in which one ponders the merits of being a boat bitch


BB. That’s the common acronym around Kent Island for Boat bitch. A BB is an individual, like myself, that loves boating but has no boat. We have friends with boats. There are many reasons to be a BB. Some cannot afford the boat. Some, like my co-worker, have broken boats that will take awhile to fix. Me? Its simple. My love of boating is a lot like my love for baseball. Anyone who knows me knows I love the game, Watch it, read about it, study it. CanI play it? Lets just say I played a lot of right field as a kid. Played damn near every day. However I have the coordination and athletic ability of a piece of wood. Could field a little, but no arm and even I knew I was a guaranteed out when I came to the plate(except in wiffle ball. A wiffle ball I could hit and I had a really cool dipsy doodle pitch that was unhittable. Unfortunately there is no major league,or even high school Wiffle ball). So it is for boating. I love being on the water, and really enjoy go fast boating. I remain however a natural born klutz with terrible coordination and the response time of a lump of coal. To whit, none whatsoever. Giving me control of two 500 cubic inch motors would be like giving Hannibal Lechtor a sharp knife and a frying pan.So, its BB for me. To be a BB, you have to be blessed with a great group of friends who have boats, And I am. The crowd on Kent Island is one of the best groups of friends I have ever had in my life. The come form all walks of life but we all share one trait…we all refuse to grow up and often make peter pan look like a social security recipient.

Boat bitching is a great way to spend the summer. Hanging out with friends, riding up and down the bay, enjoying the incredible seafood of the midatlantic , adult libations, great music and of course, the bay itself. A summer on Kent Island is like living in a resort for 5 months. From May to September its pretty much non stop every weekend and several weeknights thrown in just for fun.Already this summer we have had some great adventures and times. Memorial Day at Buddy Harrisons on Tilghman Island. Captian Buddy in years past had always had what was generously called a bikini contest on this day and boaters came from all over Maryland. It has been the traditional opener of the power boat season .Last year his son was running for office and the contest was cancelled. This year, the son informed us there would be no contest this year to protect his political image. He forgot his dads health was much better. Buddy went into his pocket for a roll of hundreds and announced a contest. He raised the price until about ten girls were on stage and the familiar cry of “skin to win” filled the air. It’s a tradition and we refuse to allow some little political matter ruin such a fine upstanding cultural event! Little nervous on the way back when Rd decreed that he grew up here , it was his boat and he knew where he was going, Would have been believable if he wasn’t steering towards Annapolis instead of the narrows. FG has begun his annual assault on the bays fixed structures but a t least he hasn’t hit any bridges yet this year. DM picked up a new admirer and best little buddy who regaled us all with tales of his job as a pharmaceutical rep for various less than legal substances. He told us how much his watch cost, what his bar bill was the night before(although the number climbed by about a hundred bucks an hour each time he told the story). He let us know what fools we were for working when we could party like a rockstar full time like him. Best part of the day was when, as DM and I knew he would, walked off the swim platform straight into the water missing the dock he was aiming for by a good twenty feet. He ended his day as allof his type do. In a parking lot, shoeless in borrowed shorts and a towel, soaking wet, waiting his mommy come pick him up.A rock star indeed Seems for all his riches he lacked a car. It is not even July yet and we have had severall good trips, a bunch of breakdowns, hook ups and break ups. Summer on the island. I got a chance to introduce my daughter to go-fast boating courtesy of my regular ride JS. She loved it and we followed with traditional fathers day activities at red eyes. So I’ll never be father of the year,. We had a great time!

This past weekend, Gm was kind enough to invite some of us out for a boys day on the day on his beautiful new boat. We left the narrows headed for our destination when someone noticed a bad vibration. Bent Prop. Back to the marina. The crew at red eyes had us on the boat life and out of the water in a matter of minutes. Its good to have friends! The prop was indeed badly bent and the staff applied a high tech solution. They braced it with a block of wood and beat the hell out of it with a hammer until it was back in line . We were back underway in 30 minutes and had a great cruise down the bay to Annapolis and South river. Which brings me to this weeks lesson. Even in this hight tech world in which we live with all sorts of electronic solutions to our daily woes and tribulations, sometimes the best fix is the beat the hell out of the problem with a large hammer.

