We don't like to mix the BDC Reporter's analytic output with the investment activity we undertake as an RIA on our own behalf and that of our family and friends clients. We manage a number of portfolios, each with different risk profiles; investment periods and return requirements. In this case we have a Speculative Portfolio in which we make short term purchases in BDC securities, targeting capital appreciation rather than dividend income. The trigger is typically our ongoing research about every BDC out there and a sense from a combination of the fundamentals and market conditions that an opportunity exists for a relatively quick "buy and sell". We expect to be wrong as often as right but by cutting our losers and riding our winners, we're looking for a double digit annual return but taking only bite size positions in any one name.
However, we would like to share with our readers examples of what we're buying, while explaining the context of the purchases.
In this case we purchased a small position in Medallion Financial (NASDAQ:MFIN) after listening to the Conference Call (first of its kind) on Tuesday after the close. We also read the press release, but the 10-Q was not yet available. (In the past -and probably in the future- it's been risky to invest in MFIN based on its earnings release alone as the 10-Q typically exposes major risks which the press release carefully avoids mentioning. We've warned investors to "wait for the Q" on a couple of occasions and been vindicated.
Here we ignored our own admonition. That's less to do with the earnings themselves, or even much of the content of the Conference Call, but more to do with the very fact that the CEO and Chairman of the BDC, who are famously diffident about speaking to analysts and investors, offered to host the CC. Admittedly questions asked had to be emailed in advance, but the whole presentation was undertaken with a reassuring vigor. We got the impression- and not much more- that the insiders believe the BDC will survive (the bank regulators appear not to be taking any adverse action that might bring this all crashing down) and will be able to make the transition out of medallion lending into retail and commercial lending.
Given that MFIN is valued way below its meaningless NAV and close to a bankruptcy price, and that there has been speculative buying before when prospects brightened, we reasoned that the price might jump up in the days and weeks ahead as the prospect of collapse weakens.
We bought a small number of shares in the pre-open to the market (always a dangerous game because the bid-ask is wider) and so paid $2.4898. Our projection that the stock might increase on Wednesday based on the Conference Call results has not panned out, and the stock is up only modestly at $2.23 as we write this. Nonetheless, we remain reasonably confident that MFIN will survive and might even attract a buyer (based on the latest vague statements by the CEO and the apparent hiring of an investment banker for the search). We are down after a few hours, but not out and hanging in there.
Disclosure: I am/we are long MFIN.