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Regency Affiliates (RAFI)

I’ve recently picked up a small position in Regency Affiliates (RAFI), not an easy thing to do at the price I wanted to pay as the liquidity is almost zilch.

I first read about RAFI in a 2013 post over at OTC Adventures. At the time I remember thinking that the company looked interesting but the potential value recognition catalyst appeared to be about 5 years away, so I took a pass and put it on my ‘potential’ list that I file away (sometimes only mentally). As it happens, a few weeks ago I was browsing through Barrons weekly list of new annual highs and lows and I recognized the name Regency Affiliates (on the ‘new lows’ list of course, I rarely peruse the new highs). So I took a jog over to their website to see if there was any news that might have caused the stock to drop. I didn’t immediately see any, but that didn’t surprise me; illiquid stocks like Regency can make significant price swings on just a small amount of volume. Then I thought I might check to see if they had published any recent financials. Regency is a ‘dark’ company (no financials filed with the SEC) and so I didn’t expect to find much. But just when you least expect it! Yes, the company participated at a microcap conference in October of last year and made a presentation that was available on the website!

Basically the presentation was a valuation of the company. And while I found the presentation interesting, more interesting to me was why a CEO who owns almost 50% of a company would be making a presentation showing the company to be significantly undervalued by the market. But lets leave that till later.

The presentation confirmed the basic outline of OTC Adventure’s post. The only update was that between then and now the company made a rights offering (to qualified investors only… a bit of a caveat here that management can be self-serving) raising about $9 million last Spring and investing those funds in a self-storage facility in PA. This means the company now has 4 assets; Cash, a 50% interest in a Maryland property currently under lease to the Social Security Administration, a 50% interest in a co-generation plant serving a Kimberly Clarke manufacturing plant in Alabama and the new investment in a Pennsylvania self-storage facility. Per management’s calculation the shares are undervalued some 35-60% (upside of 60-135%). Take a look at their calculations. They don’t seem unreasonable. The two main risks are that the Social Security Administration doesn’t renew their lease in 2018, which I think is very unlikely, and that Kimberly Clark doesn’t renew their co-generation contract for the Alabama power plant, which I also view as somewhat unlikely. The other risk of course is that management does something stupid with the free cash flow or makes some self-serving investment. This is entirely possible because apparently in the early 2000s they did something similar, but more recently they have been using cash flow more judiciously, paying down borrowings in each of their investments.

The real question here is what is management’s game plan and is there an exit strategy. The CEO owns close to 50% of the equity and is 60 years old, i.e. heading towards retirement at some point in the next decade. This is not a company that is likely to be bought out given the diversity of the assets. Potentially, the assets could be sold off individually. But if that was management’s intent then why buy a the storage facility just 9 months ago? So I have to conclude that management’s short-term strategy is to opportunistically buy undervalued assets that will accrue in value over the long-term, but that their long-term game plan and/or exit strategy is still unclear, or possibly even unformulated. The question is why suddenly participate in a micro-cap conference? The most obvious response would be that Management is trying to boost the stock price. But if the stock price is so undervalued why doesn’t management simply buy more and eventually buy out all the public shareholders?  That would provide the most upside. Perhaps they don’t have the means. More likely is that they might want to use equity, combined with funds from refinancing the MD property (once the lease is renewed), to potentially make a large acquisition. If this is the case, then the current undervaluation of the shares is merited as there is some risk that the funds might not be effectively invested. For shareholders looking to close the value gap the best outcome, of course, would be for management to return any cash from a refinancing in the form of a dividend or share buyback . Ironically, returning the cash from a refinancing would probably do more than anything else to get the company’s share price up and the company’s market value closer to its intrinsic value.

For me, despite the risks, the shares represent an attractive investment in a basket of undervalued assets with the potential of a value-enhancing catalyst happening within the next two years. Yes, the attractiveness, is somewhat limited by the risk that management could poorly allocate future free cash flows, but, given the asset value, I see limited downside and I like investing alongside management where they have significant skin in the game. My hope is that the cash freed from refinancing the MD property will, at worst, highlight value of the company to the investment community and at best be returned to us patient shareholders.