In the stock market the hammer continues to be price to book value and activist investing. Its working. We have had solid gains ion NSHA, SCX and Canadian trusts already this year. Selling puts on HDL, SHRP and PIR has filled the coffers with collected premium. SACS also are working well, with Ithaka closing their acquisition last week and are now an operating company dealing in medical devices that control body temperature using blood catheters. The company will now evaluated as an operating business and the warrants will price as a two year warrant with a $5 strike and not a deal making speculation. The esa warrants have moved up and I would hold off buying anymore at these levels. Thanks to Ryan Carlson for pointing out that the VRY SPAC deal was done by the same people who did EDA, a deal that worked very well with the warrants climbing from 1 to 5 in just a few months. We will add that one to the watch list. EDCI, PIR,PIR,HDL,BLG and GY all remain solid candidates for either outright purchase or selling puts. With the market a little shaky and volatility up,selling 1-2 month puts is probably best. I ran some screens last week for profitable companies that pay dividends and sell below book value. This is a simple screen I learned from the writing of notable value investor Peter Cundill. I will be writing more about the results and back tests of this method in the near future. Off this list I am adding two banks, Berkshire(BERK) out of New York city and Beverly Hills Bancorp(BHBC) out of California. Both are viable sale candidates and would be sold at much higher levels than they trade for in todays market. They are illiquid and hard to buy so caution is urged when placing orders.

I cant tell you exactly there the stock market is going to go. There are convincing arguments on both sides of the coin. We are hearing more rumblings about subprime mortgages and the consequences of a widening yield spread for investors and deal makers. These are the two biggest threats to stock prices right now. The economic signals remain pretty mixed right now with every piece of good news offset by bad. Home prices are weak and sales are forecast be slow as well. The bottom line is that the market has slowed in recent weeks, it is summer time, volatility is up and rates, although up from the highs remain above 5% on the five year. I am cautious and sticking to the hammer. Buying stocks and selling puts on stocks that sell below book value and are owned by smart, activist investors. I am keeping a strong margin of safety in the portfolios trying to own as many, heads I win a bunch, tails I break even or lose a little situations as I can find. So far, its working.

current thoughts


I really havent written much on the market since early in the year for two reasons. One, I really have not had much time to do much individual writing die to other projects and two, what was I going to say. Stock Markets up, film at 11?We have moved pretty much straight up all year long and there has been nothing much new to say and my core portfolio has stayed pretty much the same all year, Candian oil trusts, coal, activist stocks and spac warrants. With nothing much to say and no time to say I have been relatively quiet. That changes now however. Interest rate and inflation jitters have finally spook the stock market a little and we have seen some down days with increased volatility. The VIX is up about 50 % from January levels and it makes a little easy to fire off trades when you have some activity to take advantage of. For the first time in months I am finding puts worth writing on some undervalued stocks and I am happy to see the return of one my favorite trading methods. Puts on SHRP and PIR have looked especially attractive, although PIR is up sharp today reducing the opportunity for new positions somewhat.

The fed says that the main concern in the economy remains inflation and have pretty much eliminated the hope of a r ate cut, in fact hinting at the possibility of an increase. I think too much of an increase here whether it it imposed by the fed or the marketplace will have serious consequences. Energy costs for industry as well as consumers are already well above average and to now push borrowing costs higher will further squeeze margins, shrinking profit margins and reducing profits. Lower profits, in theory, are going to mean lower stock prices. I am not doom and gloom by any means but I think rising rates will be difficult for the stock market to contend with in the short run. In addition my main summertime economic indicator tells me the consumer is cautious. I have not encountered one back up at the by bridge this year. Not on Dover race weekend. Not on Memorial day. Not one Thursday or Friday have I even had to tap the brakes until I got to the toll booth. Im glad I don’t have a business in Ocean City this year. I suspect it is slower than usual. Having said that, it is a well know fact that I am the worst macro guy on the planet and have successfully been wrong in my prediction of market movements with something near perfect levels. So I will stick to my knitting with deep value and special situation investing.

