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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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Rangeley Capital on Harvest
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Rangeley Capital Best Investment Ideas
  • $250 Waiting To Get Picked Up 46 comments
    Aug 31, 2013 6:03 PM

    Arbitrage kills arbitrage and there is some evidence that my articles have killed off at least one of the arbitrage opportunities that I sought to identify and explain. In order to avoid a repeat performance, I am going to attempt to keep a lower profile with this idea and will not publish an article on it.

    Instead, if you are a Rangeley Capital partner or a qualified investor who considers yourself to be a potential partner, please shoot us an e-mail (Rangeley Capital contact information here) and we can send you the specifics. Meanwhile, it will take six business days and earn an 8% return. One way to use these opportunities is to loan to kids or grandkids at the applicable federal rate (AFR) which is currently 0.25%. The interest will cost $2.00 for the eight days in which the capital would be tied up and can be gifted under the gift tax exemption. The total cost of the equity in question is $3,110.58 and the gross profit will be approximately $255.42 per account for a gain of over 8%.

    Prospectively, my intention is to use small illiquid ideas internally and for whatever use interested limited partners can make of them in their own accounts. While arbitrage eventually kills arbitrage, I want to avoid killing it off faster than is necessary for us to first profit.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

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Comments (46)
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  • Clayton Rulli
    , contributor
    Comments (2652) | Send Message
     
    If you first invest in the arbitrage then expose it afterwards, thus killing and voiding the former arbitrage, don't you usually profit even quicker than otherwise? :-)
    31 Aug 2013, 06:09 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Usually yes. Thus, "I look and sift the world for... misplaced bets. When I occasionally find one, I first exploit it for profit on behalf of my family and partners at Rangeley Capital. Then, I write about it for anyone else interested in such ideas." However, in this case and in similar cases, people who are far more valuable for their idea generation capabilities have become unhappy when I've written about and then closed off opportunities as a result.
    31 Aug 2013, 06:14 PM Reply Like
  • Yuanxi Zhang
    , contributor
    Comments (244) | Send Message
     
    I know what you are talking about :)
    31 Aug 2013, 07:51 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » I figured that people who already know this one would recognize the description; this way I won't get in trouble for blabbing too widely though.
    31 Aug 2013, 08:01 PM Reply Like
  • Yuanxi Zhang
    , contributor
    Comments (244) | Send Message
     
    I think it's fine because this deal is not recurring and the number of shares the company will be purchasing is fixed...
    31 Aug 2013, 08:11 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Good point; I might have picked the wrong time to get careful.
    31 Aug 2013, 08:12 PM Reply Like
  • xerty
    , contributor
    Comments (13) | Send Message
     
    You can never be too careful.

     

    @Yuanxi - you're wrong about not being recurring.
    1 Sep 2013, 03:29 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Unfortunately for me, the people I tend to tick off are precisely the kinds of people I most admire and who prove to be the most valuable in terms of idea generation. So, all else being equal I don't want to goof up their tactics.
    1 Sep 2013, 10:54 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (584) | Send Message
     
    Great one. Love a good riddle. I do own this one. Wish I didn't so I could buy Tuesday morning. As for keeping ideas private I actually take the minority position and agree with you that sharing information is net-net positive. I do see the other side but think that anyone who is interested in these sort of things follows them anyway and like me in already involved.
    31 Aug 2013, 09:04 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » For the most part, I think in terms of a small study group in a large class that grades on a curve: I appreciate that there is a mechanical relationship between helping each other and degrading a grade. However, the vast majority of the competition is outside of the study group so one might as well offer and accept a lot of help.
    1 Sep 2013, 10:56 AM Reply Like
  • Squeeky Wheel
    , contributor
    Comments (324) | Send Message
     
    Good analogy
    2 Sep 2013, 08:32 AM Reply Like
  • Alpha Hungry
    , contributor
    Comments (81) | Send Message
     
    the thing with these odd-lot tenders is that, if there are too many people trying to take advantage of it, the company can change the terms and no longer exempt odd-lots from proration. so yes it is possible that spreading this idea could kill it - but pretty unlikely IMO. (i hope this isn't giving the idea away)

     

    thx for all your help chris - your articles have served as great starting points for idea generation
    31 Aug 2013, 10:08 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » You're welcome. This should pay for a nice dinner.
    1 Sep 2013, 10:57 AM Reply Like
  • Squeeky Wheel
    , contributor
    Comments (324) | Send Message
     
    Thanks for the tip. With a little application of intelligence I was able to find it. Hopefully IB can let me get this one in on time Tuesday.
    31 Aug 2013, 10:26 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Good. IB is a bit dense and has such terrible customer support, but I put up with them because they are so cheap.
    1 Sep 2013, 10:58 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (584) | Send Message
     
    Speaking of IB, a friend told me he put some money in an account there 6 or 7 years ago. Life got crazy for him and he lever did anything with the account. He recently noticed that they had been deducting all sorts in inactivity fees along the way and is out about 2K. Chris, any advice for him to try to get those fees back?
    1 Sep 2013, 11:07 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » I have over 500 personal accounts in the US, Canada, and China for various reasons and every once in a while fall victim to inactivity fees. I attempt to do at least some transactions in each one each year (my longsuffering assistant is in charge of servicing these accounts after my wife quit from active duty in dealing with them for me). However, in a typical year one or two falls between the floor boards and they charge fees.