DryShips (DRYS): The wild west of share trading

Does anyone know what’s going on with DryShips (DRYS) stock? Shares have lost over 80% of their value since the first of the year and over 99% of their value in the past 12 months. Last Thursday alone the shares traded down 36% to $1.01 per share with 73 million shares changing hands. As of Friday there were 107.8 million shares, of which less than 34 million in public hands. As of Monday, January 23, DryShips management implemented an 8 for 1 reverse split (the 3rd or 4th int he last 12 months), and once again the shares traded down another 33% on Monday.  Less than 4.2 million post-split shares are in public hands (the balance belonging to Kalani Investments, but more about that later) and Monday’s volume was over 12 million. Rather strange, no?  So what’s really happening?

This is a real question to which I don’t have the answer. I’m hoping some reader will jump in here and give me something better than my humble speculations below.

First, a bit of background. DryShips owns dry bulk carriers, 20 Panamax ships as far as I can see, and some other oil service vessels. But times are not good. Bulk carrier rates are low, as is demand in the offshore oil service sector, and the company is highly operationally leveraged as its vessels are not under long-term contract; thus the company has been bleeding cash profusely for the past couple of years. The company was able to sell some convertible preferred stock with warrants for further convertible preferred stock last November, raising up to $100 million to at least partially offset the cash drain. In December the company announced a private equity offering for an additional $200 million. Kalani Investments, an apparently very private buyer, however extracted blood for the infusion. They agreed to a $200 million equity purchase but at a  price to be determined by market trading with the price being set by the closing stock price each day. In the past 3 weeks Kalani has purchased 9.2 million shares at an average price of $14.20 per post-split share. They still have almost $70 million more to invest under their $200 million equity purchase agreement.

So who has the most to gain from a falling stock price? Certainly short sellers gain. But the person with most to gain is Kalani. As the share price tumbles they can purchase more and more of the stock at lower and lower prices. Basically as the share price falls they are able to increase their percentage ownership of the company to the detriment of existing common shareholders AND owners of the preferred convertible; the preferred have a conversion floor of $12.00 per share ($1.50 pre split). So I ask myself, is it possible that Kalani or a proxy is shorting the shares in an attempt (very successful to this point) of gaining the majority of the equity at the least price? In theory they could short sell shares over the trading day, then purchase the shares at the closing price under their equity purchase agreement, delivering those shares to the purchasers and making a profit (day-end prices have almost always been at the lows). To be clear, I have no information whatsoever to assert that Kalani (whoever may be lurking behind its corporate shield) is in any way involved in pressuring the share price. But the incentives speak for themselves.

So where will this end up? Well, as I said Kalani has only $70 million more to invest so at the current rate of purchases ($40 million a week over the past 3 weeks) this should be over in a week or two. At that point the pre-equity infusion shareholders will be diluted down to 10% or less of the company’s equity when all the common shares have been issued under the two equity infusion agreements. So for $300 million the two parties will have purchased 90% or more of DryShips and they have $300 million to invest in the new LNG tanker fleet (if they can stem the operational bleed). Is this a good deal? Sorry, I don’t really know. It’s out of my sphere of competence.

Is there any way for us mere mortals to profit from this? Well, I guess if I had understood the dynamics some 3 weeks ago and if I was able to borrow shares I could possibly have profited by shorting the shares. But there are 2 too many ‘ifs’ in that sentence. And besides, I try not to speculate. What about now? Perhaps once Kalani has purchased its entire $200 million of equity the downward pressure on the share price will abate. Then might be a good time to invest but we’ll have to look at what a common shareholder gets for his/her share and that we’ll know only after its announced at what price Kalani was able to purchase shares.

For now its just an exciting spectator sport.

“Short and Stupid”, or “God I’m Short!”

