@FastMoney You have left out a block of 372700 shares held by Capital Dynamics Global Fund, and another block of 100000 shares held by CDAM, plus another 420ooo shares held by Capital Dynamics D/B, plus 1000 shares held by a relative, which are too small to appear in the top 30 shareholders list in the annual report, but is required reporting by the designated person as deemed interest. So that's your 893700 shares that just came out of the woodwork if you know where to look. No one can make these number of shares to appear out of thin air.

@i3lurker The 3 big Singapore banks all managed their own CEF in the past, as well as PNB here, managing AHP2 property trust. They all chose the liquidation route to take care of the price discount problem once and for all because they are also the biggest shareholders, so they are on the same page as the minority shareholders. What is good for the latter is also good for them. The loss of the management fee is only loose change to them in their P&L, so no agency bias there. iCap has a different set up, so sing to a different tune. I am from the Efficient Market school, so active managers are being scrutinized to look for their alphas.

The proposed DRIP intention to issue shares at a discount is supposed to be an incentive and reward for loyal shareholders at the expense of those who take cash instead. But this has the unintended consequence of contributing to the discount. Smart investors who opt for cash can game the system with a risk less arbitrage, subscribe for the DRIP at a discount and sell the equivalent amount of mother shares at market price. This can continue until DRIP discount is no longer wide enough to make the arbitrage profitable. This is an old trick before share trading went scripless. After a share went ex rights or bonus, controlling shareholders have the market to themselves because they can get hold of the new split shares immediately, while others have to send theirs in for registration and splitting, which can take up to a month under the rules. So pump and dump operations were so easy to do in an illiquid market.

But the company used shareholders' money to go to court to try to enforce this de facto control interpretation of the rules and failed. Dismissed by the Federal Court immediately at end of hearing the appeal for leave.

In the court case, iCap argued that control implies de facto shareholding, so the same argument should apply also to the CDAM clients accounts where the manager has discretionary control and be reported as such. Cannot have two set of rules.

In case readers are wondering why I know so much about the COL court case, all I did was to spend $30 to buy the court paper filings in order to hear both sides of the story, rather than all just one sided.

If private clients accounts managed by CDAM are discretionary accounts, i.e. the fund manager has authority to buy and sell without further reference to the clients, shouldn't these be also declarable along with TTB and CDAM's share purchases, the same argument used in the court case against COL, that these are under the control of the same party, even though not the ownership? Otherwise, each of these clients can build up a position just below the 5% limit, but together can exceed 20%, like what COL is doing. The difference is that COL has been declaring all along the moment they exceeded the 5% reporting threshold, but not here.

Most funds would add the disclaimer that past performance is no guarantee for future success, just in case they over promise and under deliver.

https://ycharts.com/companies/BRK.A/stock_buyback

The proper motivation for a SBB program is to moderate the selling pressure from irrational sellers who want to exit at any price, i.e. just throw the shares in the market, never to prop up the share price. As a long term value investor, with enough faith in the future prospects of the company, the cheaper the SBB prices, the better for the remaining shareholders. I have been in the broking business before. You don't show your volume buying bids on the board, just pick up shares from the sellers if the aim is to collect cheap shares. Too many companies have been doing SBB to support or push up their share price, that's share price rigging, different from what we are discussing here. There is never justification to do SBB at 10 x book value, like what Top Glove did, the example often cited here to show why SBB is no good. But no one mentioned the SBB by WB, even by those that quote him all the time.

It is like the Middle East now, to punish Hamas for the incursion, Israel is punishing all the Gaza residents. This is punishing all the other shareholders to prevent COL from taking profit and exiting. The fund manager don't care because the fees are based on NAV, not price, so even at 40% discount, is not their problem. So now, every year, management got to spend money (not sure who is paying, CDAM or iCap?) on road shows and investor days to drum up support ahead of the AGM. Once the trapped stale bulls get fed up with the impasse, they may switch loyalty. According to the shareholders list, there are plenty of big investors who have kept the same number of shares for the past 10 years with nothing much to show other than the 2 dividends paid. These are the management's supporter base, don't antagonise them. From the price action seen so far, the dividend policy bullet has been fired and looks like a blank, investor days and road shows are old hat by now. Take COL to court again over the foreign shareholding limit? Shareholders have yet to be informed how much the previous futile attempts have cost them.

@Patient Investor COL is only one of the 3000 plus shareholders. You cannot have it both ways, keep the discount high to prevent COL from sell and take profit, they will keep buying and make management nervous of being kicked out. At the same time, you are also trapping all the other shareholders who want to exit, but get locked in because of the deep discount and they make noise . When the shares were trading at all time high recently, did COL take profit at the opportunity? It is other shareholders who were selling. So to fight COL, other shareholders become collatral damage, trapped by the perennial discount, is that fair?

