Win 2 VIP Tickets to the Hooters International Swimsuit Pageant

For those interested, click on the picture below (or click HERE).

Chanticleer - Q4 2012 Letter Excerpt

Below is a 2-page excerpt from the latest letter of the fund I help manage. For those that were used to logging into the Chanticleer Advisors website to view the letter, our new website now requires free registration for each individual instead of the generic log in information of the past. So to register, just click on the 'New Member Sign Up Here' link on the homepage. 

Chanticleer Investors II - Q4 2012 Letter Excerpt

Chanticleer Letter: The Lure of Low Interest Rates

My latest commentary has been posted on the Chanticleer Investment Partners website. To read this letter, please click on the link below.

Link to: Chanticleer Letter: The Lure of Low Interest Rates

Chanticleer Q3 2012 Letter

Below are a couple of sections (slightly edited for public viewing) from a letter just sent to the investors of the fund I help manage. 

Disclosure: I am a portfolio manager at Chanticleer Advisors ("CA") and Chanticleer Investment Partners ("CIP") and the fund managed by Chanticleer Advisors owns shares in High Arctic Energy Services Inc. (TSX: HWO), which is mentioned in the letter below.  We may in the future buy or sell shares in the fund or other accounts managed by either CA or CIP and are under no obligation to update our activities. This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.

Chanticleer - Q3 2012 Letter to Investors - Edited for Public Viewing 

Northamber plc (LSE:NAR)

Quick summary of a potential micro-cap net-net investment for those interested....We've decided to pass on it for now, as we generally like to focus on better businesses with tailwinds instead of headwinds. But if you have any specific insights on the business, I would certainly be interested in hearing them (valueinvestingworld@gmail.com). With this big of a discount to net tangible assets and having the Chairman/major shareholder seemingly having his incentives pretty well aligned with other shareholders, it does look like something with at least some potential for those that can invest in very small companies.

Northamber plc engages in the distribution of information technology equipment in the United Kingdom. It supplies computer hardware, computer printers and peripheral products, computer telephony products, and other electronic transmission equipment. The company’s products include desktops and servers, portable computing devices, storage and memory products, monitors and projectors, printers and scanners, networking equipment, audio visual products, and personal computer build products, as well as software solutions.

This is a net-net, cigar butt play on a declining, but most likely still profitable (especially now that £600,000+ of rent a year is now owned property) business. The company is in a bit of a turnaround phase as it is looking to get rid of low margin offerings and focus on the better ones.

Management’s incentives are pretty well aligned with Chairman David Phillips owning over 60% of the shares and taking pay cuts during current, tough times. From the preliminary report for the year ended June 30, 2012:

“As chairman and with a substantial shareholding, I am conscious of the impact that my contractual salary could have on the finances of the company.  I have followed the principle of prior years and again waived a large portion of my contractual £180,000 p.a. service contract salary.  Against last year's salary taken of £90,000, for the year just ended it was further reduced to £15,000 and commensurate with our non-executive directors remuneration.”

They have managed the business pretty conservatively over the years and have bought back shares and paid a dividend, though the amounts have declined as profits have declined.

Recent events

The company purchased the property they have been leasing since 1999, but made a large purchase without first consulting shareholders (even though Chairman David Phillips owns 61.47%), so that purchase was not in compliance with UKLA listing rules (LR 10.5....needed a shareholder vote for an asset purchase that size of capital base). The company may face penalties as a result, though based on fines for other companies that didn’t comply with other things, I don’t expect this will be too significant.

Adjusted  6/30/2012 NAV:

Cash = 4,304,000

75% A/R = 10,994,250

50% Inventory = 3,366,500

50% of Old PP&E = 1,125,000

75% of New Owned Property = 5,100,000

Adjusted Assets = 24,889,750

Total Liabilities = 10,620,000

Adjusted Net Assets = 14,269,750

Shares Outstanding = 28,336,868

Adjusted NAV per share = 50.36p

Adjusted NAV/share after dividend pmt (record date is December 7, 2012) = 49.61p

If we assume they do get fined and the fine is £500,000 (which I think is conservative based on other fines), adjusted NAV moves to 47.8p after the dividend payment.