Yes, that could be a description of me, physically and mentally! (not really, I’m on the tall side, but for the sake of poetic license…)  I rarely ever take a short position. The only times I have, the outcome has more often than not been disappointing. In general, I think shorting is a loser’s game. To play it right you have to have a very different emotional mindset than the average long investor, and I really don’t think I have that mindset. But here goes anyway. I’ve shorted Netflix. I know. I know. Everyone will now think I’m either stupid or crazy, or both! Netflix is one of the biggest success story of the past decade both as a company and as a stock.

So why am I short? First let me say that my position is relatively small and I have set a limit on my potential losses. That said, I have a very simple thesis. Netflix earned $.15/share during the 4th quarter of 2016. It is trading at $140. That makes the annualized PE something like 230. What stock trades for a normalized PE of 230??? OK, so you think Netflix deserves that PE due to its blazing earnings growth? Not really. Check the figures, earnings are down over the past couple of years. They’re in subscriber acquisition mode. They’ve been reinvesting most of the incremental dollars from those incremental subscribers in what? marketing and programming! “Great!”, you say, “they are building a library that will increase their asset value”. You’re right, but the asset value is not growing as fast as they are burning cash. One of the problems is they are on a growth trajectory, driving subscriber growth by investing in original programming and marketing. It is unclear what will happen when they begin to reach subscriber saturation (acquisition costs increase for incremental subs) and they cut back on marketing. Will the subs stay? Will they stay if Netflix cuts back on new original programming? Will Netflix be able to bump up subscription costs enough to finance additional original programming AND incremental profits for owners? I do believe last year’s price increase saw some consumer resistance, and it really wasn’t that big an increase. Will new players come into the market (Amazon, Apple) and force Netflix to INCREASE their programming budget in the face of low, no or even diminishing subscriber growth? Will new technologies make Netflix’s streaming technology obsolete, just as Netflix is making linear cable program delivery obsolete? None of this is clear. However, it seems to me beyond common sense to pay 230x earnings (or even 50x earnings) for a company whose future is so uncertain. There you have it.

The sticky part of my thesis is that I could be 100% right and lose my shirt; its is not clear that the thousands of enthusiastic Netflix share owners will ever agree with me. They may be content to hold their shares when Netflix shares trade at 500x earnings i.e. at twice today’s stock price! There is no real catalyst to bring the share price down into the stratosphere, not to speak of to earth.

This is a calculated bet on my part. The market is priced relatively high right now. I think we could see a pullback sometime during the next year, and I think the Netflix share price will prove extremely vulnerable during any pullback. However, my strategy is full of giant holes. I’m ready to call it a day and eat my losses if Netflix shares continue their upward trajectory and hit $160/share. Yup, its like going to the casino floor and taking only $100 with you for ‘entertainment’. You leave your credit cards in the room and tell yourself that you won’t go back and get them. That’s why I’m writing this post… so I can’t ‘go back to my room and get my credit cards’. I’ll let you know how this works out…If I have mud on my face, so be it.

Luck, Skill and the Human Condition

It’s funny how those who are successful most often attribute their success to their own skill and those who are less so attribute their misfortunes to bad luck. The truth is it’s very hard to determine what is luck and what is skill. Especially a posteriori. This is particularly so in the investment world. Let’s say you decide to purchase a stock and it immediately goes up. You pat yourself on the back and say “Good job! You were really smart to purchase stock in XYZ company when you did.” Of course that’s absurd! First of all you probably didn’t purchase the stock thinking that it would go up right away (otherwise you’re not an investor but a speculator!). So why are you patting yourself on the back? I think the answer is, being right makes us feel good. And making money while being right even more so. So we really like to ‘be right’ about an investment. It’s fulfilling. We convince ourselves that ‘we were right to pick that stock’, rather than ‘Oh how lucky that the stock went up after I bought it’. Being lucky doesn’t exactly produce the same high.

