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Joe Eqcome

 
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  • Adams Express: Worth Owning Long-Term [View article]
    Adam,

    Let's make the following assumptions:

    1) That the market is somewhat efficient and that over an extended period time a company’s share price will gravitate towards its intrinsic value;

    2) That ADX's NAV is a good proxy for intrinsic value;

    3) ADX's share price has traded at a historically wide discount relative to its peers.

    Now either the market is inefficient or it is assessing some deficiency at ADX. Since this discount has been persistent, one would have to conclude that there is some other problem at ADX.

    That some other problem is that the board has not taken any steps over this long period of discounts to maximize the shareholders' value; or, alternatively, the investment management of the fund is sub-optimal.

    I sense it is the former as the investment performance of ADX has been OK. So, therefore, the board should hire an independent, third party investment bank to help determine how to maximize shareholder value.

    The easiest way would be convert ADX to an actively traded ETF. The shareholders would get an immediate 18% bump in the valuation. Additionally, if management is superior then they would be able to grow the asset base as they would attract new "subscriptions". If not, then the asset base would dissipate as investors move their funds elsewhere.

    I don't see how the board could reject a proposal for an independent study on maximizing shareholders' value?

    It's all good.
    Feb 28 10:55 AM | 2 Likes Like |Link to Comment
  • Adams Express: Worth Owning Long-Term [View article]
    I'm not sure that ADX's new distribution policy qualifies as a "true" managed distribution program--although I could be enlightened on this point.

    It was my understanding that such program would require an exemption that would allow that capital gains be paid more than once during the annual period.

    What ADX has done is still to pay out what was typically its regular capital gain at year-end but has set the total distribution amount (NII and capital gains) to 6% of its average share price.

    This buys them nothing; they'd been pretty much generating a total return of 6% anyhow for an extended period of time based on the year end capital gain distribution for the last 5 years.

    It would be more efficient for ADX to incorporate their capital gain into quarterly distributions so they could get credit on an annualized yield basis. According to Yahoo, ADX's dividend yield is 1.9% and they get no real credit for the year end distribution. (Additionally, ADX's ex-date and payment date the farthest apart of any CEF.)

    While novice investors will get initially excited regarding ADX's wide discount, they should get too excited as the average discount hasn't changed much in the past two decades.

    ADX is not being run for the benefit of the shareholders (check out their management incentive program and the executive pension plan.) Additionally, there is a huge conflict of interest as there is a single board for both ADX and its sister CEF Petroleum Resource which ADX holds a 5% position. (What if there was a reason to sell PEO entire position--do you think they'd do it? How would you determine the fidiciary duty to ADX or PEO? This is a law suit waiting to happen.)

    ADX is an anachronism and is no more that a proxy for a large cap ETF. Investors would be better off taking the 18% premium it would get on liquidation and place the proceeds into SDPR's SPY.

    ADX time has come and gone. It the equivalent of an elephant being bit on its heelby a highly venomous snake . It's dead, but it doesn't yet know it.

    I would like the board, to step up and hire an third party investment bank to do a study to suggest ways to enhance shareholders' value. If the study concludes that ADX has no realistic options of enhancing its value and the management is doing all it can, then great. Next.

    Remember, the board is responsible for enhancing shareholders' value. They have not demonstrated any attempt to do so. A token buy back program that doesn't get funded is a joke.
    Feb 27 11:45 PM | 3 Likes Like |Link to Comment
  • Adams Express Is Running Scared [View article]
    For a first attempt I was surprised that as many shareholders vote for change on the initial proposal with very little lead time and discussion.

    The Board's interest is not aligned with the shareholders or they would have done something before now to try to maximize value.

    This is just a matter of time before ADX will change or be liquidated.
    Apr 11 10:51 PM | Likes Like |Link to Comment
  • Adams Express's Proxy Fight [View article]
    Quality,

    I agree with your basic premise that dividends matter when it comes to CEFs.

