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Steel Partners Holdings (SPLP) fading

June 30, 2012

This is not the post about Fortress Paper that I’ve been promising for more than a month now, but I’m a bit chagrined at not having updated the blog for a number of tweaks to my portfolio so I thought I should really say something about what I’ve been doing.

Let’s start with yesterday’s action. A great end-of-the-quarter day! Market up 2%! As I was perusing my portfolio I noticed that Steel Partners Holdings (SPLP), after trading around $12 a unit for the entire quarter, suddenly began fading on Thursday. Down to $11.50 at Thursday’s close. Then it opened down again Friday morning, each 100 unit lot trading down 5 or 6 cents sequentially on almost no volume. So it struck me. No volume but somebody wants to sell a few shares before the end of the quarter. No real news but somebody wants out before they have to report quarter-end holdings, and there were no buyers. It’s not an exciting stock (well actually they are units); not much in the way of corporate communication, some complicated restructuring going on (BNS Holdings’ assets sold to Steel Excel, both SPLP holdings) for tax reasons that probably don’t mean much to the average retail investor. The whole premise of the LP structure is kind of abstruse so maybe its a turn off to most investors. Of course that makes it a bit more attractive to me. SPLP’s holdings are, in my opinion, themselves undervalued, so combine that with a holding company discount of 30% or more and you have the makings of an interesting value investment. The wild card here is whether Warren Lichtenstein will screw us little unitholders with a creeping takeunder at below full value or some other sleight of hand. The holding company discount gives us some, though not total, protection. Also knowing that WL is a large unitholder helps me digest the potential downside.

Anyway, there is nothing I love more than a seller whose main motivation is not price. So I hung around the terminal yesterday to see how low the buyer would really go before he/she stopped offering 100 lot units. The price got down to around $10.69 before somebody stepped in to buy a few shares. I picked up another 500 shares around $10.81 before the units rebounded to close at $10.90. Mr. Market is really pretty strange. No news and units that had been trading around $12 the entire quarter traded down 10% on under 30,000 units in volume. Of course, you have to factor in the possibility that somebody knows more than I do and I’m buying on old information. Or maybe my hypothesis about the forced selling is just bunk. In any case I couldn’t help but dip in for a few more units; it was on my wish list at these prices anyway. Who knows, maybe Monday the units will continue their downward trajectory. In any case I’m fine with where I purchased my units yesterday and would even welcome a further fall to complete my position.

Remember to do your own due diligence before making any investment decision!

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