The truth is, one can almost never be sure whether skill is involved in picking a certain stock. Yes, we can be more certain that skill is involved as the sample size gets larger, i.e. more picks. But still, we know that you can be right calling a coin flip 10 times in a row and you’re still just lucky. 100 times in a row and you’re just luckier. (That is, I think so, as no one has yet been able to call a coin flip a million times in a row. But is it ever really knowable?) The same can be said of picking stocks. Picking 10 winners over a year might easily be just luck. 100 winners over 10 years begins to look less like luck, but in fact it could be just luckier. After all, if you have enough stock pickers, one is bound to get it right! Its just math (or probability, in this case). But experience tells us that in most instances its true what they print on mutual fund prospectuses; ‘Past performance is no indication of future returns’ or some such. So how can we be sure that we are adding value, ‘skill’, in our investment practice? If we can’t be sure about adding value, and thus skill,  shouldn’t we just resign ourselves to investing in low-cost index funds?

I’m not sure I can provide an unbiased answer to that question. Perhaps its illogical but there’s something in me that says there must be a way to produce superior returns. So when I see studies showing that value investing produces market-beating returns I feel immediately relieved. I like that answer to the active vs. passive investing conundrum. So am I being biased in accepting those studies as proof? I’m not sure. The indexers have a point. You just put your money in an index fund and let it sit there. It produces good returns over the long-term. Most of the time better than the active managers collectively. But then there’s this little voice inside my head saying it’s not all about cut and dry returns; you have to consider human emotions (especially your own). Why is it that the average investor’s return in a mutual fund is far inferior to the mutual fund’s long-term performance? The answer is simple; most investors pull money out at the bottom of the market and put money in at the top. I want to avoid that at all costs; that’s the kiss of death for investment returns. So I’ve tried to adopt a strategy that embraces value investing but addresses the emotional aspect of investing. My strategy is a kind of value approach where I only invest when I’m confident that I’m buying a dollar’s worth of a company for less than  dollar and leaving whatever’s left of my investment funds in cash, as a kind of countermeasure to the emotional side of investing. Take this moment in the market for example. I’m less than 50% invested in equities. I just can’t find the kind of value I want for the prices being offered at the current ‘risk’ level. It’s been that way for over a year, so I’ve missed much of the market appreciation over that time. But I sleep well at night. I know that if the market falls 50% I’ll have cash to load up on shares; I have my wish list ready. I’m not really worried about not catching that 10% upside. I want to be emotionally ready when the market drops 50% to put my money at risk. Just ask yourself, if you have 95% of your savings invested in equities and the value of your portfolio dropped 50% would you be in the appropriate emotional state to invest the remaining 5%? or even to leverage up on margin? knowing that you have a mortgage to pay, a family to feed, health bills to pay… and your job security is becoming more and more tenuous as the overall business outlook dims? I know I wouldn’t! So I’d rather forsake the certainty of index investing for the relative emotional calm of my value investing strategy. It’s funny, the secret of success with both strategies is the same, patience, but one requires more emotional resilience, a resilience I’m not sure I have.

The Big Picture

OK, so the end of 2016 has rolled around, and its time to reflect on ‘The Big Picture’. Where are we? Where are we going? Broad questions but let’s restrict the subject to the equity markets, in particular the US market; What’s really been happening in the US stock market and where is it going in 2017? Even more important (for me that is), what have I been doing with my investments and what am I going to do in the new year?

First of all, let me say I have absolutely no idea where the markets will go in 2017, just as I had no idea where they were going in 2016 at the end of 2015, and so on and so forth. The only thing that I COULD have correctly predicted at the beginning of last year was that I WOULDN’T be able to predict what was going to happen. And that’s exactly what came to pass! We had the energy-induced market swoon at the end of 2015/beginning of 2016, then the Brexit swoon in June then the Trump post-election rally. Who wudda thunk?? The only thing I can say for sure is that market valuations are at the high-end of historical averages… they were last year at this time and they are, even more so, this year. So I can unequivocally state that the market will go down at some future point in time and, most likely, regress to the mean. In my lifetime?? who knows. Lets just say that I think forecasting the next move in the market is a waste of time.