    This is why I have been a proponent of a managed distribution program for ADX. As I have demonstrated in a separate article ADX could consistently pay a 5-6% distribution based on NII and capital gains annually.

    Since ADX pays the capital gains out at the end of the year anyhow, why don't they just incorporate it into monthly or quarterly distribution? They would get more "bang for the buck".

    It is a demonstrated fact that CEF with managed distribution programs trade at a lower discount than those that don't. In the case of ADX, they'd be earning it as opposed to other CEFs that pump up there distributions with a return of capital.

    Extinction is an excellent motivator for change.

    JMO
    Mar 21 10:57 AM | Likes Like |Link to Comment
  • Adams Express's Proxy Fight [View article]
    Gwailo,

    Thank you for your clinic on relative returns for each side of this proxy contest. It was both insightful and helpful in sorting out mechanics of each.

    This is not a complex issue. The Board doesn’t really care about maximizing shareholders’ value.

    Consider the following. If ADX’s investment record was as good as they would have you believe then why the persistent and deep discount to NAV?

    In an article I wrote last year, I pointed out that since its inception ADX has traded at an average year-end discount of 12.1% versus a peer group of 8.1%. “And, it’s gotten worse! At the end of 2009, ADX’s discount was 15.5% and its peer group was 9.2%. That’s 630 basis points greater than its peer group! Why?”

    This could be a function of many things, but the two likely candidates are: 1) the investment returns weren’t as good as ADX would like you to believe, or 2) investors were convinced that after years of inaction on the part of the Board, it would not take actions to defend its “vaulted investment record” with any meaningful proposal.

    This leaves investors with two alternative courses of action. The first is to change the Board and get directors who would be proactive in maximizing value for its shareholders (an expensive and time consuming venture) or liquidate the company at an immediate premium to share price.

    As a shareholder, I do not feel that the Board of ADX is working on my behalf. As opposed to the Board dealing with this persistent discount with proactive proposals for maximizing shareholder value, last year’s proxy included “Proposal 3”, which is the re-approval of the “2005 Equity Incentive Compensation Program”. Of course the Board’s recommendation was to vote in favor.

    I think it’s time we “throw the rascals out”. I support the shareholders’ proposal and believe others should also. It sends a clear message, “We’re mad a Hell and we’re not going to take it anymore!”
    Mar 2 11:55 PM | Likes Like |Link to Comment
  • Adams Express: Growth Stocks at a 15% Discount [View article]
    Since ADX shares trade currently at 11.40 and its NAV is 13.09 per shares, if you were able to liquidate ADX at NAV (13.09) this would be 14.8% higher than the current share price.

    Therefore you'd get an immediate bump of 15% in value and then invest that in SPY that typically trades at par.
    Feb 23 11:05 AM | Likes Like |Link to Comment
  • Adams Express: Growth Stocks at a 15% Discount [View article]
    I agree. You can liquidate your position in ADX at value 15% greater than its current price and invest it in SPY with lower expense ratio and greater liquidity. What's wrong with that strategy?
    Feb 23 12:04 AM | Likes Like |Link to Comment
  • Adams Express: Growth Stocks at a 15% Discount [View article]
    Chamois16,

    While I respect your opinion, your reasons of “it ain’t broke, don’t fix it” seems, seems more sentimental than the based on the reasons we invest in stocks.

    I’ve provided for you a link to the “Larry the Liquidator” speech in the movie “Other People's Money speech by Danny DeVito” It just seems appropriate for this situation. www.youtube.com/watch?...

    As always, it is presented in a spirit of higher dialogue and not intended to be confrontational.

    Best,
    Joe Eqcome
    Feb 20 08:14 PM | 3 Likes Like |Link to Comment
  • Adams Express: Growth Stocks at a 15% Discount [View article]
    Gwailo,

    Thanks for the "heads up"! I look forward to reading the document.
    Feb 18 11:47 PM | Likes Like |Link to Comment
  • Adams Express: Growth Stocks at a 15% Discount [View article]
    The only thing that will eliminate the perma-discount for ADX is a new board and management that has the investors' interest ahead of their own.

