capital raising, page-12

Woolly thanks for the discussion.

I should've qualified my post.

My data collection extends to Jan 2005 on numerous LICs (but not for Mirabooka).

AFIC average trading price has been a 1% discount.
Argo average trading price has been a 0.3% premium.

They both range from ~-10% to ~+10% in the investment cycle. And typically cross into premium territory a month prior to a consolidation/correction phase in the market (ie. investors begin assuming/factoring further price rises). During the premium phase, LICs issue new shares (to meet demand); and during the discount phase, LICs offer share buybacks (to mitigate supply)... this is smart behaviour, and if a LIC isn't doing this, then I tend to think they're dodgy/ have cashflow issues (because they might be invested in illiquid assets, which is another red flag that they're dodgy).

One of my data points has AFIC trading at a discount to post tax NTA :D so there! an opportunity of a lifetime does present.

The trading price of LICs shows a good correlation with Market capitalisation. Argo and AFIC are both $4b plus LICs, whereas Cadence is $100m, and shows a wider range in the discount/premium dynamics and also averages a steeper discount trading price than their higher capitalised peers. So I don't think it's wise to put Cadence (or say BKI or MFF) in the same boat as AFIC or Argo.

And as a trading tip... there is a significant swing up in the share prices of LICs in the month prior to the LICs going ex-div relative to the NTA of the companies. And there is a significant swing down in the share prices of LICs in the month that they trade ex-div again relative to the NTA. In fact you can see it quite clearly in that chart posted at the AFIC website, the spikes in the trading premium correspond to the month the stock is cum-div. Ideally you buy the LIC two months before it going ex div and sell a day BEFORE the stock goes ex-div... How often do you hear people saying things like, I'm holding for the dividend? I'm going to sell when I collect the dividend? It's actually irrational trading behaviour, and there is a significant arbitrage trade both on the long side (prior to dividend) and the short side (after the dividend) because of that mentality.

Woolly, the other point I'll make is that compared to other funds businesses, Cadence was indeed behind the eight ball. The average fund in January (from memory) was 104% net long, ie. they've over leveraged into the trend. Whereas, Cadence picked up their buying activity in January (from 60% to 78% net long)

And this is what they bought in January and their performance since 31/1:

BTU: -10%
RMS: -22%
AQP: -13%
TOL: +10%

And it's easy to pick why and on which days they bought these stocks. For instance, they were buying RMS on the 16th to 21st of Jan, for prices between 47c and 56c, and if they're consistent to form, then they would've been selling out (or stopping out) of RMS since the 18th of Feb, for prices between 32c and 39c.

Cadence's long methodology is inconsistent with the marketing spiel they've got on their most recent presentation. In fact, if they were true to that marketing spiel, then they'd buck the recent trend and move net short on the market. The majority of ASX200 companies are now trading on a PEG < 1 basis. The cash on their balance sheets has been dropping, receivables are increasing and they're moving more into debt (or raising more capital from shareholders) to plug the cash shortfall for their business activities.

Indeed Cadence have been great market timers in the past, but I think they blew the latest one and panicked into buying.