I continue to play in the SPAC space and have recently taken an extensive look at the field We have profits in 4 of 5 positions taken over the last year in the warranst os special purpose acquisition companies, including a nine bagger in great lakes dock and dredging with only one small loss. Although this type of investing is pretty ..okay..very speculative, a small portion of capital applied here can be very rewarding, As I go through all the listings and recent events it is obvious that the biggest danger is a no vote to deal forcing the liquidation of the company and the warrants going worthless. Big firms such as fir tree and baupost own a lot of spac deals to play the arbitrage. If they like the deal, they vote yes and the stock usually goes up . If they don’t, they vote no and block the transaction and lock in a 10-12% profit in the liquidation. Win-win, unless you arelike me speculating on the warrants. To avoid this, Im only buying warrants where the deal is announced, there is insider buying and not a large institutional presence in the stock. Tough criteria but there are a couple that Pass. ITHK, EHHA and SHA pass this test. I also like ESA as there is not a large presence of arbitrage guys in the stock and Marshall Reynolds, the chairman has a long track record of successful deals. I ll add the warrants of all four to my speculative, you should buy this list.

On the pure value side I like SCX, LS Starett. This is one boring business, hand tools, saw blades and gauges but at exciting valuations. Two thirds of book, 50% of revenue, enterprise value to ebitda a takeover worthy 6 times. Debt to equity is 10% and they are profitable. When I am long stock I like to see the institutions with me and in LS Starret they are. Brandes, LSV, Bruce Sherman at Private capital and Charles Royce all have decent positions in the stock. I also like Adaptec here.The data management and storage company’s shares are trading around book value and are attracting attention. In addition, the company, trading at 3.76 a share has almost three bucks in net cash. Steel Partners filed a 13 d on the company yesterday and are getting close to the 10% ownership level. They have requested seays on the board and are very critical of current management. A s ale here would not be a huge surprise. Likewise, Educational Distributors has come under fire form the activists of late with both Robert Chapman and Daniel Loeb taking aim at the company and pushing for a sale or merger to take advantage of the over 4 bucks a share in Net Operating losses on the corporate books. To avoid change of control, it would have to be some type of reverse merger but it can and probably should be done. At 2.05. I think the hares are a good long term selection here. HDL, the music and dvd distributor alos looks very cheap here at half of book value, 10% of revenue and generating free cash flow. Marty Whitman recently bought 15% of the company and I think we should join him in owning this cheapie for the long term.

I am still long the three liquidations here and will keep them all the way through the runoff. Ecc capital, tripos and remec will, in my humble opinion, provide decent returns from these levels as they sell off the assets and give us the cash. I am looking for a chance to sell puts around here on real networks, Gencorp, Borders and BLG if I can get it done at a good price.

If you haven’t read it yet, Monsih Parabrai’s new book, the Dhando investor is out and is an excellent primer on the type of low risk high potential return investing. I attempt to practice. The central idea is if I am wrong I lose a little bit, if I am right I make a ton. The returns tend to be as Warren Buffet once said, lumpy, with gains accruing in a very frog like fashion. Periods of boring sideways followed by leaps as situations work out and are ecognized by other investors(thanks to Louis Navellier for the frog analogy. He of course was using it to refer to small stock in general but I find it an excellent analogy for seep value and special situation investing.). I think the stocks and securities mentioned above have these characteristics and have the potential for superior long term returns for patient investors.

With that it is summertime on the island and we are back to resort living. I spend most of my weekends begging and bumming for boat rides and hanging around dock bars with an great group of friends, indulging in cocktails, seafood ,conversation and of course the constant and futile search for the next incantation of the one true love of my life. It truly is a lot like being in a resort around Kent Island in the summer time and if you haven’t ever made it, it is getting to the time. The Bikini contests start at the red Eyes Dock bar this Sunday in my favorite ritual of fathers day( okay so I ll never be father of the Year but it is a good time). Also if you get the chance and inclination, the big grills will be lit and most likely so will we. The girls will be out, the bands rocking, the boats rumbling and it should be one hell of a time.