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End of year reshuffling

December 16, 2013

I haven’t been blogging lately because I haven’t really changed any portfolio holdings significantly over the past 6 months except for some minor tweeks. But here we are at year-end and its time to do a bit of house cleaning. First was the Enzon share sale in October, and now I’m looking to sell some other shares to harvest capital losses. My plan was to add some shares of my largest losers in October/November, wait through the 30 day wash rule period and then sell a like number of shares, harvesting some tax losses and reducing my cost basis. This is not a risk-less strategy as it requires that prices move favorably over the holding period. Sometimes its easier to use the opposite strategy; sell in December and buy back in January. But because the latter is the usual way of operating I opted for the former, even though I knew I would be facing headwinds because shares that have lost value over the year usually decline further in December as others too think to harvest capital losses. So lets take a look at what I actually did. I added shares of NovaGold and Fortress Paper in October/November and have or will be selling a similar number of shares in December. The NovaGold deal is now done; I bought at $2.39 in late September and sold just a day ago at $2.41. This was not the best execution as shares declined to just over $2.00 after I made my additional purchase. Luckily the share price has recently bounced back so I could close out the strategy without a loss. I can hardly say the same for Fortress Paper. I added another 35% to my position at the end of November and I will be trying to sell a similar number of shares by the end of December. I am slightly underwater so far, but given that I originally purchased some shares at around $20 and they are now trading under $4 any loss on the sale will be more than made up for by the tax benefits I expect to reap. But I am hoping the Fortress share price will rebound toward the end of the month when tax selling dries up.

Other recent news about portfolio holdings include a new deal for AIG to sell ILFC to a Dutch company after last year’s deal to sell it to a Chinese consortium apparently fell through. The news has given a nice lift to AIG shares over the past couple of days. More interesting however, has been the proxy fight at MFC Industries where Peter Kellogg, now a 30% shareholder, is trying to have his representatives elected to the Board and Michael Smith is attempting to hold onto control, claiming Kellogg is hijacking the company without paying a ‘control premium’. I haven’t yet decided which way I’ll vote at the upcoming annual meeting, but I have to say that Michael Smith has kind of done this to himself through weak governance and poor shareholder communication. Whatever happens in the election I do hope this acts as a catalyst as I have been quite unsatisfied with the returns at MFC over the past couple of years, and I see I wasn’t alone.

On another note I am pleased with the recent price action of EBIX shares. Despite a significant decline this year the share price has held up admirably in December. Perhaps all those shareholders who allowed themselves to be spooked by the onslaught of the Shorts have bailed and the only ones now left are those that will take a wait-and-see approach to the business itself. I am looking to see some renewed strength in the shares come January.

  1. Regarding MFC… Kellogg strikes me as a little slow. Smith has been engaging in his nonsense for years now. There’s not as much value at MFC now since the royalty is worth less than before (Cliffs is having a lot of problems with Wabush).

    Ebix strikes me as a fraud… I am short the common now and am trying to buy puts.

    Nova Gold may be a far-out-of-the-money option with a little bit of cash. You should look at when Barrick decided not to go ahead (is Nova Gold funding the permitting by themselves??) and what the gold price has done since then. I really don’t see value there.

    • SSD permalink

      @glennchan: When did you start shorting Ebix? What’s your elevator pitch on it? To say it’s a crowded short…would be an understatement.

      • Gotham City Research has a report on Ebix. There are things about Ebix that don’t make sense, such as the lack of share repurchases. See the previous post on Ebix on Long Term Value’s blog… he said that he would sell out of Ebix if the repurchases didn’t happen.

  2. SSD permalink

    I see. IMO, the best time to be short was when complacency set in (around $20/share and above), not when panic set in (around $10/share). There is/was a huge borrow cost on EBIX and at this price many shorts are underwater. The company is digging itself out of the hole (or at least trying to!) The lack of buyback is definitely “puzzling” and adds a bigger aura of suspicion to the company. Given how much time has passed since the negative headlines and the investigation, I think the probability of a settlement is higher than a probability of them getting shut down due to some fraud.

    I want to know how comfortable you’d be shorting this when the news of lawsuit settlement/attorney general settlement sets in. In some way, this is a binary trade – have you hedged it as such?

    Good luck! I’ll have a lot of fun watching.

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