SBB redistributes the money left behind on the table from the sellers at a discount to the remaining share holders with the discount then accruing to their shares, i.e less men more share.

These are my computations under various assumptions and alternatives Paying dividends either in cash or shares have no effect on shareholders' wealth, but a SBB increases the NAV of the remaining shares, depending on the amount of SBB and the price discount. https://www.dropbox.com/scl/fi/y8sacaao3nejubp1owmor/iCap-dividend-policy-alternatives.xls?rlkey=nf1d2ldsdu5m6cuq5m38nj2lq&dl=0

Readers here can work out how a 4% cash dividend on the assumption that the shares are trading at a 24% price discount compares against the same amount of cash used to do a SBB at the same 24% discount from the market and then distributing these shares as share dividend to the remaining shareholders? Shareholders can then make their own informed decisions.

@FastMoney The iCap put is free, as it is just the flip side of the free cash call option.

@FastMoney There was once a COL put also, when they were collecting cheap shares, until they were injuncted. Now there is this talk about foreign shareholding limit, so the put may not be there now.

One way for the manager to share the discount pain of the shareholders is to take its fees in new shares issued at NAV instead of market price, since the fee is based on NAV and not market price. He is then on the same page with the shareholders in the real world and not in the virtual reality NAV world.

@FastMoney Even though dividend by itself don't add much value to enterprise value, it serves an important function in price determination, telegraphing the financial health of the company with changes in the payout. Prices react more to increases or cuts in dividend than the dividend itself, so a dividend that fluctuates according to price discount adds to uncertainty in pricing because it gives no indication of future prospects. A company with steady dividend growth over the years is more highly priced than one that fluctuates quarter to quarter, leading to volatility in pricing.

There is this conundrum. iCap's objective is to invest in good shares with capital appreciation potential and keep them for as long as they live up to expectations, so the NTA can keep increasing, but booked as marked to market, i.e. paper profits instead of realised one. Such growth stock are usually low dividend payers, because they need to retain funds for business expansion. So in order to pay a 4% target dividend yield, the combined dividend and interest income after the 1.5% management fee needs to be 5.5%. Cash deposits are below this rate, so the portfolio will need to do the heavy lifting to generate the balance income and profit in order to sustain this rate. Not an easy task without selling some shares to realise some capital gains.

Or put it another way, if you have been holding this $1 million worth of shares, with no income from it for the past 10 years other than 2 dividends, and if I were to offer you a price that you can still make some profit, even though it is at a discount to the market, would you sell?

@FastMoney If I were to offer to sell you a million $ worth of quoted shares, some profitable and paying dividends, some losing money and some just marking time, with the condition that you have to hold them until I give you permission to sell them, what price would you be willing to pay me, or what discount would you want from me? This is exactly the same situation with iCap shares. Shareholders have no control on the realisation value of the portfolio in the future. The NTA is only an indicative value if liquidated now.

While Berkshire is similar to a CEF holding a portfolio of businesses, it has been able to trade at a premium to book value because of accounting rules. Berkshire's assets are usually held as subsidiaries or associates. With the former, the accounts are consolidated, i.e. the earnings is taken into the consolidated accounts. If as associates, i.e. more than 20% equities holdings and board representation, it can do equity accounting and take in its share of the earnings. In iCap's case, the shares are all investments, so only dividends received are reported as income, and unless the investees are paying the majority of its earnings out as dividends, dividends are only a portion of the earning capacity of the portfolio investments, and for those shares not paying a dividend, there is no income to report. So iCap is an asset rich, but income poor operations, So in terms of dividend paying capacity from reported income, there is a limit to what iCap can do, other than to draw from retained earnings from the past, Remember that the 1.5% management expenses have to be deducted from dividend and interest incomes before they can be reported as earnings, on normal PE basis, it is at a handicap compared to other income based investments. So investors in iCap have to rely on realised capital gains for the bulk of their returns, and increased book NTA is not earnings until realised, and hence discounted. This is where the divergence between fund management and investors interest arise. The former looks at NTA for their fees, the latter look at reported earnings and dividend, which can be negative and zero respectively, while NTA increases if the investee companies pay very little dividend during the period.

The NTA is a theoretical value if the company is liquidated today, which as things stand, is not going to happen in the immediate or near future, so whenever there is uncertainty, you apply a discount factor to it. Again, Finance 101.

