Tuesday, April 17, 2012

Hints At Paulson's Value

Outside shareholders of Paulson Capital are somewhat in the dark right now. We know the company has an agreement in principle to sell its retail brokerage business, but as previously discussed we have no idea as to its price. Last week, however, we got our first clue of what at least one insider thinks of the company's share price.

There has been only one set of insider transactions reported since the agreement was announced. Over the past month, board member Shannon Pratt has gobbled up 67,000 shares at prices between $1.10 and $1.25 per share.

So who is this guy? According to Paulson's proxy statement, the 77 year-old Pratt runs his own business valuations firm! He has written several books on the topic, including Valuing a Business: The Appraisal of Closely Held Companies.

Of course, as we've seen with market analysts, being an expert on something doesn't mean you don't succumb to the psychological factors that cause herd-like behaviour that results in poor returns. So perhaps more relevantly, we should see how Pratt has traded Paulson Capital in the past.

The news is good. Pratt has behaved like a value investor. He was selling shares at $1.89 a few years ago, and bought them back in November of 2009 at $1.35.

To a large extent, however, shareholders are still in the dark. We can't tell what's going through a director's mind when he decides to buy up a bunch of a company's shares. But the circumstantial evidence presented here is at least positive, as an insider who happens to be a business appraisal expert who behaves like a value investor is now on board!

Disclosure: Author has a long position in shares of PLCC

1 comment:

Anonymous said...

I worked for Dr. Pratt from 1979 to 1983. He is one of the nation's foremost experts in the valuation of closely=held business interests. His relationship with Paulson goes back to the 1970's. I consider him a pretty shrews investor and would not discount his purchases