Episodes

Dan Ferris: Chris, welcome to the show. Great of you to be here.

Chris DeMuth Jr.: Dan, thanks for having me on.

Dan Ferris: You bet. So, my trusted cohost Corey and I will pepper you with questions and hopefully to our listeners' delight. I wonder if you could start just by telling us about – maybe tell us about event-driven investing first? Maybe we could talk about that just to know what it is that you focus on and that you do at Rangeley Capital?

Chris DeMuth Jr.: Sure. So, there's kind of two answers to that. I'll give the slightly more kind of industry-convergent one, which is that we invest mostly in equities but by mandate – across the capital structure any geography, any market cap – but in companies that are undergoing some sort of corporate change so that the kind of category tends to include merger arbitrage but also spinoffs, also special distributions, any kind of corporate action. My interest, although I'm put in that category, is ever so slightly different. I'm just interested in what I consider to be counterparty selection. I don't want to pit my judgment against yours or anybody's. If you have a proposition that you come to me and you want to put money at stake, my consistent answer is no. I don't want anybody who's smart, self-seeking good judgment and maybe just possibly cheating coming at me with a bet. I want somebody who either has to sell something or has to buy something by mandate or by some change in a company that makes the new status inapplicable to him.

So, if I do kind of yeomanly fundamental analysis, I have a view of what something's worth. I am approaching a new topic with fresh eyes, but in a sense so is my counterparty because the incumbent kind of smart investor is thrown off his game for some level of complexity that if I spend the time to try to understand might be the kind of thing that they just don't want to bother with.

Dan Ferris: OK. So, it sounds like you are – is this Seth Klarman's thing, looking for a forced seller? Similar to that?

Chris DeMuth Jr.: Yeah. I would say that forced sellers are part of it. Sometimes it's somebody who's gotten themselves into a terrible situation – say, massively overleveraged and has to sell. Sometimes it's simply a scale mismatch. Sometimes it is dealing with a company at a massive scale that has some kind of tiny problem that is – the way I think of it is counterparty selection but I also think of it as it matters to me because I'm just in it for the economics but it might have some kind of subjective hairy risk for them that's a reputational cost or a political cost or simply just not worth the bother. So, an example of that would be jurisdictions that don't have back-end, short-term merger processes where you can buy up stub bits of equities in companies that you can control. I'll often be the second-largest older where there's a majority holder that's largest and simply negotiate a private exit to that majority owner because they don't have a process to simply hoover up all of the residual holders like we do in the U.S.. In the U.S. this wouldn't come about but in Europe and in Latin America we often can get a premium from our shares when we're the last remaining kind of holdouts where there's a majority holder.

So, yeah, different situations where we can find somebody who has to sell. Not necessarily my favorite example but a clear one would be of something was simply removed from an index, an index reconstitution or a spinoff that spins off something that is not applicable to the predecessor owners.

Dan Ferris: Right. That's a pretty common thing. I think that was covered in Joel Greenblatt's book where you get – the spinoff doesn't go in the index so you've got to get rid of it or it's just not the kind of stock that the shareholders of the parent want to hang onto. Right?

Chris DeMuth Jr.: Yes. I had a nephew graduate from middle school today and his graduation gift from me was Joel Greenblatt's You Can Be a Stock Market Genius. And I said, "You get the book and you have to read it, and then you have to present to me a new, current, actionable, edgy idea from the book and then I'll buy you some stock in that company." So, that's my – that was my offer. And the same offer to my kids. So, they're hopefully reading that book now and hopefully will get back to me with their proposal for something in it that's worth buying.

Dan Ferris: Right. So, you must do a lot of – in this kind of approach you're just constantly, constantly looking for ideas. It's not like – I mean, Warren Buffett is currently looking for ideas. Value-oriented guys are constantly looking for ideas. But a lot of them these days, they want to do this forever holding thing and they want to compound and find the ones with – companies with big moats. But it sounds like what you're doing is you're – you have – probably have a lot more turnover than most funds, correct? I mean...