The value of the firm is the discounted value of its earnings capacity. You determine the earnings capacity, the value of the firm will adjust itself, whether it is premium or discount to NAV, as simple as that. So you want to fix the discounted share price, you raise the value of the firm. NAV is just a historical book keeping entry. Lots of listed public companies are trading at a fraction of their NAV or book value, so why should iCap be different? This is because iCap's asset has a market price that everyone can look up in the newspaper, unlike the book value of a glove factory. Here's the catch, you can have the market value of the portfolio shares, but your reported earnings can only include the dividend received. Appreciation or depreciation of investment holdings go into reserves, i.e. only realisable upon sale of the investment, then only it can be booked as profits. So it is like holding Top Glove shares at its height, the NTA may look nice, but it is not money in the bank until it is sold. Same with iCap. One can only count NTA when it is realised, not its current market value. So the discount is what investors apply in their own valuation of the realisable value of the portfolio. The bird in hand theory.

This is the bird in hand theory. A dollar in the hands of the shareholder is better than it being kept in the company, which does not apply to WB, because it is the reverse then.

@remus No catch, just that under conventional wisdom, the share price will drop by the same amount of the dividend when it goes ex-dividend, so there is no net gain. The only possible gain is the elimination of the discount and management fee and income tax (individual shareholders don't pay tax on interest from bank deposit, companies do) on the surplus cash transferred from the company to the shareholders hands.

@FastMoney and Fairplay, please check your private message box.

There was once a property trust managed by PNB listed on Bursa that was consistently trading at around 50% of book value, with 35% of it in cash, but the 65% of it in properties were under-occupied and thus underperforming. Clearly it was the fund manager's job to generate better returns to bring up the share price, rather than for the shareholders to do it. Left to the shareholders, they moved to liquidate the fund and ultimately realised full value of the NAV. If you don't want proactive shareholders, management will have to be proactive themselves. Paying out dividends depending on the price discount is reactive, not proactive.

The fund manager is wearing two hats, that of the fund manager for the company, as well as owner of the fund manager, so which side should he choose, one side pays out the fees, the other side receives it. So he needs these impartial international experts, but then, he is the one who chooses the experts, the same with the independent board of directors. In statistics, we call this selection bias.

Haha, I know, I have a copy of iCap's prospectus and the past record performance, but there is always reversion to the mean in the long run.

Because there is no actual cash outflow paying share dividends, a company can afford to keep paying that even in not so good times, because just like in a bonus issue, it is dividing the cake into smaller pieces. Nothing changed, as in the M&M theorem, just the optics. So all this dividend policy is just smoke and mirror, haha. It is how the company is performing that actually determines the enterprise value, not how you structure it with equity, borrowings, bonus issues and dividends. This is how fundamental corporate finance works. The rest are just refinements and window dressing and hype.

@FastMoney Look up University of Chicago Booth Business School's rankings and number of Nobel laureates and see the difference. My year mate there was ex Goldman's chairman.

And all the research that I did was to screen for high dividend stocks and found one such example that is so simple and makes sense.

After all the mumbo jumbo about how unique and innovative the dividend policy is, here is a simple analysis that every one can understand. Basically, the company is very stingy about paying a dividend, but due to 'popular' demand, reluctantly it has agreed to finally have a dividend policy, with just a basic 1% yield. The rest will be on demand, depending on how deep the discount is. Then in order to minimise the cash outflow, and the resultant reduction in fees (officially to keep enough reserves to take advantage of buying opportunities), they offer investors the opportunity to reinvest at a discount. So imagine that you only give a 'bonus' dividend when the discount is already so big, you give a further discount to the DRIP, how many would take the cash unless very desperate? This is what I already suggested earlier. If the company is so confident of generating an annual returns so attractive as claimed, just set a dividend that is similar to what the REITs are required, (at least 90% of annual income), its structure being similar, except the former is investment in real estate and the company is in the stock market. A 6 to 8% range would be very competitive in the market. Declare it all in share dividends, or as in mutual funds, bonus units, so there is no actual outflow of cash and the management fees are not affected. No need to have the extra step of doing a DRIP. Shareholders needing cash can sell the extra units in the market, otherwise they are automatically reinvested back into the company. Every one is happy, management fee not affected, shareholders get a dividend that is comparable to other high dividend stocks, less paperwork, every thing is online, no cheques to bank in, shares are directly credited into the account automatically, no need to do the DRIP option paperwork, and as i3lurker pointed out, no need to pay the foreign lecturers to explain what I have just explained in a few paragraphs here.

@i3gambler The big DRIP discount is to minimise the cash outflow, it is like paying you a cash dividend, but also offering a cheap rights issue to take back your money. Only those desperate for cash will not take advantage of the discount. The whole scheme is no different from giving out the equivalent in bonus shares, or share dividend (same things nowadays with no par requirement) those who want cash can sell the new shares, those who are reluctant to give up the share price discount can keep the new shares. To get a 4% yield, the price discount needs to be at 24% still.