The current share price (as of 10/2/2012) is 35p.

Disclosure: Neither I nor any investment product I co-manage at Chanticleer Advisors or Chanticleer Investment Partners has an investment the stock(s) mentioned in this article at the time of posting. We may in the future buy or sell shares and are under no obligation to update our activities. This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.

Zicom Group update

I linked to a great write-up and mentioned Zicom in a post here before (HERE). It remains one of our favorite ideas at Chanticleer. For those that are following it, they filed their Preliminary Final Report.

Link to: Zicom Group Limited (ASX:ZGL) - Preliminary Final Report

I recommend reading the Kelpie Capital write-up for more background, but here’s a summary of the valuation using the fiscal year-end numbers (the stock closed in Australia today at 0.18 AUD):

P/E: 6.3x

P/TBV: 0.68

Dividend Yield: 5.56%

Disclosure: I am a portfolio manager at Chanticleer Advisors and Chanticleer Investment Partners and the fund and separate accounts Chanticleer manages own shares in Zicom Group. We may in the future buy or sell shares and are under no obligation to update our activities. This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.

Chanticleer Letter: Businesslike Investing

My latest commentary has been posted on the Chanticleer Investment Partners website. To read this letter, please click on the link below.

Link to: Chanticleer Letter: Businesslike Investing

Chanticleer Holdings, Inc.

As some readers have noticed, Chanticleer Holdings (my employer) had an S-1 outstanding to raise capital to pursue some of the things we have on the table. Some have also noticed the connection between this and our response to an interview question we gave last year to the publication The Manual of Ideas, which is pasted below:

MOI: As a publicly traded company, Chanticleer Holdings is on the radar screen of many value investors. However, the company’s small size makes it difficult to get involved in a meaningful way. Have you considered raising additional equity within Holdings, or are you focused primarily on expanding the assets managed by your Advisors subsidiary?

Chanticleer: We think about this quite a bit and have raised a little additional equity along the way. We can’t get into too many details being that we are public, but we’d be willing to raise more equity if we can find the right things to put that equity into. In 2008 we actually had an opportunity to acquire two Hooters franchisees that was disrupted by the financial crisis. We are always looking and, as one might imagine, some new opportunities have come up with the name recognition that came with having our name attached to the Hooters of America deal. But as for specifics, we can’t really go into much more.

I’m pleased to announce that the raise has been completed. For those that have been following Chanticleer, the ticker symbol for the units is HOTRU. The units will eventually split and the stock and warrants will trade separately. The new ticker symbol for the stock by itself is HOTR. Mike Pruitt, Chanticleer’s CEO, will be ringing the closing bell at the Nasdaq on Tuesday of next week, along with a few special guests. A full press release announcing the offering is available HERE. The prospectus is available HERE.

Disclosure: This post is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by Chanticleer Investment Partners ("CIP") or any other entities related to or owned by Chanticleer Holdings, Inc.

Chanticleer Advisors Whitepaper: The Case for Small and Micro-Cap Value Investing

Link to: The Case for Small and Micro-Cap Value Investing

..........

Chanticleer Advisors - The Case for Small and Micro-Cap Value Investing - April 2012

Chanticleer Letter: Patience

My latest commentary has been posted on the Chanticleer Investment Partners website. To read this letter, please click on the link below.

Link to: Chanticleer Letter: Patience

Kelpie Capital write-up on Zicom Group

Great overview of a stock that is currently one of our favorite ideas at Chanticleer. The stock closed today at $0.17 AUD, which is about 70% of tangible book value. We think the management team is very familiar with value investing and Warren Buffett as well. Click on the paragraph below for Kelpie Capital's full write-up.

