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Murray Stahl 2015 Shareholder Letter: New Positions

Murray Stahl Letter to shareholders dated August 14, 2015.

Dear Fellow Shareholders,

The past year was a year of harvesting. As noted in the 2014 Shareholder Letter, we have been gradually disposing of our closed end fund investments that have been primarily oriented towards bonds. It might be recalled that these were purchased during the aftermath of the 2008 bond market crisis when the bond market essentially ceased to function. Closed end funds were not only priced at very significant discounts to net asset value, but most bonds, apart from U.S. Treasury Securities, sold at substantial discounts to par value. Years of ultra-accommodative monetary policy have certainly changed this circumstance. We concluded that the after tax returns from this point forward are likely to be at best in the low single digits and these returns are not at all proportional to the risk of continued investment. Hence, we have been sellers of these funds for the past year.

Nevertheless, we have also planted some new seedlings in the past year. None of the seedling practice is a departure from the past. However, continuous seedling investment is gradually transforming the company. Our shareholders’ equity has now surpassed $102 million. Our cash and cash equivalents balance now comfortably exceeds $44 million. We have more financial resources than at any time in the company’s history. We can operate upon a far more ambitious scale should opportunities present themselves. We are a more diversified and balanced company than at any time in our corporate history.

In our discussion of business affairs we will more or less follow the FRMO segmentation that we introduced with the 2014 Shareholder Letter. However, we will take this opportunity to introduce some new investments as well as provide some strategic commentary that we did not supply in the 2014 letter. The format will be as follows:

  1. Investment in Horizon Kinetics LLC
  2. Horizon Kinetics LLC Revenue Share
  3. Bermuda Stock Exchange
  4. Investment Securities divided as follows:
    a. South LaSalle Partners LP: the Minneapolis Grain Exchange
    b. Investments in Horizon Kinetics Funds
    c. Marketable Bonds & Equities
  5. Winland Electronics
  6. New Venture – One Chicago
  7. Securities Sold Short
  8. Cash and Equivalents
  9. Strategic Commentary

Murray Stahl - Horizon Kinetics LLC

Since much of what Horizon Kinetics does in the investment management realm is in the public domain, it has probably not escaped shareholder notice that funds under management have not been increasing. As of the most recent reckoning, assets under management (AUM) is approximately $9.1 billion. We have most assuredly not been immune to the trend of investors to give preference to indexation strategies. Perhaps more importantly, we have resisted the temptation to move into the various currently popular “momentum” strategies.

The popularity of momentum strategies has had a modestly negative impact upon our own index business, which was discussed for the first time last year. For example, in August of last year our classical index assets amounted to about $200 million of AUM dominated by approximately $130 million in the Virtus Wealth Masters Fund. Although this fund has about $154 million of AUM as of this writing, our classical index assets now amount to roughly $170 million of AUM. Historically, index funds, or passive management...


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