3SOF

Volume is coming down, so speculative momentum players will start leaving for the exit. They will soon find out that, besides them, nobody wants to buy these shares above $8 and the stock will definitely crater.

My recommendation continues to be: buy to cover CUBA shorts around $8 (yesterday's net asset value was $7.97).

Nothing new on CUBA, the current net asset value is $7.92, the plan is to close this short around $8.

CUBA's volume is drying to almost zero. Suddenly this stock will be down 20 or 30% in one day, at least that's my expectation. I wish CUBA had a message board where I could write an article on it, so that misinformed investors buying the stock could see the truth.

I know how you technical guys don't even read what I've been writing on this thread. My view is your mind is closed to new ideas about the market.

The plan continues to be, hold CUBA short until the stock goes down to its market value of, let me see today, $7.90.

CUBA is the strangest inefficiency I've ever seen on this market. I really can't explain why the stock doesn't collapse. I'm pretty sure that it will, but why the wait?

Imagine that 16 years ago people were always complaining because closed end funds always traded at a discount. Thomas Herzfeld, CUBA's president, used to make a living selling shares of the funds holdings short and buying the closed end funds at a discount, making the arbitrage play we're doing on CUBA, but in inverse:

Quote
But surely, no matter what other objectives an investor has, making money has to be near the top. What about arbitrage? Can't someone buy shares in a deeply discounted fund, then sell stocks equivalent to the fund's holdings and lock in a profit?

"That's what I do for a living," Mr. Herzfeld answered.

Now he's selling CUBA shares, as you can see on his latest transaction on December 13th: CUBA Insider Transactions

These shares are trading at a premium of 90% to the underlying fund's Net Asset Value, it's incredible.

Here's an interesting article about closed end funds valuation: Closed-End Funds: Accounting for the Discount

Now Herzfeld's business address is a PO box.

In November, Herzfeld held a shareholder meeting at an undisclosed location. It lasted 4 minutes, 22 seconds.
HERZFELD: Is there any business to come before the meeting?

SECRETARY: Chairman, there is none.

BOARD MEMBER: I'm from Florida. I demand a recount.
No shareholders showed up to the annual meeting. Not because they fear being targeted. Herzfeld doesn't get threats anymore. Shareholders didn't show up because they don't have much to complain about.

Over the past 12 years, the fund's share price has climbed 80 percent. And a search by Bloomberg News ranked the Herzfeld fund number two in the world for Latin America over the month of November.

Washington slapped an embargo on Cuba in 1963, when Castro started nationalizing U.S. companies. Nearly four decades later, the embargo is still in place, and may even outlast Castro.

So how has Herzfeld managed to make money?
HERZFELD: We wanted to pick companies which we thought would do well, even if there was no change relating to the embargo. And those companies have done very well indeed.
The Herzfeld fund trades as CUBA on the Nasdaq. It's relatively small, with just $14 million in holdings. But it turns out new investors are dying to get a piece of the action. Herzfeld's turned away half a billion dollars in additional financing.

He does this even though managing more money would bring him hundreds of thousands of dollars in additional fees.
HERZFELD: It's more about excellence than fees. We want to get it right. The more money an investment manager has to manage, the more difficult it is for him. You become a bull in a china shop if you get too large.
Cecilia Gondor has worked with Herzfeld for 23 years.
CECILIA GONDOR: Tom is a quiet genius.
She says he carefully researches every move he makes.
GONDOR: He always can go right to that heart of the matter and say this is where the emphasis has to be.
The Herzfeld fund began trading in 1994, on May 20th — Cuban Independence Day — with an appropriate initial value of $5.20. It hit a record $9.50 after Castro went to the hospital with an intestinal ailment in August.
GONDOR: What surprised me is that we've had to wait so long. When we started the fund, we though it'd be a few years. But it's been a long time.
Herzfeld, in financial parlance, continues to go long with his investments. He's says he's prepared to keep waiting.