In my opinion, Zicom Group at around $0.20 offers investors a low risk and deeply undervalued exposure to a number of “GDP plus” growing end markets with a conservative and proven founding family operating the business. Whilst we wait for the market to re-evaluate the prospects of this business and it to trade at a premium to book value, like it deserves, we get paid a 5% plus dividend yield and allow management to opportunistically buy back shares to increase our ownership. The stock currently trades at a 20% plus discount to Net Tangible Assets.

Disclosure: I am a portfolio manager at Chanticleer Advisors and Chanticleer Investment Partners and the fund and separate accounts Chanticleer manages own shares in Zicom Group. We may in the future buy or sell shares and are under no obligation to update our activities. This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.

Second Interview with Tim Klusas, President of The Marketing Alliance, Inc.

Below is a link to a follow-up interview that my colleague, Matt Miller, conducted with Tim Klusas, President of The Marketing Alliance, Inc (MAAL.pk). The first interview Matt conducted with Tim occurred in October of 2009 (HERE). I also wrote an article for Seeking Alpha mentioning The Marketing Alliance last year (HERE).

Link to: Interview with Tim Klusas, President of The Marketing Alliance

…

Excerpt:

Matt Miller: With this acquisition, the model for The Marketing Alliance appears to be changing.  Can you provide your vision for the company in five to ten years?  Are you attempting to build a diversified holding company, something perhaps akin to a Berkshire Hathaway?  Are there other models out there that you hold in particularly high regard?

Tim Klusas: We continued to build the company over the last five or six years. It is a wonderful company with distributors and customers we admire and we try to operate the business like our life depends on it - simply because for many of our customers we know their agencies are the largest asset they have.  We have invested in the business to grow and increase its attractiveness to distributors, but have resisted the feeling that we have to put capital to work now or lose it.  We feel that being compelled to do so could lead to destruction of value.

 

We continue to look for ways to add value in the current distribution business, but rather than feeling compelled to invest we opted to also look for ways to put capital to work in other areas that might result in the same sorts of returns, even if it is outside of the insurance distribution business.  As an example, if you could equate what we are doing to finding another asset that generates cash, a “cash machine”, what we are trying to do is use one cash machine to develop other cash machines.  By cash machines, I mean one that generates cash returns for our shareholders.  And we look for characteristics that we see in the current insurance business and try to look for some of those characteristics in other businesses to try and build those up as well.  If we do our job correctly, what we’ll have in the future is a few cash machines that throw off returns for shareholders and generate excess cash that we can use to go find others.  I guess this is why you mention Berkshire Hathaway as a comparison.  And so my vision for the company would be to have various machines that generate returns for shareholders in the form of cash that we can use to generate even more machines for shareholders that deliver cash.

And when I look at different models out there, you mention Berkshire Hathaway but I also point to Leucadia and Teledyne as other examples.  Leucadia comes to mind where they, in my interpretation, go anywhere to get a cash return for the shareholder.  That is what we’re really trying to do.  We’re more concerned with the cash return than we are whether it is a pretty business, is it a popular business or what the public opinion poll says about this business or that business.  Our concern is getting that cash return.  I also mention Teledyne because in addition to being prudent capital allocators we also strive to be good operators, where we can introduce internal controls and planning to help a business achieve its potential.

Forward Looking Statement

Investors are cautioned that forward-looking statements involve risks and uncertainties that may affect the business and prospects of The Marketing Alliance, Inc.  Any forward-looking statements contained in this transcript represent the estimates or expectations of The Marketing Alliance, Inc. only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our estimates as of any subsequent date.  These statements involve a number of risks and uncertainties, including, but not limited to, general changes in economic conditions.  While The Marketing Alliance, Inc. may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so.

Disclosure: Matthew Miller is a portfolio manager at Chanticleer Advisors and the fund Chanticleer manages owns shares in The Marketing Alliance, Inc. It may in the future buy or sell shares and it is under no obligation to update its activities. This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.

