There’s Always Money In The Banana Stand!!!

Date Added: August 14, 2017 | Comments (0) | Filed under: Blog

Then:

While employed by Midland Doherty, and then especially after founding our first firm, Aquilon Capital, we prospered to the tune of 20% per annum for 20+ years (with two down years only of approximately 5% each) in our most flexible strategy, our Premium Value Strategy and its predecessor account strategy primarily by taking advantage of opportunities in three distinct areas which were combined into one portfolio.

 

Value Based Long Positions:

These included spin offs, liquidations, and a few concentrated positions in continuing businesses which were growing their intrinsic value.

 

Fully Hedged Convertible Securities:

Hedged at or very near to 100% of their convertible feature when conversion premiums were below 20% and cash flows were generally in excess of 20%, and call dates were at least two and preferably 3+ years into the future, these convertibles added cash flow and significant “put value” to our portfolios. The natural volatility in most equities (which usually exceeds 50%/annum) offered many opportunities to exit for profit from these positions even without a market downdraft.

 

Vancouver Stock Exchange short basket:  

At that time, many crazy schemes were promoted on the Vancouver Stock Exchange (cures for baldness for example) and we found that by shorting a basket of these promotions at or near their promotional peak, managing the basket for outliers (covering shorts running beyond our tolerance) and avoiding speaking with the promoters (who could talk you into or out of anything) that over time most of these companies failed, and actually went to zero to our full benefit.

 

Now:

We live in a different world today. The area of mispricing in long positions is different, and for different reasons. Convertible securities have clauses which make hedging them more difficult and expensive today. Conversion premiums are generally large, and many eyes (and algorithms) watch them. There is no more Vancouver Stock Exchange and its successor, the TSE Venture Exchange has cleaned up its act somewhat.

The great value investor Peter Cundill said (and indeed wrote a book entitled) “There’s Always Something To Do”. The challenge of course is to find that something to do – the areas of mispricing in the market, where the fishing is good.

In my next blog I will talk about some of the possible areas to be exploited today.

Scott


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