You are mixing up your Foxy and your Fox, NMB! I have a feeling Foxy is much younger and prettier than this old Fox! At least I hope so!
3,000 options contracts traded in each of those today. That activity makes up a big percentage of all of the outstanding options contracts in those two contracts/expiration dates. I think the Jan 2015 $20 activity is very interesting. Somebody thinks there will be a big move toward or above $20 by Jan 2015.
Did you see that, NMB?
So to clarify, there WERE significant buybacks in the 1st quarter that will positively impact NAV when ACAS reports 1st quarter earnings later this month?
Sorry NMB, I was still unclear from your wording. And can you hazard a guess as to what the upcoming NAV will be when they release that number at this quarter's earnings release?
I assume at the upcoming earnings release that ACAS will update us on NAV. Will this reflect any additional buybacks or was the buyback period endedat the end of the 4th quarter?
With all the pieces to be spun out, I can certainly understand ACAS management choosing to dribble out the good news piecemeal over time. After the first piece is out, there will likely be questions a plenty peppering management at earnings conference calls and any public presentations they give which are followed by Q & A sessions. It will be interesting to see just how efficient a discounting mechanism the market will prove to be on this as it attempts to peer cogently into the future. Of course, it would be much more fun if they unwrapped the whole ball of wax all at once! Man alive, that would result in one fine display of stock price fireworks!
$25 in 2016 was my back of the envelope value estimate for a fully implemented and appropriately leveraged ACAS. THAT much upside from $15 would be enough upside to cause management to go through the headaches and cost of a reorg.
That leaves general market risk as the primary risk to consider which could be a potential fly in the ointment to a successful Jan 2015 $15 OR Jan 2016 $15 call purchase, in my opinion.
How soon do you think ACAS will announce the spins?
And how soon do you think ACAS will FULLY explain their FULL reorg plan and timeframe reaching into the formation of ACAM in 2016?
Do you think ALL the news will come at one time--perhaps to be fully discussed as part of this coming earnings conference call in about a month or do you think they will piecemeal dribble out the news, spin by spin, and ultimate ACAM news over the course of this year and extending into realeasing news in 2016 as well?
So, back to my question, do you think there is meaningful additional value creation for ACAS that will occur in 2016 that will NOT be reflected in the timeframe you are thinking about holding your Jan 2015 $15 calls?
This is primarily a question about ACAM being established in 2016 and earning the maximum near term amount of income they can in 2016 due to the fact that by 2016 the new funds will be spun out (in 2015) and by 2016 any additional leverage in those funds and additional leverage in any preexisting funds will be implemented?
Behind my thinking is that in my experience, I don't think companies engage in the difficulty and short term expense of a reorg to move their stock from, let's say, $15 to $18 (a 20% move). No, that percentage upside in value creation would likely not be sufficient to enact a reorg. In that regard, I am looking at ACAM as being the master stroke which causes an eventual much larger than 20% upside move for ACAS shares. THAT is why I am asking you about your thoughts on 2016 (and, in turn, about your Jan 2015 $15 calls not being Jan 2016 $15 calls).
Can you share your thoughts on this? Particularly, how much ADDITIONAL value ACAS can create relative to the current share price of a bit over $15 today given fully implemented and levered funds (old and new) that will be in place and earning AUM management fees for ACAM?
Well said, Foxyxi! You are a true, pizza/special situations analogy genius!
This is a case where the parts are worth more than the whole--as long as ACAS management follows through and executes the pizza slicing in such a manner as to create maximum value for shareholders.
How much for a slice of your best veggie pizza?
Why did you go with the Jan 2015 $15 calls instead of the January 2016 $15 calls?
It seems from your posts you feel that the funds will be spun in 2015, but the final separation into ACAM will not occur until 2016? If ACAM is the most important part of the whole spin process, why have you decided to buy the Jan 2015 calls instead of the Jan 2016 calls?
On another note, I think the growth in income at ACAM will be extraordinary. Once all the spinouts are completed, the corresponding management fee earning AUM goes up meaningfully, and the annual income from management fees will surge upward. Besides the spinouts of the funds and the resulting dividend payments from those funds post-spin causing a narrowing or elimination of the CURRENT discount to NAV in the current ACAS share price, I think that ACAM will be experiencing rapid income growth as the funds lever up assets within the newly created spin funds.
So perhaps the real gem here in creating the most value will likely be ACAM, once established as its own entity and earning the full management fees they will earn on all the funds they manage once all the funds are levered. Do you agree?
This brings me full circle back to the first question-
If ACAM is a big part of the future value creating story for ACAS, and if ACAM is a 2016 story
, then why would you not buy the Jan 2016 $15 calls? And further, what will you do with your Jan 2015 $15 calls if you find that much of the value creating moves ACAS will make will occur in 2016?
