, albiet much of what they guided to in the Q3 CC was not anticipated to pay off until this year (2014)... things like their efforts to boost NOI via better control over portfolio company dividends due to better ownership and debt extension control over those companies flexability to pay such dividends.
So again, while I appreciate your excellent synopsis, ACAS's appeal remains in it's potential, and efforts toward achieving it...
... not in any meaningful results that have yet FLOWED from those efforts.
Zeit, a "trader", by definition, is a short-term investor. It is also something that does not work consistently for anybody, except maybe a professional market maker who manages a bid/ask.
History's greatest investors are all in agreement on one, basic principle, and that is that "nobody times the market". Buffett would tell you that 7 days of the week. There is no, feasible, consistent way to out-guess the other guy on a stock's direction over a short period of time.
Longer term, there ARE good "momentum" strategies, but they're fragile, and require tremendous discipline. IBD has a good one, but you can't violate it's principles, and when Don hay's "market momentum" guage flashes red, the RUN, DON'T WALK away from IBD's system.
Only Contrarain, value investment with patience makes great returns over time. I'm involved with ACAS for that very reason... it is a cheap, beaten-up, contrarian investment with potential. I own it... a lot of it, actually, but I won't buy more at the current price in the $15 range because it's not good enough value. If it pares it's discount from NAV sufficiently without a corresponding improvement in it's fundamentals to justify such a move, I'll begin systematically selling ACAS.
Above all else, study the HECK out of your prospects, like ACAS but NEVER fall in love with an investment...
... know all that you possibly can about the company, but in the end, it's just a stock, and you should ALWAYS be ready to ring the register and not look back if it violates your reasons for owning it.
Hope this helps,
You know, zeit... it seems that everybody idolizes guys like Warren Buffett, but very few people take the time to really understand the fundamentals of his process of investing.
Bottom line: Nobody who ever made $Billions investing did it "quickly"...
... they did it "patiently".
Warren Buffett's biggest advantage over other investors is his "patience".
What he does, is he buy's in-expensive, un-loved stocks that have good potential and then he just WAITS. He's been waiting as long as I have with BankAmerica... and even LONGER with Goldman Sachs.
NO other investing strategy does better than contrarian value oriented investing combined with a lot of patience. 90% of history's most successful investors deployed that very philosophy.
Zeit, at any given point in time, ACAS's price represents the balance point between optimistic buyers and pessimistic sellers. For every person who thinks the stock is worth $4 more than the current PPS, there is somebody out there who think's it's worth $3 less.
It doesn't matter if somebody mentioned $20-23. What matters is WHY he though it was worth that, and whether or not his reasoning appears to you to be un-realized potential for the company relative to it's stock price...
... then, you buy, based not just soley on what is "presently" known, but on the basis of what you think of the company's future potential "relative" to what is presently known and how well you think that potential is reflected in the stock price.
What I'm saying here is Contrarian, Value investing 101, Zeit, and when you look back over the past 100 years of who's who in the world of successful investing, you'll find that 90% of the most famous investors of all times employed that methodology.
You have no idea what ACAS is going to do on a day-to-day basis, awallej, and neither do I. Warren Buffett would tell you that, and so will I.
You can't know that ACAS will hit $16 before it hits $13, because in order to know that, you would have to possess information that isn't available to anyone else (eg: insider information). You are just "guessing" by saying that.
I could be wrong and ACAS could again climb to $16... and I could be right and ACAS will fall to $13 and I will pick up more shares if I still see value after evaluating the fundamental reason WHY the stock went to $13.
Once you stop acting like you know something that nobody else knows, and start investing on the basis of Contrarian Value, then you'll start making some money, my friend.
I've read your posts, awallejr. There was nothing of any value in them to "listen to".
I've made a lot of money with a sizable position in ACAS. My commentary has to do with the efficacy of picking up additional positions in the stock, and I'm unwilling to do that during periods in which ACAS is over-priced, as it was in January. I have viewed ACAS as a "hold" throughout the period.
Keep on posting, however, because I'm sure there is SOMEONE out there who might "listen to you".
As I said previously, I'm a contrarian investor, and contrarians don't over-pay for their prospects. The most recent traunche of ACAS that I purchased was in my forementioned target price range just 2 months ago.
@ lenyw: Interpret this stock on a chart all you want. The current price of this stock reflects many, counter-opposing forces, IMO.
The big negatives that support the big discount from NAV are the lousy performance, and the lack of a divident that most BDC investors like.
Helping to hold ACAS up is the possibility of a spin-off, and maybe a very small possibility that Blackrock could make a tender. The discount to NAV also helps in providing a floor.
If you want to use a decent chart, you might pull up the chart that shows ACAS's discount to NAV over time. A price of $13 to 13.50 would put it's discount to NAV at a level that is both attractive and historically achievable.
Still over-bought. Still targeting $13 to $13.50.
NAV and NOI are still awful. The wildcard remains a spin-off. Absent that, we have a good shot at my target price if 10-year treasuries move north of 3%.
... and if NAV drops to $18.60 in Q1, we will STILL be undervalued.
Who was it that said.. "the trend is your friend"... somebody shoot that guy, will ya?
you've gotta admit that AGNC is managing things pretty well, in spite of the QE headwinds. That part of ACAS management (the guys that run AGNC) is definately firing on more cylinders than the management of ACAS itself is.
They always seem to be right on the bubble of what would constitute the advisability of doing a "pre-announcement" and what would not.
With the disappointments becoming so routine, I'm with that other guy... a spin-off to help realize value in the face of crummy operations would be nice.