Chanticleer Letter: The 4 Gs of Investing

My latest commentary has been posted on the Chanticleer Investment Partners website. To read this letter, please click on the link below.

Link to: The 4 Gs of Investing

Burton Malkiel quote (and reading history)

Bob Rodriguez has often told the story about meeting Charlie Munger while at USC. He asked Munger what one thing he could do to become a better investment professional, and Munger replied "Read history! Read history! Read history!"

Our stated goal at Chanticleer Investment Partners is to grow our clients' capital and maintain their purchasing power over time by earning returns significantly better than the rate of inflation. Although we don't claim to have any predictive power as to when inflation may become a significant issue or if deflationary forces will once again rule the headlines first, we think it is a risk worth preparing for ahead of time. Besides reading more current books about the history of the market and inflationary times, we also find it interesting to go back and read things written as those events were happening (if you have any good recommendations, feel free to pass them along!).

One book written during an interesting time is Burton Malkiel's The Inflation-Beater's Investment Guide: Winning Strategies for the 1980s, which Malkiel finished writing in January 1980 (ironically, the same month gold reached its peak). He makes the case in the book that stocks would be the best investment (15%+ per year) for the years ahead and the best hedge for the inflation that may continue to be an issue. As a reference to valuations then compared to today, the Graham-Dodd-Shiller PE ratio (10-year trailing earnings) in January 1980 was just below 9, compared to about 23 today. And profit margins were about half in 1980 what they are today, so you had a low PE on low profits versus a high PE and record profit margins today.

So the valuation winds for the market as a whole are NOT at one's back today like they were in 1980. As Ed Easterling shows in his books, the main driver of overvalued markets getting re-rated to lower a lower PE ratio is a change from relatively stable inflation levels to either inflation or deflation. It may sound a little counter-intuitive to hold a lot of cash when one is concerned about the eventual erosion of the dollar's purchasing power, but in a period when inflation is still fairly stable and the risks to that changing--whether towards deflation or inflation--over the next few years may be nearly as high as they have ever been, I think a high level of cash, patience, and a diligent effort preparing to put that cash to work when the opportunities present themselves is the prudent course of action in today's market.

If the governments and central banks of the world are able handle the storms better than I expect, maybe high cash balances will just be awaiting opportunities that will never come. But if the opportunities we can find today perform as we hope and the main cost of holding a lot of cash is the cost of missed opportunity by having that cash yielding close to nothing, that is a cost I think is worth taking compared to being too fully invested as stocks get re-rated when price stability moves towards instability.

Below are the last few paragraphs of Chapter 1 of Malkiel's book that I thought were of interest and worth posting here.

"It is very difficult to be neutral about things so difficult to forecast as the future earnings prospects of corporations (or other investors' hopes and fears). Moreover, there are styles and fashions in investors' evaluations of securities. As I shall indicate in Chapter 5, this extreme overreaction to growth stocks following the collapse of the Nifty Fifty in the 1970s has created excellent opportunities for investors in the 1980s.

The Practical Theories for Investors

This chapter began with a description of the firm-foundation theory of stock values which indicated that "fundamental" considerations such as earnings and growth do influence the prices of common stocks. There is a yardstick for value, but we have seen that it is a most flexible and undependable instrument. To change the metaphor, stock prices are in a sense anchored to certain "fundamentals" but the anchor is easily pulled up and then dropped in another place. For the standards of value, we have found, are not the fixed and immutable standards that characterize the laws of physics, but rather the more flexible and fickle relationships that are consistent with a marketplace heavily influenced by mass psychology.

Not only does the market change the values it puts on the various fundamental determinants of stock prices, but the most important of these fundamentals are themselves liable to change depending on the state of market psychology. Stocks are bought on expectations--not on facts. Future earnings growth is not easily estimated, even by market professionals. In times of great optimism it is very easy for investors to convince themselves that their favorite corporations can enjoy substantial and persistent growth over an extended period of time. By raising his estimates of growth, even the most sober firm-foundation theorist can convince himself to pay any price whatever for a share.