You have certainly looked at this closer and for longer than I. Can you share your thoughts on how ACAS management may be thinking about--pros and cons--and what you think they will ultimately decide to do--in regard to making a final decision as to whether to spin out the upcoming different funds directly to current shareholders or to spin them but not to current shareholders?
Which method would create the greatest overall value for shareholders from ACAS management's position?
It seems you are hoping for spins directly to current shareowners, but you are uncertain if ACAS management wants to go that route. Why might management be hesitating to spin directly to shareholders?
It would seem that ACAM would get the management fees either way.
What are your thoughts on this?
Yes NMB, this is similar in a very basic sense to another special situation I was involved in where the stock price pre-spin was very depressed (and actually yielded a 10% dividend when I initially bought shares). The company was United Online (Symbol UNTD), which held within its depressed valuation a very large, fine division--FTD Companies (the florist who makes women smile on Valentines Day as they reach into the man's pocket for those flowers/candies/etc.!).
FTD, as compared to its peers which were trading as stand alones, was severely undervalued while being held inside of United Online. The rest of United Online was a mish mash of second tier social networking companies as well as internet access divisions-- net Zero and Juno. This mish mash of other businesses were uninspiring to Wall Street, and the shares languished at about $4 when I stepped in to buy a bunch.
My thought was that I would call UNTD management and lay out the case for spinning out FTD to surface value for shareholders. I was to do that immediately after I returned from the vacation I headed out on the weekend after I finished all of my share purchase accumulation.
In a case of the most fortuitous timing in my decades of investing, a few days into my vacation, United Online announced that they had decided to spin out FTD in an attempt to create more value for shareholders! I was so pleased, as there is never any certainty that a management will listen even to a very rational explanation of how to increase shareholder value.
Of course, the share price of UNTD bolted forward as the market immediately figured out that FTD was worth a whole lot more if it was trading on its own on the market rather than to be held back in a mish mash of mediocre companies inside of United Online. Ultimately it took about a year and a half for FTD to be spun out of United Online. During that period the share price of UNTD increased about 150% and I collected a 10% annual dividend on my invested capital!
As we do not have concrete information on each spin off piece, I cannot yet say what I would continue to hold and what I may sell. There is the potential for me to sell some of the post-reorg ACAS should there be parts which would not pay a substantial dividend. Those entities that will pay a dividend I would evaluate holding based on that dividend.
As a recession could bring ACAS down considerably as the market declines and overwhelm the spinoff moves ACAS seems ready to make in order to surface value for shareholders. So it is a timing thing for me. I have not yet decided what I will do. I think I will hope that Wall Street will lull to sleep on ACAS a bit as we wait to hear more detail on the spinoffs. If a deeper discount to NAV than today's presents itself to me, I will likely buy some more.
If not, and if we hear soon more about the potential spinoffs and ACAS stock moves up from here and I do not get a chance to add a bit more, then so be it. I will be quite happy to see what value in the shares ACAS management brings about, and I will be happy to continue to hold ACAS if it appears management will find a way to return a nice portion of earnings to shareholders in the form of a dividend. If not, and if upon effecting the spin offs I find that there will be little to no dividend, then I will be a seller of my ACAS shares and add that cash to my patient money which will await the chance to purchase deeply discounted shares of companies in the market when we encounter the next recessionary market downturn. I only hope that ACAS management makes its decisions quickly and I get the information I need to make my decision prior to the next recession!
I hope that helps explain my view on the market and ACAS as well.
I think very clearly this is a long cycle bear market. But as I said, there are always shorter term cyclical bull markets within those long cycle bear markets. As mentioned, these typically come off the bottom of recessions when the market begins to discount an economic recovery (such as we have been seeing since the bottom of the market and end of the last recession in 2009). With history clearly demonstrating dating back to 1802, this current long cycle bear market will not end until we reach a market PE ratio down in the high single digits. maximum pessimism will have been reached, and we will begin the next long cycle bull market wherein astute and not astute investors will make gobs of money (the market will carry most all boats higher!). It is worth noting that, adding in dividends and adjusting for the wealth robbing effects of inflation, the average market gain in long cycle bull markets has been about an 8 fold gain. Long cycle bear markets are much more difficult for investors to be successful in. We typically gyrate back and forth over many, many years, making not much progress at all from the start to finish of the long cycle bear. Whereas you can have great success in a long cycle bull by just buying and holding. you will be required to trade more in a long cycle bear market if you are to keep the gains you have accrued. This gain off of the 2009 market bottom is a good example of this. The market has risen substantially, and yet, the next recession will see a large percentage of that gain disappear (think of a long choppy sideways trading range where we are now at the high end of the range). In contrast, long cycle bull markets see higher highs and higher lows over the course of what has averaged to be 14,7 years. You still have short cycle bear markets within those long cycle bull markets (usually brought on by that old familiar nemesis--recessions), but the market goes on to SIGNIFICANTLY higher highs in a long cycle bull.
I am quite happy for you that you have done well in your retirement for you and your wife over the past 11 years. I wish you and all the message board posters here the best.
