Investors often ask me how to build a portfolio that holds its own in down times but hands them soli...
An Asset Manager’s Wild Ride
04/25/2007 12:00 am EST
Ken Kam, editor of Marketocracy Marketscope, recounts the ups and downs of US Global Investors, a leading asset manager, and gives his take on what the stock will do next.
On the last trading day of 2006, we sold one-half of our position in [asset manager] US Global Investors (NASDAQ: GROW) at over $72 a share. That turned out to be a great move. Just two weeks later we were able to buy the stock back at $55-a price we thought was great.
Then all hell broke loose.
At the end of January, the company convened a special shareholders' meeting to approve a stock split and special dividend. The only problem was management did not have the votes. When the results were announced, the stock fell off a cliff.
Frank Holmes, the company's CEO, accused hedge funds and others shorting the stock (meaning they would benefit if the stock price fell) of borrowing shares just so they could vote against the proposals and try to drive the stock price down as a result.
The tactic worked. The stock plummeted and even after [shareholders approved the motion] at the end of February, the stock continued to drop, eventually bottoming at $35.02 on March 5.
GROW continued to be one of our largest positions, so we didn't add more but on March 20 the stock closed at $39.74 (pre-split) and we recommended buying. We did not catch the bottom, but we came pretty close.
Since then the stock has split two for one and closed the month at $25.76 (equivalent to a pre-split price of $51.52) and is headed higher. (It closed just below $29 Tuesday-Editor.)
What to do now?
We suspect that those trying to manipulate the vote to drive the stock price down have moved on to other (more vulnerable) targets. Good riddance. If any of them are still short on the stock, the recent run-up has handed them some hefty losses. Good!
Asset growth has remained flat since the first quarter of 2006 doubling of assets under management. Without significant asset growth in [the first quarter] of 2007 the year-on-year growth rate will probably become flat.
I still like US Global for the long-term because their mutual funds continue to perform well for their investors. (Its funds include the Gold Shares Fund and All-American Equity-Editor.) At some point I expect that their track record and continued good performance will drive another double in assets, but I don't think it happened in the quarter that just ended. So, I'm thinking of lightening up my position a little if I see something I like better.
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