During periods of extreme pessimism, many security analysts will not project any growth that is not "visible" to them over the very short run and hence will estimate only the most modest of growth rates for the corporations they follow. But if expected growth rates themselves and the price the market is willing to pay for this growth can both change rapidly on the basis of market psychology, then it is clear that the concept of a firm intrinsic value for shares must be an elusive will-o'-the-wisp. As an old Wall Street proverb runs: No price is too high for a bull or too low for a bear.

Dreams of castles in the air, of getting rich quick, do play a role--at times a dominant one--in determining actual stock prices. In this chapter I have documented several examples from both the distant and the recent past. Why are memories so short? Why do speculative crazes seem so isolated from the lessons of history? I have no apt answer to offer, but I am convinced that Bernard Baruch was correct in suggesting that a study of these events can help equip investors for survival. The consistent losers in the market, from my personal experience, are those who are unable to resist being swept up in some kind of tulip-bulb craze. It is not hard, really, to make money in the market. What is hard is to avoid the alluring temptation to throw money away on short, get-rich-quick speculative binges.

And yet the melody lingers on. While common stocks are virtually ignored, gold has recently been advancing toward $1000 an ounce. At the end of the 1970s, eager real estate speculators in places like California were turning properties around with profits of 25 percent in a matter of days. The notion is always the same: there will always be some greater fool to pay an even greater price. Will the music stop again?

Markets, whether for common stocks, real properties, or precious metals, will not be a perpetual tulip-bulb craze. The existence of some generally accepted principles of valuation does serve as a kind of balance wheel. For the castle-in-the-air investor might well consider that if prices get too far out of line with normal valuation standards, the average opinion may soon expect that others will anticipate a reaction. There is, after all, a firm foundation of value, albeit a very loose and flexible one. Sooner or later, however, all skyrocketing investments must measure up to this basic foundation of value. The ability to avoid being swept up in some frenzy of speculative enthusiasm is probably the most important factor in preserving the real value of one's capital and allowing it to grow. The lesson is so obvious and yet so easy to ignore."

Screen

Over the years, I've found it useful when James Montier (writing from wherever he was at the time) would run a value screen and show the number of names that came up. It gave another data point to compare the attractiveness of ideas in the market at any given time. He often used a screen run by Ben Graham, which he described in his March 2011 paper “The Seven Immutable Laws of Investing”:

"These projections are reinforced for equities when we investigate the number of stocks able to pass a deep value screen designed by Ben Graham. In order to pass this screen, stocks are required to have an earnings yield of twice the AAA bond yield, a dividend yield of at least two-thirds of the AAA bond yield, and total debt less then two-thirds of the tangible book value. I’ve added one extra criterion, which is that the stocks passing must have a Graham and Dodd P/E of less than 16.5x."

I often run screens similar to this, and decided to start running a certain version of it periodically and post the number of results that show up. I’m not going to add the Graham and Dodd P/E to this particular version, but I will add a pre-tax return on capital criteria (to try and find at least decent businesses) using the formula from Joel Greenblatt’s books, and a cash flow from operations criteria (to try and weed out where accounting earnings may not translate into free cash flow). Here are the summary metrics I will use for now:

• Market Cap over $10 million
• Industry: NOT Utilities or Investment Funds
• Geographic Locations: USA, Canada, UK, Australia
• TEV/LTM EBIT under 8.34x
• Dividend yield greater than 2.6%
• TD/TBV less than 67%
• EBIT/(NWC+NFA) greater than 12%
• CF from ops greater than 67% of NI

I decided to use 12% as the pre-tax hurdle, which would translate into about 7-9% after tax (depending on the tax rate) for a minimum return on capital and earnings yield. This screen today turns up 208 results. I’m not going to list all of the names here, but here are a few to give an example of the things that turned up:

Intel Corporation (NasdaqGS:INTC), Walgreen Co. (NYSE:WAG), Newmont Mining Corp. (NYSE:NEM), Kohl's Corp. (NYSE:KSS), London Stock Exchange Group plc (LSE:LSE), Corby Distilleries Ltd. (TSX:CDL.A), STW Communications Group Ltd. (ASX:SGN), Calamos Asset Management Inc. (NasdaqGS:CLMS).

