Monthly Archive for January, 2011

Page 2 of 2

For Small Hedge Funds, Success Brings New Headaches

Posted on January 20, 2011, 9:00 pm. Closed

Via NYT’s DealBook:

The hedge fund manager Grange Johnson of LaGrange Capital Partners had a banner year in 2010. His two portfolios returned nearly 70 percent in a period when the average hedge fund gained about 10 percent.

But those gains will bring new challenges this year. With his total assets now above $150 million, Mr. Johnson will have to register with the Securities and Exchange Commission under a new rule created to increase industry oversight.

While the cost of compliance will barely make a dent at multibillion-dollar firms like SAC Capital Advisors or Eton Park Capital Management, small players like LaGrange could face a significant financial burden. Even money managers winding down their operations will have to comply if their assets are above the $150 million threshold.

“The $150 million number is so arbitrary,” Mr. Johnson said at a basic conference table in his modest Midtown Manhattan office. “What possible risk could a $150 million hedge fund pose to the system? We’re the guppies of the industry.”

So it’s probably going to cost LaGrange more than $250k to register. That money could be used to hire two junior analysts, which I have no doubt would better serve LaGrange’s investors. Instead, that money will be going to lawyers, auditors, and incompetent regulators.

Trafelet Capital Management, L.P. Acquires 5.66% of MGIC Investment Corporation (MTG)

Posted on January 20, 2011, 2:37 pm. Closed

Trafelet Capital Management, L.P. Acquires 5.66% of MGIC Investment Corporation (MTG):

As of January 6, 2011, several private investment funds for which Trafelet Capital Management, L.P. serves as investment manager, held in the aggregate, 1,850,000 shares of Common Stock and options to acquire 9,500,000 shares of Common Stock. As of the filing date, such private investment funds held, in the aggregate, 1,850,000 shares of Common Stock and options to acquire 7,973,500 shares of Common Stock.

(a)

Amount Beneficially Owned**

Trafelet Capital Management, L.P. – 11,350,000 shares (9,823,500 as of the filing date)
Trafelet & Company, LLC – 11,350,000 shares (9,823,500 as of the filing date)
Remy Trafelet – 11,350,000 shares (9,823,500 as of the filing date)

(b)

Percent of Class

Trafelet Capital Management, L.P. – 5.66% (4.90% as of the filing date)
Trafelet & Company, LLC – 5.66% (4.90% as of the filing date)
Remy Trafelet – 5.66% (4.90% as of the filing date)

A Wise Old Owl

Posted on January 20, 2011, 1:50 pm. Closed

A wise old owl lived in an oak,
The more he saw the less he spoke,
The less he spoke, the more he heard,
Why aren’t we all like that old bird?

Coleman Cable (CCIX) Offers to Acquire Technology Research Corp (TRCI) for $5.50 per Share in Cash

Posted on January 19, 2011, 11:33 am. Closed

This acquisition could get a little ugly given that TRCI’s Board adopted a Poison Pill. This is part of the press release from Coleman’s tender offer filing:

WAUKEGAN, Ill. January 18, 2011 — Coleman Cable, Inc. (Nasdaq: CCIX) (“Coleman”), a leading manufacturer and innovator of electrical and electronic wire and cable products, announced today that it has delivered to the Board of Directors of Technology Research Corporation (NASDAQ: TRCI) (“TRC”) a proposal to acquire all of the outstanding shares of TRC for $5.50 per share in cash. The proposed offer price represents a premium of 41% to TRC’s closing share price on January 14, 2011, the last trading day prior to the public disclosure of Coleman’s offer by TRC. The proposed offer also represents a premium of approximately 46% to TRC’s average closing share price for the 20 trading days ending January 14, 2011. Through its legal advisors, TRC has today informed Coleman that its Board of Directors is considering Coleman’s offer and will try to respond by January 21, 2011.

“We have attempted to engage TRC’s Board of Directors on a number of occasions and we are disappointed that rather than engaging in constructive dialogue with Coleman, TRC’s Board instead adopted a Poison Pill to block a transaction that is clearly friendly to its shareholders,” said Gary Yetman, President and Chief Executive Officer of Coleman. “Given the historically low trading volume of TRC’s stock, we firmly believe that TRC shareholders will find the certainty of a cash offer – at a premium of 46% to the average closing share price for the 20 trading days before our offer was made public – very attractive.”