    This would include converting to an ETF, establishing a managed distribution policy or implementing periodic tender offers.

    Investors have given up on this stock that why it trades a massive discount.

    Someone needs to rattle this cage.
    Feb 18 11:36 AM | 2 Likes Like |Link to Comment
  • Adams Express Proxy Proposal 1: A Vote Against the Directors [View article]
    Phil

    Thanks for the clarification.

    My goal was to be responsive to you.

    Joe Eqcome
    Feb 25 11:40 AM | Likes Like |Link to Comment
  • Adams Express Proxy Proposal 1: A Vote Against the Directors [View article]
    Thanks, that’s an interest point.

    Based on foot note 2 in its recently released 2009 annual report, it appeared that net unrealized appreciation aggregated $87.8 million and represents approximately $1.00 per share. Based on a 15% long-term capital gains tax rate, that would amount to approximately $.15 per share or approximately 1.5% of the discount of approximately 15.4% (2/24/10).

    There may be other tax consequences of which you speak that I may be unfamiliar of. Let me know if I should be looking at other items.

    This brings up an interesting point. If personal federal and state income tax rates are likely to rise (odds are good considering the budget deficits), would it not make sense for the capital gains to be paid out prior to any such change to reduce the tax burden on the shareholders?
    Feb 25 11:33 AM | Likes Like |Link to Comment
  • Adams Express Proxy Proposal 1: A Vote Against the Directors [View article]
    Phil

    I’ve made a concerted effort to be very clear on the following point:

    I’m not taking issue with the investment performance of ADX. As I have pointed out on numerous occasions in my articles, ADX’s investment manager(s) has done a reasonably good job of matching its benchmarks.

    My issue is that given this good performance, the Board has done effectively nothing to close the persistent and oversized discount on behalf of its shareholders.

    If this were a “bad” product, then you’d say, “OK, I get it. They have a big discount because they’re bad investment managers.” This doesn’t seem to be the case.

    The simplest example of what I’m trying to say is: You can have a high-performance engine in your car (ADX investment management) but if all your tires are flat (Board) you’re not going to maximize the performance of your engine.

    The tires (Board) on the ADX wagon are flat and they need to be changed. And candidly, you don’t have to change the tires as much as they need to be re-inflated.

    The Board needs to demonstrate they’re moving forward with ways to maximize shareholders’ value as well as better represent the reasonable performance of it management.

    This is just a “shot across the bow” to let them know the shareholders want constructive change on their behalf and that there are consequences to ignoring us.
    Feb 25 11:05 AM | Likes Like |Link to Comment
  • Adams Express: Major Shareholders Should Express Displeasure [View article]
    Erratum: As correctly and graciously pointed out by “Closedendtrader” in the comment above, in the current article the reference to “Living Trusts” of the Bergstroms’ was mistakenly identified as “Living Wills”. Below is how it is correctly identified in the hyperlinked filing:

    “Erik E. Bergstrom
    Erik E. Bergstrom Living Trust U/A Dated 12/6/74
    Edith H. Bergstrom
    Edith H. Bergstrom Living Trust U/A Dated 12/6/74
    Erik E. and Edith H. Bergstrom Foundation, a Charitable Trust “

    Notwithstanding its misidentification, its import remains the same.

    I hope this faux pas has been a temporary source of amusement for some as it has for me.

    Joe Eqcome
    Feb 22 11:15 AM | Likes Like |Link to Comment
  • Adams Express: Major Shareholders Should Express Displeasure [View article]
    Dan

    Your skills in this area of qualitative analysis are well honed and are probably better than mine. Do you have an opinion with regards to the items you posed? What strategy would you employ to get a message across to the Board? Thanks.
    Feb 21 10:09 PM | Likes Like |Link to Comment
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