The Curious Investor

Allied Capital Goes from Value Trap to Deep Value

Good catch. I see your point and it is valid. You can get upwards of 7% worth of dividend simply by buying ARCC here. As such, ALD provides just a 1% discount and a whole lot more risk. I think the ultimate thesis that ALD is a much stronger stock as a result of this transaction still holds, but it is not the slam dunk opportunity I thought it was. Thank you for your insight. It's really nice to get constructive comments from the Seeking Alpha community. I'll be sure to post a follow up on my blog.

On Oct 29 11:53 PM BeauZeau wrote:

> Your math is faulty. If you short ARCC and buy ALD as you suggest
> you would have to pay (probably) two dividends to the person your
> shorted ARCC to. That would wipe out any apparent difference in
> the price. The arbs moved in on this as soon as it was announced.
> There is no free lunch here or anywhere else. Both stocks are
> being depressed right now by year end tax lose selling in ALD.
> Just buy ARCC for the least risk here.