Chris DeMuth Jr.: Yes and no. It is a fairly frenetic research process. You have to look at a lot of things. But there are ideas in this category that take years to have a catalyst and kind of – there can be long holding periods, so there's really a mix. There's really a mix.

Dan Ferris: That's intriguing to me: the idea of event-driven taking many days.

Chris DeMuth Jr.: Sure.

Dan Ferris: What kind of an event takes many years?

Chris DeMuth Jr.: Well, by statute or policy there is a two-year moratorium on a corporate transaction to sell a company after a spinoff. There is a three-year moratorium on selling a company after a demutualization. In that fourth and fifth year, 75% of them are deal targets, often at a huge premium to what we pay for the private stock in the demutualization, but zero percent of them sell in the first three years. So, that's one that is commonly a catalyst in the fourth and fifth year but never a catalyst in the first three. So, those are just two examples off the top of my head of something that has to take at least two or has to take at least three years.

Dan Ferris: When was the last time you got into a demutualization? I haven't – I forgot these things existed until you just mentioned it again. I haven't thought about this in years.

Chris DeMuth Jr.: Sure. So, Eastern Bank Core was a good opportunity. That was a recent one. There are a number of potential insurance demutualizations. One that I'm very interested in right now is the phenomenon of companies that have gone through the first of a two-step process, going from kind of a fully private, not-for-profit thrift to a mutual holding company, and then from the MHC to the fully for-profit bank. Some very interesting opportunities right now to remutualize them. And by remutualize, what I mean is they kind of were a flop. The market wasn't that interested. They're kind of dispirited and know that there really isn't growth opportunities. Their currency has not appreciated so they couldn't really be a buyer. And so, you have this undersized, undervalued, ignored, underappreciated stock that kind of doesn't really have any purpose in the public – the public market said, "Thanks, but no thanks."

And what that opens up – sure, you could just kind of keep going and do a second-step conversion, but there's really no point. But what that opens up is for an existing credit union or mutual to buy them back and to get 100% control but only having to pay for the 40% float. So, you can pay anything. This is Monopoly money. This is wampum. They can pay – they're indifferent to what they pay, and so we're getting these gaudy multiples from credit unions for small banks, especially the kind of half-public mutual holding company floats to the point that there are some of these banks that if you look at kind of – because of interest rate changes and of how they've marked their books, you could buy the whole thing and just by – just the normal M&A accounting basically get them for free. You could pay – we could go in and we could pay ourselves a special dividend and just own the franchise value free and clear. Really remarkable opportunities right now for remutualizing small mutual hold cos.

Corey McLaughlin: That's interesting. Can, I would like to own a bank. Would you go in with me? Or... ?

Dan Ferris: [Laughs] That's right. Oh, in those terms? Yeah.

Corey McLaughlin: Free? Sure.

Dan Ferris: Yeah, I'll do that.

Chris DeMuth Jr.: I do get into weird things every once in a while simply because as long as it's limited liability, as long as it's legal and analyzable, it's limited liability, I'm up for anything. I think speculation is fun as long as I don't have any downside. So, I think there is a certain aesthetic to value investing that's kind of cranky and kind of prudent in its topic, but anything can be solved by price. If you can underpay enough, there's a lot of cool things out there that one can own.

Dan Ferris: Yeah. And that was one of the main things that the world sort of learned from Ben Graham: anything at a price, at the right price.

Chris DeMuth Jr.: Yeah.

Dan Ferris: Sounds good to me. I mean, over the past couple of decades the prices seem to have gone up and up and up and there's less of that stuff to be done, but you're – you sound like you're finding plenty of it. So –

Chris DeMuth Jr.: The ratio right now on valuations between small and large cap, I think there's a lot of bargains in small. The ratio right now between financials, small community banks in S&P is off what it's ever been. So, yeah, banks – and small in particular – there are bargains to be found. Some pain in getting here in some cases, but at this point prospectively I think that that can be a fairly interesting set of ideas.

Dan Ferris: So, small, like under what kind of market cap? How small?

