In addition to tracking the buying and selling of corporate insiders, I also pay really close attention to 13D filings by activist investors. While many jumped on the activist tracking bandwagon last year, I think most of these new to coat tailing inventors made some serious mistakes.
First, they glommed on to the rock stars like Bill Ackman or Carl Icahn, and that has hurt them. These giant investors have much deeper pockets than most individuals, so they can ride out any mistakes without damaging their retirement fund or kids college fund. Second, they ignored the advice that Jim Cramer has been giving since I first logged on to the Street.com back in the late 1990s: do the homework before pulling the trigger.
Blindly following anybody is not going to work, no matter who it may be. Even those investors who try to replicate Warren Buffett find they underperform, because the stocks tend to pop when the announcement is made, and they cannot duplicate his trading costs or information advantages. Then there is the fact that Warren is thinking decades, not months, and doesn't really care if the stock price goes down. Warren paid as much as $200 a share of his position, but I don't think the drop to $120 bothered him very much. I imagine that Joe Investor may have had a sleepless night or two over the same decline. Do the homework and own your decision.
With that behind us, there are a couple of activist situations worth noting right now. Distressed investing firm Canyon Capital has filed a 13D announcing that it owns about 4.5% of Ambac's shares and intends to nominate three directors. In the filing, it points out that the share price of Ambac (AMBC) has fallen by 40% since NaderTavakoli was appointed CEO. It claims that the Canyon Capital nominees possess the skills and experience needed to work proactively with the company's other independent directors to reverse its lagging performance, increase transparency and accountability, and ensure" Ambac's future success."
For its part, Ambac has fought back pointing out that Canyon also owns $376 million in debt securities issued in Ambac and said in a press release: "We think Canyon's campaign to place its hand-picked candidates on the Ambac board is a thinly veiled maneuver designed to accelerate payments on its own creditor position." This will be an interesting battle, and in my opinion the stock could be worth something close to the adjusted book value of $24 if Canyon can force changes that unlock the shareholder value. I do not think I would back up the truck, but it may worth a small position in Ambac shares as the proxy fight heats up.
The activist pressure is heating up at Ashford Hospitality Prime (AHP) as well. I first covered this one back in October, and the price has declined quite a bit since then. However, I think the activists are going to win this battle and its worth adding to our stake in the REIT. In a letter dated today, Sessa Capital took the board to task for not scheduling an annual meeting, and accused the CEO Monty Bennett of being afraid to face shareholders and see the director slate proposed by Sessa elected to the board.
The activist form points out that the board has accomplished very little on its strategic initiative process, pointing out that "Ashford Prime claims to be 'working hard' on its strategic initiatives process. However, in the same seven months since the Company announced its review process, Strategic Hotels has now entered into two sale transactions and other lodging companies have announced large, transformative transactions and asset sales. By contrast, Ashford Prime's directors apparently have not even left the starting gate."
Ashford Hospitality Prime owns some great properties, including locations like Pier House, Key West, Water Tower Sofitel in Chicago and the Ritz-Carlton in Saint Thomas. They have seen decent operating results and doubled the dividend last year, but none of this has resulted in a higher share price. Last August, Mr. Bennett told investors that if his firm was valued using the current private market cap rates for luxury hotels, it would be worth $27.50 a share. That's way above today's share price, and management needs to take aggressive steps, including buybacks or a consider a possible recombination with Ashford Hospitality Trust (AHT) to get the stock price higher, or the activists could end up forcing the outright sale of the company.
Paying close attention to 13D filings by activist investors has been a great source of profits for me over the years, but it is very important that you do the homework and make sure you agree with the activists and have the patience for the situation to fully play out.