     

    So far, we have a perfect record of catching the fees and asking for them to be reversed. It seems as if it is easy on their side to reverse them. I typically indicate a level of interest in transacting in the given account in the future and that seems to appease them. But under no circumstances accept the fees.
    1 Sep 2013, 11:17 AM Reply Like
  • tuliptown
    , contributor
    Comments (912) | Send Message
     
    why do you possibly need so many accounts?
    2 Sep 2013, 03:35 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » I like them for federal deposit insurance and for the free embedded optionality associated with potential mutual conversions.
    2 Sep 2013, 03:41 PM Reply Like
  • Yuanxi Zhang
    , contributor
    Comments (244) | Send Message
     
    wait...you have accounts in China? What do you buy there?
    2 Sep 2013, 04:22 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Bank of China account in Yuan: http://seekingalpha.co...
    2 Sep 2013, 04:23 PM Reply Like
  • Yuanxi Zhang
    , contributor
    Comments (244) | Send Message
     
    I see. Very interesting. I thought you somehow got access to the A share market.
    2 Sep 2013, 04:35 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Sadly, no. But that I want. Please let me know if you get any ideas for how I could do so legally.
    2 Sep 2013, 04:44 PM Reply Like
  • Yuanxi Zhang
    , contributor
    Comments (244) | Send Message
     
    I think it is very hard. I do not have any practical experiences about it. Ideally you might be able to do so if you hire a Chinese citizen to open an investment company in China and sign a secret contract with him to control the 100% interest in the investment company. But I am not an expert on the legal and tax issues involved in the process.
    Otherwise, you will have to grow your fund to a pretty big size and have the Chinese authority to approve your fund as a QFII.
    2 Sep 2013, 05:15 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (584) | Send Message
     
    Thank you for the advice. I will pass the info along to my friend.
    4 Sep 2013, 12:41 AM Reply Like
  • steppppo
    , contributor
    Comments (219) | Send Message
     
    Thanks for the idea, Chris.
    1 Sep 2013, 11:08 PM Reply Like
  • erpichtauf
    , contributor
    Comments (131) | Send Message
     
    Was the company in question an oil service company?
    4 Sep 2013, 11:17 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Nope. Not and oil service company.
    5 Sep 2013, 07:37 AM Reply Like
  • Squeeky Wheel
    , contributor
    Comments (324) | Send Message
     
    What happens if one tenders then sells away the shares? Does he have to reacquire the shares and still tender or is the tender effectively revoked?
    10 Sep 2013, 10:15 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » I don't know; I have never done that.
    10 Sep 2013, 10:20 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (584) | Send Message
     
    Once shares are tendered they are not able to be traded. At least at the brokers I use.
    10 Sep 2013, 10:42 AM Reply Like
  • Squeeky Wheel
    , contributor
    Comments (324) | Send Message
     
    Thanks. Sounds like they are due if tender is not revoked. Presumably a permissive broker could allow the sale as long as they were re-acquired later.
    10 Sep 2013, 11:04 AM Reply Like
  • erpichtauf
    , contributor
    Comments (131) | Send Message
     
    A tad late, but was it an internet company?
    10 Sep 2013, 11:32 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Yes it was.
    11 Sep 2013, 05:40 AM Reply Like
  • steppppo
    , contributor
    Comments (219) | Send Message
     
    Latest press release says we should get paid on or about Sept. 16th. Thanks, Chris!
    11 Sep 2013, 10:21 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Excellent; you're most welcome.
    11 Sep 2013, 10:41 AM Reply Like
  • erpichtauf
    , contributor
    Comments (131) | Send Message
     
    Thank you.
    May have missed out on this opportunity, but I'm inclined to believe that there will be more in the future.
    11 Sep 2013, 07:30 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » There will be many more such opportunities in the future.
    11 Sep 2013, 07:33 PM Reply Like
  • sofos
    , contributor
    Comments (70) | Send Message
     
    Interestingly the share price kept on moving toward the tender price. However as soon as the tender period was over the share price came back a bit more than a dollar. Was this the expected (normal) event?
    Can one count on something like that happening in similar cases?
    Chris? Anybody else?
    12 Sep 2013, 12:51 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Yes, directionally that is pretty normal. The spread was tight when the deal was about to close. It is also pretty normal for the stock price to decline after the tender offer. However, in this case, only part of the decline can be directly attributed to the end of the tender offer.
    12 Sep 2013, 08:12 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Payment for everyone who participated will be sent on Monday, September 16, 2013.
    12 Sep 2013, 08:23 AM Reply Like
  • steppppo
    , contributor
    Comments (219) | Send Message
     
    Just saw this one this morning: $BPI

     

    About $130 to be had at today's prices.
    13 Nov 2013, 12:26 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4341) | Send Message
     
    Author’s reply » Excellent; thanks!
    14 Nov 2013, 07:12 AM Reply Like
  • Pine Research & Trading
    , contributor
    Comments (164) | Send Message
     
    i'll echo that. thanks stepppo
    14 Nov 2013, 02:49 PM Reply Like
  • steppppo
    , contributor
    Comments (219) | Send Message
     
    Here we go again. I have not, however, seen an odd lot provision in this one. Proceed with caution.

     

    http://prn.to/1pC9mOS
    6 Aug, 09:15 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (584) | Send Message
     
    steppppo-I saw this too. was a short window of buying right at open but now trading above tender......I'm guessing there will be an odd lot provision but my not matter. I will watch for sell off in coming weeks just in case
    6 Aug, 12:26 PM Reply Like
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