Chris DeMuth Jr.: The one I was thinking of, the mutual holding companies, under $100 million. I mean, so tiny. Teeny tiny. But there's really no reason to be a publicly traded bank with a market cap under a billion dollars. If you just look at the – just the comp, all of the public costs, these tiny community banks, I mean, there are thousands of them in the U.S.. And we don't need any of them. I mean, there's just no reason to exist as a separate corporate entity.

Dan Ferris: Sure. I think the people who work at them might beg to differ, but yes, I understand what you're saying.

Chris DeMuth Jr.: Well, especially in the roles that are the cost savings, where you could potentially take out all the costs. I mean, one bank needs one treasurer, and two banks need one treasurer, and three banks need one treasurer. So, you can – I mean, we still are going to have physical branches, I guess, and they're going to still have tellers, I guess. But yes, some of the corporate roles are expensive and can really justify huge cost savings in M&I.

Dan Ferris: Right. So, as you described the discrepancy in valuation between small cap and large, that's been a couple of years, hasn't it? It's been for a few years and it makes me think to myself "Yeah, I guess if you're going to do event-driven, small is the way to go." Because you kind of need it down there, don't you, these days?

Chris DeMuth Jr.: Yes.

Dan Ferris: You see what I'm saying? Yeah.

Chris DeMuth Jr.: If you look at – very good question and point. If you look at kind of normy, vanilla bank deals – even when they have kind of M&A there's really very little premium and you can just kind of bounce around and I could tell you "Oh, academically it's kind of cheapish and it will stay kind of cheapish." But when you have these very specific categories that are the kind of idiosyncratic ones, that's where I think it's actionable and really gets catalyzed.

There are – I mentioned the mutual hold co opportunities. I think there's going to be a lot of deals there. The other kind of category where I think there's going to be a lot of deals is in the ECIP banks, the ECIPs, kind of a government boondoggle program that the government just – the shortest version is it just gave a bunch of money to a bunch of banks. The slightly longer version is they did it in the form of prefs that's a liability on their balance sheet but with a nod and a wink that they'll be largely or completely forgiven, a nominal dividend, distribution payment that you can kind of easily avoid having to pay in practice.

So, in theory the prefs are mostly worthless, in practice possibly completely. And they're a huge part of some of these tiny banks. So, if you – so, one that I own that I like, Bay Community Bank Core in California, CBOBA, they were kind of bouncing around, I don't know, $7, $8 a share, slightly beneath their stated book value. But if you looked at these prefs, if you looked at these ECIP prefs, it was probably worth more like $20. If you said that they could just write them off, if you wrote them down, substantially somewhere in the high teens. And then, just this past week they're getting bought for $14. But there's a half dozen of these deals that are going to happen on similar terms with similar premium opportunities.

So, the ECIP banks are really interesting, kind of just this quirky little – it doesn't quite scream properly, but it's hugely valuable. And then again, when that's really going to reveal itself is when the buyer closes the deal. And again, it's going to be like the mutual hold co opportunity, just marking the books with normal M&A marking, and then they'll mark down 80, 90, maybe 100% that liability and then they'll just see this thing – this thing was worth $20 to them... they paid $14. We kind of –

[Crosstalk]

Dan Ferris: Well, what did you pay for Bay? Because it – the deal took it from, what, $7 or $8 to $13 like that. [Snaps]

Chris DeMuth Jr.: Yeah. So, I was – yeah, I was – it's – so, it's trading – there's $1.90 spread. It'll close by this time next year. But yeah, no, that was something that I have owned for a little while now. But it's – more importantly, it is the precedent deal for kind of the next half dozen of the ones in this category.

The one that's kind of easy to remember – it's very funny – there's another one with economics almost identical called Ponce – PDLB – and Ponce Financial is – if you – it's just totally a coincidence that the share price happens to work out the same. If you just do the same metrics on how much you mark the ECIP prefs, their deal would be $14 a share too. In both cases I'm on the ask side here. I would have liked high teens. I mean, I just – I see how much value there is and you can get it for free. I just want all of it. In this deal they kind of split in half – I mean, literally, they split – the arithmetic worked out to almost 50%. So, I think that that would be possibly – I don't want to negotiate against myself. I would be happy to get overpaid. But if they kind of split the difference, it would be about a $14 or $15 deal for Ponce as well. And I think that's going to come – could come any day.