Disclosure: This article is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by Chanticleer Investment Partners ("CIP") or any other entities related to or owned by CIP's parent company, Chanticleer Holdings, Inc. Neither I nor any investment product I co-manage at Chanticleer have an investment in the stock(s) mentioned in this article at the time of posting.

Launch of Chanticleer Investment Partners, LLC

I'm pleased to announce the launch of Chanticleer Investment Partners, a North Carolina based registered investment adviser and wholly-owned subsidiary of Chanticleer Holdings, Inc. For those familiar with our other activities at Chanticleer, I think you'll find that this product complements the other things we do.

Link to: An Introduction to Chanticleer Investment Partners

Charlemagne Capital Limited: A way to play emerging markets?

In the latest 7-Year Asset Class Return Forecast that gets produced every month by GMO, the highest forecasted asset class over the next 7 years is emerging market stocks (6.8% per year). One could try and capture some of this tailwind by buying indices of emerging markets, buying individual stocks, investing with a manager that focusing on emerging markets, or investing in a manager that focuses on those markets. Charlemagne Capital Limited may fit that latter category.

Through its subsidiaries, Charlemagne focuses on managing mutual funds, hedge funds, and specialist funds. The group invests in the public equity, and alternative markets across the globe with a focus on emerging markets, including Asia, Eastern Europe, and Latin America. It describes its investment process as seeking “to profit from inefficiencies in emerging markets to generate returns for clients across its product range using a rigorous, bottom-up stockpicking process combined with disciplined risk management and portfolio construction.” The company’s main listing is on the AIM under the symbol CCAP, but it also trades on the Pink Sheets under the symbol CNLMF.

To use an idea from Nassim Taleb, Charlemagne (and most money management businesses in general) operates in Extremistan, by which I’m referring to the observation that its results are much more subject to randomness than many other businesses. This can be shown by looking at a table of their results over the last several years:

The last trade on the Pink Sheets ($0.16) puts the market cap of the company at about $44.3 million. Yesterday's close on the AIM (£0.13), where the stock is more liquid, would value the company at about $52.5 million. Charlemagne has no debt and ended 2011 with about $25 million in cash. The company has shown a continued effort to return capital to shareholders by paying out earnings in the form of dividends (since they are comfortable with the current position of the balance sheet) and occasionally repurchasing shares.

As one can see from the table above, total assets under management declined quite sharply over the past year. This was due both to client redemptions and performance as, unlike the major U.S. Markets, many of the emerging markets suffered significant declines last year, of which Charlemagne’s holdings were not spared. The OCCO hedge fund managed by the company did produce a positive performance in 2011 though. Of Charlemagne’s 5 categories of assets that it manages, OCCO produced the sole increase to its AuM total for the year by ending 2011 with $444 million under management (up 44.2% vs. 2010).

So is Charlemagne worth investing in? At its current market cap, the company is trading at about 2x tangible book value and about 10x what they should earn in 2011. It is a great, high return on capital business, but it is also very unpredictable. The company has an experienced management team that owns a decent number of shares and should continue to pay out earnings in the form of dividends. There’s certainly the risk that a slower growing Europe and/or China could slow these markets and businesses down further, but should they recover and Charlemagne capitalize on the recovery, the current market cap is standing at about 1 or 2 times what the company was earning at its peak. All in all, there are things to like and I think there is a lot of upside, but I don’t think it is one of those stocks you want to want to buy and not look at for the next five years. So if has a place in a portfolio, it is probably as a smaller-than-normal position.

Disclosure: Neither I nor any investment product I co-manage at Chanticleer have an investment the stock(s) mentioned in this article at the time of posting. This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.

