J H Cohen update
July 21, 2006
Royce Tech Value Fund, the small mutual fund managed by J H Cohen, has posted
its 6/30/06 top ten holdings. 6/30 is one trading day before SCOX's million share
gap down on 7/3.
SCOX holds the #1 spot with 6.3% of assets. This backcalculates nicely to the unchanged 382,500 shares Cohen has held in this investment since July 2004. Cohen bought in summer 2003, and his per-share cost basis is about $11.00.
A model I maintain of the mutual fund has started abruptly to significantly overrun the RYTVX performance. (critical day is 7/14). The discrepancy is about $630,000 in NAV. Multiple explanations can be offered and can not be resolved from the available information, but the simplest is that the fund has experienced two large share redemption requests: on 7/5 for about 50K shares in the fund, and on 7/14 for about 100K shares. The fund had about 3.9 Million shares outstanding on June 30. Shares outstanding in the mutual have shown a steady, but small, reduction for many months.
Since the model overrun is occuring on low volume SCOX days, and on days with horrizontal SCOX price movement, it can be inferred that the SCOX shares have not been liquidated.
< EOM >
Re: J H Cohen update
July 21, 2006
382,500 shares purchased at an average price of $11.00 was investment of
$4,207,500. Earlier today it was valued at $914,175 but it was painted up
to a paper value of $937,125 at the close. If Cohen were to try to sell those
shares on the open market, it would crash the price even further. Unless there
is a miracle, Cohen's fund will lose somewhere between $3,000,000 and $4,207,500.
Someone (the board needs a better search function) guessed that a $10,000 individual loss would be sufficient to justify a shareholder lawsuit for those suitably inclined. (I theorized that the threshold for the more vaguely defined bagholder lawsuit is much lower.) If a single investor was stupid enough to invest $160k in Cohen's fund, they've already hit the arbitrary shareholder lawsuit threshold.
Investors in Cohen's fund might feel they have reasonable chanced at Cohen'd, or his employer's, deep pockets. Fans of SCO have been shown to be rather gullible when it comes to the strength of evidence required to bring a successful lawsuit. It's entirely possible that Cohen was not funnelling other people's money into SCO based on an inappropriate side deal. Other possibilities are that Cohen doesn't bother with due diligence, or that he is easily fooled.
< EOM >
JH Cohen sells SCOX
August 4, 2006
RYTVX has posted its July month end top ten. SCOX is no longer on the list. This
means RYTVX has sold at least 160,000 shares of its SCOX holding between 7/3/06
and 7/31/06. As recently as 6/30/06 RYTVX held 382,500 shares.
Possibly RYTVX did a complete sell out, but this information will not be available until the semi-annual holding lists are posted in February 2007. No information will ever be available on the fate of the approximately 100,000 shares Cohen held privately in September, 2005.
The RYTVX model I maintain began to significantly overrun the reported NAV on 7/10/06, though the discrepancy built up through the short trading but big volume week of 7/3-7/7. If the sell occured over some days in early July, Cohen exit price was between 3.00 and 2.50.
RYTVX has about $22MM under management, about 140,000 mutual shares (at about $6) were redeemed from the fund in July-- though those figures are guesswork from back fitting the top-ten numbers.
Re: JH Cohen sells SCOX
Three years ago, Cohen was actively touting SCOX on msn.com and in Business Week:
...[S]ome think SCO, a provider of Unix-based software and owner of the license to distribute the Unix platform, will get a windfall from a $1 billion lawsuit it filed in March against IBM. ... Jonathan Cohen of JHC Capital Management, who is buying shares, says that even if SCO settles for just 10% of the $1 billion, "the impact on the bottom line of SCO, with a market cap of just $115 million, would be huge." Settlement or no, SCO is on track to generate earnings in fiscal 2004 (ending Oct. 31) of $13 million, or $1.30 a share, says Cohen, who sees SCO doubling in 12 months.
Gene Marcial, BusinessWeek Online, June 23, 2003
As in the case of Amazon, Cohen has a knack for being wrong even when he's right. SCOX did indeed double in the next few months, and if Cohen had stuck to his target he would have cleaned up instead of being taken to the cleaners.
Cohen wasn't so impressive on the fundamentals. SCO lost $16 M in fiscal 2004.
Re: JH Cohen sells SCOX
August 4, 2006
>>SCOX did indeed double in the next few months, and if Cohen had stuck to his target he would have cleaned up instead of being taken to the cleaners.<<
This is a central mystery, why Cohen didn't take the double and move on. And why did it take Judge Wells' smack down to wake him up, and leave him with an exit 2X worse than a month earlier.
Couple of data points: TICC (Cohen's debt-funding BDC) took a loss on Direct Revenue warrants and closed out its position in the spy-ware advertiser in June 06. This followed bad publicity in Business Week for TICC on its investment in the ethically challenged advertiser.
TECC, the companion PIPE investment company to TICC announced in March 06, has had its IPO indefinitely postponed.
Cravath, Swaine was searching for transcripts of Cohen interviews on the MSFT anti-trust trial. In these interviews, Cohen, then a UBS analyst, professes familiarity with an unnamed senior MSFT executives whom he describes as intensively competitive.
So two tin-hattish theories, 1) Bad PR shut down a big IPO for Cohen, and has made him more sensitive to the perceptions surrounding his portfolio. 2) Cohen heard about the Cravath searches and is putting some distance between him and the target.
A third more mundane, but likely more realistice theory follows:
RYTVX has changed its investment profile recently. It has taken big positions in a couple of issues that have experienced giant gap down. GEMS in May 2006 entered the top ten. ALDN in July. These should do well for RYTVX, because he got in very cheap compared to the long term trend. Liquidating dead money is the only way to reallign, since no net investment in RYTVX has occured in months (years?).
Source: Investor Village SCOX [ http://www.investorvillage.com/smbd.asp?mb=1911 ]