Dan Ferris: So – and just for our listeners, Chris, "pref" meaning preferred stock –

Chris DeMuth Jr.: Yes.

Dan Ferris: – issued to the government?

Chris DeMuth Jr.: Yes.

Dan Ferris: Yeah. Under whatever the ECIP terms are, which sounds bizarre to me.

Chris DeMuth Jr.: Yeah. And so, it's – and it's a funny program. So, this was kind of – a fast public policy is almost always bad public policy. And so, this was kind of a –

Dan Ferris: That is true. Yes.

Chris DeMuth Jr.: – glandular reaction. This was kind of a mixture of – if you take all of the emotion that the collective world had related to anything to do with COVID and George Floyd and you put together a program and five minutes later saying, "We'll spend any amount of money" and you kind of just throw it together. And the people in the Treasury Department who threw it together said, "Absolutely not. We want nothing to do with this. No, no, no." They were kind of ordered to build this thing. They threw tens of billions of dollars at it and then they kind of washed their hands with it. I mean, they more or less said, "We never want to see this stuff again. Don't –" This was – so, this was not a Treasury-led idea. It's also – it's huge for me but it's tiny for them. There's no senior person that wants to think about this thing again.

And so, they were ordered to do it for rushed, kind of political reasons. And it was done in – by government standards it was done in an inept, corrupt, and profligate way that really has no equal I can think of but just bestowed immense value on a completely arbitrary set of common stockholders, that that was certainly not the intent of the program but it was certainly the result.

Dan Ferris: Sounds like a pretty normal government program. [Laughs] But when I'm looking at these – and I was just looking, the spread of Bay is, like – it's about 7%. Do you care about that at all? Does that merger-arb spread interest you at all?

Chris DeMuth Jr.: The tax ramifications for me are kind of significant at this point. So, my own kind of behavior here isn't really as instructive as, I would say, the category and the subsequent – I would say if you were new to this situation I would be more interested in the precedential value of other ECIP deals. And when I'm going to be really proved right or wrong on this is watch how the buyer marks their book when this closes. I think that's the most interesting thing about it. I think that the spread is kind of efficient if you have a rather immense taxable load on this. One might – it's a different circumstance. But – so, it might be better to wait, especially because it might close in early 2025. But it's not – I follow all the merged – kind of definitive merger-arb spreads as one of the categories I think about, but it's not one of the most interesting categories or examples at this point. So, it's fine but not – but something I'm looking at more thinking about the next deal.

Dan Ferris: So, just to be clear, though, if you found these banks with some of them – let's say, this amount of just regularly issued preferred stock, it sounds like you wouldn't be interested. Or you would?

Chris DeMuth Jr.: So, Ponce as an example, how the math looks to me, would I be interested without the ECIP? It's a very good question. It would be – I think that it would be worth $11 or $12 a share. So, how excited would I be to spend – I mean, I'm not kind of a [inaudible] trader... I kind of have to actually go back and doublecheck – spending $9 to get $12? I wouldn't be scandalized by it but it's not a focus of mine. Spending $9 to get $18, that's a mispricing that I – I mean, I'm – there's tens of thousands of securities that I could buy. We have a broad mandate. And I don't focus that much kind of on the right of the decimal point precision. I focus on just really underpay.

I wasn't that excited about the CBOBA deal because I really thought we should have gotten closer to $20, so $14 for me was kind of a real lack of precision on my part. In part, it's just negotiating. Somebody doesn't want to buy you for more than they have to pay. But I think that we massively underpaid and were maybe a little bit sloppy on the precision of where it ended up. I think the same would be true of Ponce. I think without ECIP it would be you're paying $9-ish t get $12-ish, and with it you're getting $18-ish. But they should really sell. It shouldn't be a separate – there's no reason to have a $200 million separate corporation. That's silly and wasteful and the expenses are too high. So, based on this deal we'll get $14 instead of $18 but that's still – $12 would be "meh," $18 would be fair, and we'll settle for $14.