So if forecasting the direction of the markets in 2017 is out, I can at least try to understand what happened to the markets in 2016. My observation on this is simply that ‘the market is a fickle creature’; it goes down when it should go up and up when it should go down, or so at least it seems so to me. With oil prices going down, the equity markets should have gone up; lower energy costs should mean lower industrial production and transportation costs and thus higher corporate profit margins, lower heating and transportation costs for consumers and thus more disposable income to be spent. But no, that’s not how it went. Lower oil prices dragged DOWN the US equity markets! (well, we can’t really be sure that’s what dragged down the markets, but the markets did go down around that time, so it’s not unreasonable to assume….). Then we had the Brexit vote that nobody anticipated and the ensuing downdraft in markets across the pond had a dampening effect on US markets. Totally unexpected! And now we’ve had this wild post-election Trump rally! Before the election pundits were saying the market would fall off a cliff if Trump was elected.. but on the day after the election a strange thing happened; the market went up. So the market forecasters changed their tune and affirmed that the Trump election was GOOD for the economy and thus the market because he is a businessman and will reduce regulation, increase military spending, increase infrastructure spending, reduce taxes, etc. I’m not so sure they were right before, or are right now for that matter. I don’t see how a heavily indebted nation is going to both cut taxes and increase military and infrastructure spending; even deep cuts in entitlement programs (social security? Medicare? welfare?) could hardly be large enough to counterbalance that increased spending. Then there is the issue of the impending impact of increasing interest rates on our national debt… But who am I to judge forecast?

With the market passing favorable judgement on the yet-to-be-installed new administration and the first rate hike in years, bank stock prices have climbed precipitously. A bit too fast in my opinion so I have finally sold my Bank of America warrants as they have tripled in price since last summer. After this sale my overall exposure to the market is less than 50%, i.e. cash is greater than 50%, even with the several small additions to my portfolio this Fall. This is not so say that I am taking a macro view and structuring my portfolio accordingly. No, it’s just that I haven’t spent much time trying to uncover undervalued shares, and what time I have spent has been anything but successful. Sometimes the best thing to do is just sit on your thumbs if you aren’t quite sure… But, if I could find some interesting net-nets or even low P/E and P/B opportunities I wouldn’t really care about overall market valuations. The point is, I just can’t find much of interest to purchase. In September/October I did add a small position in New York REIT (NYRT) when the shares were trading toward the bottom of their annual range. This is a liquidation situation where both the upside and downside are limited; it is more of a parking place for funds for which I can find no better opportunity. More recently I picked up a small starter position in (SPRT) as a special ‘turnaround’ situation (thank you, Shadow Stocks!). No slam dunk, mind you. but enough overall positive characteristics to make it a small position in a diversified portfolio (which mine is not at the moment).

So the first part of my New Year’s resolution is to spend more time focused on stock analysis, and, given the overvaluations in the market, focus on small cap special situations. Perhaps I can uncover some gems for the portfolio despite whatever gyrations the market may take. The second part is to get more invested because market timing just doesn’t work; YOU JUST DON’T KNOW WHAT CRAZY MR. MARKET WILL DO.

In addition to the relatively high valuations in the market I do have another concern; the growth of index funds and their impact on the overall market. The fellows of Horizon Kinetics have written about this more at length and with greater insight than I ever could.  I just wonder if this won’t be the catalyst to nudge the market into regressing back to the mean. Taking the current index fund growth trend to its (il)logical extreme, if 95%, 97% or even 99% of US equities were held through index funds, who would be determining the value of individual stocks and thus the composition and level of the indexes? that 5% or 3% or 1% that actually owned the individual company shares? So isn’t the real US equity market getting smaller and smaller, rather than larger and larger? And isn’t market size the single most important factor in making pricing efficient? Index funds re-weight in response to changes in market capitalization of the components of the index they mimic. Thus if shares of GM go down more than the overall market, index funds have to sell some portion of their GM holdings. So all it takes is one guy deciding he needs money for a new truck and selling a million GM shares in a low market-volume context to send the GM share price down. Well, of course, its more likely that some rogue trading system sells 100 million shares, but that’s just an extension of this argument. Furthermore, index funds that use heuristics (using a subset of stocks to mimic an index) create more imbalance as share price movements are magnified or demagnified based on the relationship between the subset and the true index.