Lol, it was the best fund because the stock is insanely trading at a premium when compared with the fund's Net Asset Value.

CUBA = $14.92. Yesterday's Net Asset Value of the fund = $7.93

(as can be seen on the company's website: http://www.herzfeld.com/favorite.htm)

Moreover the fund has 99.9% of its money in common shares, of course none of them in Cuba because there's no stock exchange there. 76% of the funds holdings are US and Mexican stocks, as can be read here:

http://www.herzfeld.com/AnnualRpt6-30-06.pdf

I don't know what can I do to make this POS go down to its fair value (which should be trading at a discount, that is, at about $7.50). Probably, just wait ...

Thanks for the article yukiii, applaud

David
Take a look at
Cornerstone Total Return CRF
premium is 85%

Quote from: yukiii on December 22, 2006, 03:35:24 PM
David
Take a look at
Cornerstone Total Return CRF
premium is 85%

Yes, that's another that should be sold short. There people are attracted by the monthly distributions, but of course those distributions reduce the Net Asset Value, so bulls don't know what they're doing. Since the stock is so thinly traded, it is possible that it goes up just because misinformed investors are buying and nobody is selling, because 98 or 99% of the investors in the fund bought on the original launch, not in the open market, so they don't have any shares to sell.

Anyway, with some time these things will naturally trade at the Net Asset Value per share (even at a discount, which is the historical norm), as you can read on this article from thestreet.com: April Sours for Many Closed-End Funds

The plan continues to be: be patient and buy to cover CUBA only around its net asset value, which on Thursday's close was $7.92.

As I've been saying on this thread, CUBA was making me nuts. I could never understand why this closed end fund was trading with a premium of 80 or 90% relative to the fund's net asset value. I talked to everybody I knew, e-mailed the company and nobody could explain the current overvaluation (nobody except the chart, of course). I felt betrayed when the stock didn't went down on the ex-dividend date (the fat dividend was one of my explanations for the bullish technical picture, the publics ignorance on dividends and their effect on stock prices).

That was the first sign that I was wrong, but still, I always thought it was just a matter of time for the stock to adjust to its intrinsic value (intrinsic value given by the market value of the securities held by the fund).

It's funny the unexpected ways we sometimes learn new things in the market. Imagine that I finally understood what was happening with CUBA when I was studying MAMA

You say: «How can that be possible? Tell us, closed end funds are valued at their net asset value and CUBA's net asset value currently is $7.92, right?»

Right.

«The funds holdings are mostly US and Mexican mid and large cap companies? The fund is diversified through more than 100 different holdings, right?»

Absolutely.

«Then how come the fund's total holdings are worth just $13.3 M and the market cap of the stock is $26.43 M, roughly double?»

As I studied MAMA, I understood how the market always looks into the future. MAMA's financial statements show a dismal picture, yet I believe the stock is worth maybe ten times its current market cap.

I never thought of that when considering CUBA, because I thought that the funds current holdings already reflect their future value, so it doesn't make any sense to trade the stock at such a huge premium. But, this is a fund that invests in stocks, and today's holdings don't necessarily have to be tomorrow's holdings. I guess the market is looking way ahead into the future, thinking that if Cuba's communist regime goes down after Castro's probable death, the fund will invest a significant part of its money in Cuba.

So, perhaps investors aren't crazy or misinformed as I thought (well, some of them are, since they don't even know CUBA represents a closed end fund), they just want to access the possibility of being early birds in Cuba's market. The only way to buy this closed end fund is by buying CUBA's shares.

I'm losing 1.4% on this trade, plus the $1 a share that I'll have to pay as dividends (so I'm losing 7.3%). Not all that much for this tuition fee, considering the lesson learned, which was:

- The market always knows better

Tomorrow I'll buy to cover CUBA.