So now COL is being blamed for the price drop because they are not buying? Someone else just took credit for narrowing the discount by introducing the innovative dividend policy. Go figure! Maybe they got things reversed.

There is no compulsion for shareholders to accept the MGO price, as it is only mandatory for the offeror, not the outside shareholders. It is only after reaching 90% ownership, then the offeror can compulsorily acquire the remaining shares to take the company private. However, the offeror is free to increase the offer price if he chooses to in order to induce more acceptance.

Yes, that's the rule, and can include other parties that are not funds under its management, but acting together for the same purpose. Sorry, because of the special 20% single shareholder limit in iCap, it will necessarily mean multiple shareholders, not single one. For other companies without the 20% limit, then the 33% MGO rule also applies to single party.

The 33% parties in concert rule means that any single or number of shareholders acting in concert with more than 33% voting rights will be required to make a mandatory general offer for the rest of the shares at the highest price paid within the last 6 months.

In the case of WB's Berkshire, the no dividend policy has not been seriously questioned because historically, the company has outperformed the market, so shareholders have been better off letting WB invest for them than paid out as dividends. This is the usual argument given to support the dividend does not matter theorem.

@i3lurker OK, let's examine the effect of dividend on iCap as a specific case. There will be a beneficial effect if the dividend is paid out of low interest earning surplus cash, because if the recipient then puts it into his own bank deposit account, the price discount on the dividend cash will no longer be there and there will no longer be management fees to be paid. But the same effect will be there if it is in the form of a capital repayment of surplus cash, so you don't need a specific dividend policy to achieve the same result.

@FastMoney On the comment that a 10% share buyback will increase COL's share %, the net increase will be 10% of their existing 23%, or just 2.3%. Given the AUM size of COL, they can jolly well buy this same amount from the market if they wanted to and no one can stop them. But if the company announces that they will do a share buyback, there is bound to have a bit of psychological impact on the weak shareholders. The benefits of buying back shares at a deep discount are well known, so no need to repeat here again.

@i3lurker Haha, I am duty bound to defend my professor's theorem by including the lecturers' expenses as transaction costs, same as the costs involved if the investor sells a portion of his shares to get cash versus the cost of distributing the dividends to him if a dividend is declared instead of retained.

@Fairplay To give an example of why the value of payments of dividend is mainly informational rather than directly affecting the share price, an investor can devise a trading system to game the dividends by buying the shares just before the expected announcement of the dividend, wait for the share price to go up following the announcement and then sell it to capture the expected gains. Or hold it to capture the dividend and then sell it after the ex date. If only making money from the stock market can be that simple! This is why M&M's Theorem of Corporate Finance says if taxation and transaction costs are not involved, dividend policy should not affect the value of the firm. Value of the firm before dividend = value of the firm ex-dividend + dividend.

The bone of contention here is not the portfolio or how it has been managed, but more on the discount, and the fact that shareholders sells on discount prices, but managers get paid on full NAV value. But then, the problem arises when the discount is fixed and COL leaves and look for discounts elsewhere, then what is going to happen to their block of shares?

@FastMoney COL believes that the discount is fixable and suggested ways to fix them. And you have read the company's response. It is like the irresistible force meeting the immovable object, haha.

COL has publicly stated that their MO is to buy discounted CEF's, so it is only logical that the greater the discount, the more they will be buying, but then it has been suggested that their buying caused the discount. How logical is that? Did they point a gun at all the sellers and forced them to sell at such low prices? Then this myth got busted when COL stopped buying because of the injunction and the discount kept widening until it went below 40%. After the court case and COL resumed buying, it went back up. And now it looks like the company is trying to stop them buying again.

@FastMoney Good thing you are not a lawyer. In criminal case, burden proof is also on the prosecution, which is then much harder beyond a reasonable doubt, i.e. 90%. That's why so easy for the accused to walk free if prosecution simply throw a case. Reading John Grisham will not make you a lawyer wannabe. At least get hold of the Companies Act, Capital Markets & Services Act, Bursa listing rules etc. These are free for downloads online. I am not a lawyer either, but at least have worked with expensive senior partners of big law firms in my previous line of work, so learned some basics from them through association.

@FastMoney Just remember that if the company takes COL to court, it is on behalf of the shareholders. If you are a shareholder, are you aggrieved by COL's buying above the 20%? Are they on the same page with you as a shareholder or have their own agenda that is harming you so much so that you must stop them?