Could it be like the proverbial butterfly flapping its wings off the coast of Africa and starting a hurricane in the Caribbean? Prices changes magnified because so much of trading will be program trading? It’s not just black-box program trading that destabilizes the equity markets, as we have seen, but perhaps even more, index fund ‘program trading’ as retail investors move more and more into index funds.

Is there any kind of investment opportunity created by this? I don’t really know. The only thing I can think of is focusing on stocks not in the indexes (micro and small caps), focusing on situations indexers don’t participate in (spinoffs, exchange offers, etc), and simply not being afraid to hold cash. Perhaps we’ll see if this is even a factor when the next big selloff finally comes.

note: edited 1/2/17

Portfolio changes

Just a quick update to note several portfolio changes in December. I have sold my Bank of America A warrants (BAC.WS.A) and added a small position in (SPRT).

Bank of America A warrants have tripled since this summer. With the prospect of rising interest rates and the generally accepted perception that the new administration will reduce regulations investors have bid up bank stocks to levels we haven’t seen since before the 2008 financial crash. I think this has happened too quickly and now bank stocks are a bit overvalued in my opinion. I don’t know what the new administration will do but I do know that banks, left to their own devices, i.e. with less regulation, have a tendency to overreach for profits and get themselves into sticky situations. And, no, I don’t think the future will be any different from the past.

I took a small position in after reading the writeup in Shadow Stocks and reading the latest 10Qs; I’m always on the prowl for small cap net-nets with some sort of catalyst (in this case an activist investor and new management). Unfortunately since I began accumulating the shares have gone up 10%. If the shares dip down below $.70 I’ll be filling out my position.

Winthrop Realty Trust (FUR) Liquidation

When does a public company liquidate? The answer is …. not very often!  Management has a vested interest in keeping a business alive at all costs, since in a liquidation they lose their job. In fact, more often than not management continues to drain the coffers of ‘their’ company over many years rather than make the shareholder-friendly decision to liquidate, drawing a salary while the owners are gradually swindled of their equity. Even when equity and cash have been completely depleted, management can still make out like bandits; in a chapter 11 filing management most often oversees the liquidation, keep their jobs even after the company emerges from bankruptcy, and sometimes even get to reset all their non-salary remuneration thresholds (options, grants, bonuses, etc.) giving them greater upside. I find this a rather strange phenomenon since bankruptcy is more often than not the fault of very management that benefits.

So when do liquidations happen? Mostly they take place when either management is itself a significant shareholder, and the benefits of liquidation for management are greater than the continuing stream of cash from remuneration, or when there are significant non-management shareholders who force management to put the company into liquidation. Note that I haven’t cited the Board of Directors as a catalyst for liquidation. That’s because most Boards’ first allegiance is to management. After all, they generally owe their jobs to management and they too have a vested interest in keeping the company alive so they can remain Board members. It’s only when Board members have significant ownership in the company (and this is VERY unusual) that they actually look out for the shareholders (themselves, obviously). Otherwise it takes an activist investor to ‘shame’ the Board into providing the shareholder guarantees that they are legally bound to provide. And I really mean ‘shame’ since Board members are protected against monetary claims from shareholder legal action by mandatory insurance policies. It is thus only the potential damage to a Board member’s reputation that is at stake. This can, however, be a decisive factor, depending on who the Board members are. In the case of Winthrop Realty Trust (FUR), fortunately for shareholders, management was/is a major shareholder.

The issue I want to address here is what happened to the FUR stock price AFTER the announcement of a liquidation, with the goal of identifying in hindsight when the best time to invest might have been. Clearly this is a specific instance of liquidation, and the results cannot be used as guidelines for what to do in other situations. Nevertheless, I think there may be some lessons we can draw from this situation that we might apply to another potential liquidation I am following, the proposed liquidation of New York Realty Trust (which I will address in the next post).