Quote from: David Randolph on December 26, 2006, 04:51:06 PM
Not all that much for this tuition fee, considering the lesson learned, which was:

- The market always knows better

David, gotta applaud you for going that extra length to understand why CUBA ain't doing what you'd been expecting. But here's where your conclusion gets to me:

1.) How much time does one give him/herself before you realize there might have been a mistake in the initial analysis and thus close your position? (lemme guess the answer to that question myself - until the trade edges close to hitting your money mgmt. rule or until you find the mistake in your inital analysis: whichever comes first??)

2.) My bigger issue is with that sentence of yours : The market always knows better.
I mean, if you apply that to every situation, then the whole world of "value investing" would come crashing down. If everyone out there assumes the market knows it all, there would be no point buying a stock "based on valuation", wouldn't you agree? Stocks like BFLY, SYX, MAMA, ONSM would all need to be scrapped because we could say..."the market always knows better"...point being, how much time would one give a stock to "prove it's valuation" based on one's study of the company''s fundamentals, before throwing in the towel and saying...the market knows better (not in anyway suggesting you threw the towel in on CUBA, so please don't misunderstand me on that) 

I hope you understand what I'm trying to say in this post. 

QuoteDavid, gotta applaud you for going that extra length to understand why CUBA ain't doing what you'd been expecting.

Didn't get any applause

Quote1.) How much time does one give him/herself before you realize there might have been a mistake in the initial analysis and thus close your position? (lemme guess the answer to that question myself - until the trade edges close to hitting your money mgmt. rule or until you find the mistake in your initial analysis: whichever comes first??)

I don't know how much time. I update the initial analysis everyday and I keep the position for as long as the initial motives are still valid.

Quote2.) My bigger issue is with that sentence of yours : The market always knows better.
I mean, if you apply that to every situation, then the whole world of "value investing" would come crashing down. If everyone out there assumes the market knows it all, there would be no point buying a stock "based on valuation", wouldn't you agree? Stocks like BFLY, SYX, MAMA, ONSM would all need to be scrapped because we could say..."the market always knows better"...point being, how much time would one give a stock to "prove it's valuation" based on one's study of the company''s fundamentals, before throwing in the towel and saying...the market knows better (not in anyway suggesting you threw the towel in on CUBA, so please don't misunderstand me on that)

I did, I throw the towel when I have to like anybody else. I said "the market always knows better", I didn't say "the market knows it all", and there's a difference there.

Fundamental analysis is useful as a means of comparison and to have an expectation for future value. An expectation for the magnitude of the move.

Take AMKR as an example. I think the stock is worth $30 based on fundamental analysis. Yet, the stock is down 7% in December to $9.51. Why? I guess because it was up 48% in November. Although the trend is up, the stock doesn't go from one point to the other in a straight line. If I didn't knew the fundamentals, probably I would have sold on December's break (or in any break in any stock). The market always knows better, but you need to mix its message to fundamentals to know what the market is saying.

Another example, SYX. The stock was down 15% after I bought it, but I held, because I saw the fundamentals as very attractive and never changed my opinion (and technicals were still bullish, despite the 15% fall). Now I'm 21% ahead on the trade.

There's no time table to know, I keep investigating and thinking about the position. Sometimes I get more confident, given incoming information/analysis, and sometimes I see more than I saw the first time and I conclude that I was wrong. I may get out with a small profit or a small loss when that happens.

As always, the money is on the big swings, not in small fluctuations. Unfortunately, it isn't easy to find a stock that will make a big swing (it is a lot easier after the fact )

Keep those questions coming, applaud

You got an excellent short entry here David, I think CUBA is due for a fall

----> CUBA is been bullish for 12 weeks
--- > Bearish Rising Wedge Formation in play

Rising Wedge

Well I'm a glutton for punishment so I'm still holding short.

Quote from: Terliso on January 03, 2007, 02:59:51 PM
You got an excellent short entry here David, I think CUBA is due for a fall

----> CUBA is been bullish for 12 weeks
--- > Bearish Rising Wedge Formation in play

David, your CUBA is imploding....nice pick for a short, applause