As for me, I have been in the market for decades, read massively through those years, worked on the data set from which I speak, and am in a very high strata of both wealth and income looking at US income and wealth data.
Smart investing has been the source of that wealth and income.
It is worth noting that since 1802, there has been NO long cycle bear market that has ended without the market PE ratio first reaching an extremely low reading of a high single digit (typically a market PE ratio of 7, 8, or 9--but we have seen lower being the final low PE ratio on the market before long cycle bear markets have ended).
We are in a long cycle (secular) bear market as we speak. We just happen to also be in a cyclical bull market within that long cycle bear. Large moves upward are quite typical in such situations, typically seen off the bottom of recessionary market downdrafts (the present one dates to the spring of 2009--near the end of the 2008/2009 recession-- and has been a terrific run upward so far).
Yet, as we have not yet seen the market PE ratio reach a high single digit level, we are still in the long cycle (secular) bear market. The next recession we have will surely prove that, as the market will move down considerably.
In sum, markets need to reach maximum levels of both optimism AND pessimism before changing into the next long term cyclical market. And like day follows night and night follows day, long cycle bull markets follow long cycle near markets and long cycle bear markets follow long term bull markets--history clearly demonstrates that the pendulum has to swing to extremes before reversing course.
In short, if you understand the road map of market history in terms of long cycle bear and bull markets, you will be far better able to profitably take advantage of the unique characteristics of each.
And to your statement of "I'm very satisfied with my market results in the almost 11 years of retirement for my wife and me
I hope you are also, because we have both been in the same market. If you aren't, than maybe it has to do with you, and not the market.."
Buy and Win,
I have just had the extremely frustrating experience of spending a good dose of time on my cell phone typing a lengthy response to your post above--only to have my cell phone shut down due to losing my battery strength very close to my finishing my return post to you! I had hoped once I pit a charge into it and turned it back on that I could still add a few sentences and hit the send/post button, but that was not the case!
I do not have the energy to lay out the market history as painstakingly as I did in that attempt.
However, I will try to post an abbreviated version--
If you go back a century, you are correct that you might see the market appear as one long bull market. But that misses the fact that since 1802 there have been 7 long cycle bull markets and 8 (including this current one) long cycle bear markets. Long cycle bear markets have averaged a length of approximately 13.5 years (12.5 years if you exclude the very long depression era 1929-1949 long cycle bear). Long cycle bull markets have on average lasted 14.7 years. Adding in dividends and adjusting for inflation to obtain a real, inflation adjusted return, you will find that in long cycle bear markets the average annual return is 0.3% (that is about 1/3 of 1% annually)--essentially, a very flat return. Adding in dividends and adjusting for inflation you will find that long cycle bull markets have seen an average annual return of 13.2%.
The primary characteristic of a long cycle bull market is an expanding market PE ratio on expanding corporate earnings. The primary characteristic of long cycle bear markets is a contracting PE ratio on expanding corporate earnings. In other words, the expanding PE ratio in long cycle bull markets reflects a peak in investor optimism. And then a nadir in the PE ratio reflects the extreme pessimism witnessed at the nadir of long cycle bear markets.
It is worth noting that since 1802, NO long cycle bear market has ended (I will continue this post below)
Well let's put some numbers on this--
In year 2000, the market peaked at about 11,750 on the Dow. Today, 14 years later, the Dow is at 16,457. That amounts to roughly a 2.4% annual gain, or a 40% overall gain in the Dow over 14 years since year 2000. That does not include dividends received and reinvested, nor does it include the adjustment to that performance that would need to be deducted due to inflation. If you want to look at this in simple terms, you might say that inflation deducts what dividends added (though I would submit that inflation was higher over the past 14 years than was the additional positive contribution from dividends).
In contrast, the last long cycle bull market ran fron 1982 to year 2000. That 18 year long cycle bull saw the Dow (DJIA) rise from about 1,000 on the Dow to the aforementioned peak of about 11,750 in year 2000. That was about an 11 and 3/4
fold return over 18 years as compared to the mere 40% gain so far in this current and continuing long cycle bear market. Massive difference. It is worth noting that the long cycle bear market that preceded the 1982-2000 long cycle bull market lasted from 1966 to 1982. In that long cycle bear, the market basically bounced back and forth between roughly 1000 on the DJIA where it started in 1966 to a low of about 500 on the DJIA. The drops towards the lower end of that 1000 to 500 trading range were generally brought about by RECESSION. From 1000 down to 500 is a 50% drop. Now go back and look at the two major recessionary market drops we have seen since year 2000. From the year 2000 high to the recession of 2002/2003 market drop, the S&P 500 dropped 50%. The second recession of 2008/2009 saw the DJIA drop 56%. That should make you wonder how much the market will decline from the current 16,457 DJIA level when we encounter the next recession.
This is a long cycle bear market. Did I make the point well enough?