Coleman has made numerous efforts to engage TRC’s Board and management in negotiations to agree to a friendly transaction beginning with a letter sent to TRC Chairman of the Board and Chief Executive Officer, Mr. Owen Farren, on December 2, 2010, which proposed an offer price of $5.00 to $5.50 per share. On January 3, 2011, TRC sent a letter to Coleman indicating that TRC was not interested in discussing Coleman’s proposal. On January 5, 2011, Coleman sent a letter to TRC reiterating its interest in discussing a possible transaction and requesting a response by January 12, 2011. After TRC did not respond to this letter, on January 14, 2011, Coleman communicated to TRC a revised offer price of $5.50 per share, the top end of the range set forth in Coleman’s December 2 letter. To date, TRC has refused to enter into any dialogue with Coleman to explore the merits and potential terms of a transaction.

Former Fairholme Fund Co-Managers Start New Firm

Posted on January 19, 2011, 8:31 am. Closed

Via WSJ, “New Firm, Post-Fairholme”:

Two mutual-fund managers who helped steer the Fairholme Fund to market-beating returns for a decade are setting up a new money-management firm.

The managers, Larry Pitkowsky and Keith Trauner, plan in the coming days to make a regulatory filing for their first mutual fund. They say they aim to use the same value-oriented approach at GoodHaven Capital Management LLC that helped Fairholme become the large-cap-value category’s third-best performer for the decade ending in December, delivering 11.5% annualized returns.

The question is whether they can replicate Fairholme’s success on their own. The two worked for years beside Fairholme Capital Management LLC founder Bruce Berkowitz, who remains manager of the Fairholme fund and last year was named U.S. stock-fund manager of the decade by investment-research firm Morningstar Inc.

Pitkowsky and Trauner have also lined up Markel (MKL) as a significant outside investor in the new firm. Markel will also become GoodHaven’s first client, investing through a separate account.

ITT to Spin Off More Divisions

Posted on January 12, 2011, 9:40 am. Closed

ITT plans to split up into three separate public companies, finally breaking up what in past decades was the paradigm of a sprawling American conglomerate. The split off companies will include the ITT water businesses and its defense units. The remaining ITT will include its aerospace, transportation, energy and industrial products.

Read this Stock Spinoffs post for some more info.

The Illusion of Control

Posted on January 9, 2011, 8:00 pm. Closed

Influenced by 9/11, fewer people decided to fly in the fourth quarter of 2001. Airline passengers fell by 18% compared to the same 2000 period…

In the same period, however, 128,525 people died in US car accidents. That’s an estimated 5% more than expected, based on past driving patterns. The statisticians have concluded that as many as 5,000 deaths would probably have been avoided if people had carried on taking the plane as usual. In addition, up to 45,000 people would have been spared serious injuries and up to 325,000 less serious ones.

Why did so many people take their car instead of the plane after 9/11? The simple explanation is that, behind the wheel of your own automobile, it’s natural to feel in control. Try telling drivers that they have no influence over the skills of other road users, the weather, the condition of the road, mechanical problems, or any other common causes of accidents — and they will agree. But they feel in control of their destiny when they drive.

The above example comes from the book Dance With Chance by Makridakis, Hogarth, and Gaba. It illustrates how some people’s desire for control can wind up hurting themselves and others, as this control is often just an illusion. In my profession, there are many people who will not hand off investment authority to a competent money manager with a good track record, despite the great likelihood of earning a better return. The reason it is so difficult for these people is that they suffer from the illusion of control. And just like the individuals who chose to drive instead of fly after 9/11, those individuals who choose to manage their own investments as amateurs stand to lose a great deal.

Fine Capital Partners Discloses 8.2% Stake in Hornbeck Offshore Services (HOS)

Posted on January 4, 2011, 7:14 pm. Closed

Item 4. Purpose of Transaction.

The purpose of the acquisition of the Shares by the Reporting Persons is for investment, and the purchases of the Shares by the Reporting Persons were made in the ordinary course of business and were not made for acquiring control of the Issuer. The Reporting Persons, from time to time, will communicate with the Issuer and other holders of Shares. The Reporting Persons may in the future purchase additional Shares or dispose of some or all of their Shares in open-market transactions or privately negotiated transactions. The Reporting Persons do not currently have any plans or proposals that would result in any of the actions described in paragraphs (b) through (j) of Item 4 of the instructions to Schedule 13D.

In Investing, It’s When You Start and When You Finish

Posted on January 4, 2011, 8:40 am. Closed

Take a look at this excellent visualization from the New York Times. It shows very well how returns are dictated by when you start investing and when you finish.