Back to the liquidation of Winthrop Realty Trust. In November 2013, approx. 6 months before the liquidation announcement, FUR management provided, a NAV estimate of between $12.98 (low) and $15.01 (high). At the time, shares were trading at $11.15. On April 29, 2014 the company issued a press release stating that the Board had approved a plan of liquidation, but did not provide any estimate of liquidation proceeds. There was only a statement that the liquidation proceeds for common shareholders would not be less than the lower end of NAV estimated as of the end of the first quarter, $13.79 per share.  The share price traded up to the $14-$15 range. The Proxy statement requesting shareholder approval for the liquidation, first issued in mid-May, continued to use the first quarter NAV estimates of liquidation proceeds, $13.79 to $15.79 per share. Shareholder approval was given at the annual meeting on August 4. On November 6 a press release was issued announcing 3rd quarter results. These results used liquidation accounting for the first time and per-common-share liquidation proceeds were estimated at $18.16, subsequently increased to $18.35 later that month. On the announcement, the share price traded up to the $17-$18 range. Since then, estimates for liquidation proceeds have been included in each quarterly report but have not varied significantly. The latest estimate of liquidation distributions, made in late July 2016, was for $10.61 per share (which excluded $7.75 per share in previous distributions). In 2015 three liquidating distributions were made, $2.25, $1.25 and $1.00 per share, respectively on 1/15, 6/16 and 12/3.  A $2.00 per share liquidation distribution was made in May 2016 after which shares traded down from $12.50 to the $10.50 – $9.62 range. At $9.62 on June 17, shares were trading at a significant discount to estimated future distributions of $11.85, about $19%. A further $1.25 distribution was made at the end of June. Reflecting this distribution, shares traded down to $8.62 in late June after the ex distribution date (though note that they never traded down the entire amount of the distribution) and there was another opportunity to purchase at about an 18% discount to estimated future distributions. After this distribution, shares traded around $8.70, gradually increasing to $9.14 over the month of July, still a significant discount to estimated liquidation proceeds, up to 18% early in the month. On August 5 the shares were delisted (2 years after the approval of the liquidation) and the assets transferred into a liquidating trust with the result that the shareholders became participants in this trust with non-transferable shares.

So, when was the best time to purchase shares in FUR subsequent to the liquidation announcement? The best time, in retrospect, was just after the announcement was made in May 2014 when the shares traded up from $11 to $14 per share. However, it must be remembered that no official estimate of liquidation proceeds had been made at that time. When the first management estimates of liquidation distributions were made in the Fall of 2014, the shares popped to between $17 and $18. In retrospect that was the WORST time to buy. Over the next 18 months the share price gradually receded, and if one waited until  30 to 75 days before the assets were put into the liquidating trust on Aug 5, 2016 this would have been the second best time to buy. The discount to management’s conservative estimate of liquidation proceeds was between 15% and 20% during that period.  I assume the discount widened to the 15-20% range when it became clear that liquidation was not going to be completed before the 2 year deadline, i.e. the remaining assets were going to be put in a liquidating trust. Certain holders would be forced to sell as institutional  mandates would preclude them from holding illiquid securities such as the participating interests in the FUR liquidating trust.

I had made a small initial investment in FUR at the end of 2014, adding to it at the end of 2015, with the idea that I would double or triple this amount opportunistically as the liquidation progressed. I viewed the August 5th trust conversion as such an opportunity, but, of course, I BLEW IT!  I purchased more shares in May (not a bad time) but then waited to double down until July when I thought institutional investors would all be running for the exit at once as they were forced to sell. This was my mistake; I was too greedy!! I was totally wrong on the timing! During July the share price gradually increased. I now have to concede that institutions were much more proactive than I anticipated, selling at least 2 to 3 months before the shares became illiquid. Needless to say I was sorely disappointed. In retrospect I can see that I invested too early, with single figure discounts to liquidation estimates, and then waited too long to make further purchases.

I console myself with the thought that the purpose of this investment was simply to park funds in a low risk situation that would provide liquidity in a couple of years when I hope the investment scenario will be more favorable. And, as always, better an error of omission than commission!