Selling Cash-Secured Put Options

[This article is also posted on Seeking Alpha HERE.]
Selling puts on stocks can be a good way to either gain some yield and/or try and buy a stock you'd like to own at a lower price. I prefer cash-secured puts so that if the stock gets put to you, there is cash available to buy the stock. So when looking at the attractiveness of selling cash-secured puts, I view my outcome as either: 1) the yield I gain on the cash I'm reserving in case the stock gets put to me; or 2) buying the stock at the net price (exercise price per share minus premium received per share). Below are a few examples of stocks that value managers own today where it may be worthwhile to sell the puts for those interested in establishing positions (a mid-range between the bid/ask on the puts at the time of this post was used in the calculations).

Sears Holdings (SHLD) - January 2013, $30.00 strike puts: Sell for $11.00 per share.

Scenarios:

1. About a 58% total return ($11 received per share in premium / $19 per share reserved in case the stock gets put to you) if the stock expires without getting put to you over about a 13 month holding period.
2. You buy the stock (if it gets put to you) for a net $19 per share.

The price below which you'd start to lose money on this trade would be $19 per share. At this point, the stock could get put to you and you'd have to buy it at a net price above where the stock would be trading.

Bank of America (BAC) - May 2012, $5.00 strike puts: Sell for $0.55 per share.

Scenarios:

1. About a 12% total return if the stock expires without getting put to you over about a 5 month holding period.
2. You buy the stock (if it gets put to you) for a net $4.45 per share.

Berkshire Hathaway B (BRK/B) - January 2013, $75.00 strike puts: Sell for $7.05 per share.

Scenarios:

1. About a 10% total return if the stock expires without getting put to you over about a 13 month holding period.
2. You buy the stock (if it gets put to you) for a net $67.95 per share (below where Buffett is buying back shares)
   

Harvest Natural Resources (HNR) - June 2012, $7.50 strike puts: Sell for $1.75 per share.

Scenarios:

1. About a 30% total return if the stock expires without getting put to you over about a 6 month holding period.
2. You buy the stock (if it gets put to you) for a net $5.75 per share.
   

The risk with all of these is that the price goes below what your net purchase price would be, at which point the stock could get put to you and you'd have to buy at a net price above the market price. The key is to make sure it is a stock you'd like to own at that net price after taking into consideration that a lot may change between when you sell the puts and when they expire, and that illiquidity may make it hard to reverse your position if you change your mind without taking a big loss. The put prices will likely be much more volatile than the stock price, but they can actually be a lower risk trade if you can handle the mark-to-market volatility and they can be a good way to try and enter a stock at a lower price, as Warren Buffett did with some of his acquisition of Burlington Northern shares prior to buying the entire business.

It is worth keeping in mind that selling puts is usually much more attractive when the VIX is a lot higher than it is now, as the formulas that (non-value) investors use to value puts include volatility as a variable in that calculation. As an example, puts that expired 13 months out on Sears during the 2008 crisis yielded about 100% on the secured cash towards the end of 2008 and early into 2009 when the stock was at a similar price to its current one.

Neither I nor any investment product I co-manage have sold puts on the stocks mentioned in this article. The company where I work - Chanticleer Holdings, Inc. - has just launched a registered investment advisor, Chanticleer Investment Partners, LLC. This entity will start accepting outside capital next month and at least one of the strategies will consider selling puts when the situation is attractive. More details on this entity will follow within a couple of weeks.

This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.

Seeking Alpha article

I submitted an article to Seeking Alpha. Below is a link to it.

Link to: Marketing Alliance: We Like What The Numbers Tell Us

Chanticleer Q3 Letter

Below are a few sections (slightly edited for public viewing) from a letter just sent to the investors of a fund I help manage. If you’re interested in receiving our letters, feel free to email either Matt or me at the email addresses listed HERE.

Link to: Chanticleer Q3 2011 Letter

Chanticleer Q3 2011 Letter - Edited for Public Viewing