Dan Ferris: All right. Well –

Corey McLaughlin: Yeah, Chris, that's interesting because this is what I was kind of thinking as you were talking, is there's thousands of companies or opportunities probably, possibly, that you could look at. But yeah, I assume that the reward here has to be worth it for our listeners, just to explain to them for you to even consider – because it seems like this is a lot of different kind of work than I think – well, when we talk to most traders or just long-term investors or whatnot. So –

[Crosstalk]

Chris DeMuth Jr.: Yeah, no, I mean, I think if I can find one or two ideas I love a year, that's fine. If I can only find one or two ideas that are actionable a quarter, that's fine. And I'd like to be able to toss away well over 90% of the things that are kind of interesting to me. I always have to be careful about the word interesting because I'm so interested in so many of these things. It's like "Oh, that's a really interesting idea" and somebody puts 10% of their money down. I'm like "Oh, I would never buy it here. I just thought it was literally interesting."

So, yeah, so I would say I'm super selective. And we also have a lot of resources to – I'm very involved in things that are litigation-sensitive and we have really good lawyers who help us on that. I'm really interested in spinoffs and things where there's just a lot to follow.

I would say the kind of cliche, the value-investing cliche is kind of buying a dollar with $0.50. I would say we're really literally looking for $0.50 if it's kind of a noisy $0.50. If it got to be very, very high-signal, low-noise, I could take a 10% discount with a very, very clear, quick certain outcome. But I kind of prefer the subjectively messy ones that are just cheap, cheap, cheap.

Dan Ferris: Yeah. And I noticed you have other of these besides Ponce, it sounds like. Ponce reacted to that deal, it looks like. I mean, it really popped up.

Chris DeMuth Jr.: Yeah. I think – I mean, this is just cookie cutter. I mean, you could almost – we're going to see a press release. It's just funny that it happens to be the same price. Well, it's not a complete coincidence in that these things – the banks tend to kind of be issued and tend to be priced around the same per share, but whatever reason we'll have – I think could – at any point could have nearly identical press releases. It's just such a similarly situated bank. And if not this year, then when the deal closes and people can see what they did for the buyer, then I think the buyers are going to really just swarm the remaining ECIP banks.

Dan Ferris: OK. So, let's get outside the banks.

Chris DeMuth Jr.: Sure.

Dan Ferris: What – do you have anything else that you're especially excited about right now? And if not, we can just take a – sort of a generic example from your hopefully recent past.

Chris DeMuth Jr.: I have three recent things that I would say I'm very excited about, and they're pretty kind of indicative of the kind of spectrum of things that I like to look at outside of the banks. I think the one I'll start with is I've gotten to be very interested in – I own – I don't know if – you guys might already know this and we can talk about any number of things, but this is one that is run by a friend: Mongolia Growth Group. It's MNGGF.

Dan Ferris: Oh, yeah.

Chris DeMuth Jr.: And so, Kuppy – Harris Kupperman – has for the past few years – one of the kind of irritating tax issues that we have to deal with kind of looking at companies is – one of the worst possible tax things that you can get has to do with when you are a foreign asset manager that doesn't have an operating business. So, he's been looking at an operating business for his – for this company, tiny company he's the chairman and CEO of, and he hasn't found one yet. And so, the status is basically – and the numbers are kind of pretty simple – $2 Canadian of assets. He runs it pari passu with his super successful hedge fund. There's another – there's NOLs, and the way to think about it is $13 million-ish of NOLs, twice as many shares, $0.50, you'll burn through those if $2 can become $2.50 of NAV, at which point it probably makes sense just to liquidate and that $0.50 of NOLs could eat through that.

If there's a big commodity boom, because he's fairly commodity-heavy, it could be this year. But it'll be this year or next. And in this year or next, once the NOLs are gone, then I think it's reasonably likely to be liquidated. But it trades at a big discount. It trades at a 25 or 30% discount last I checked to just the asset value. It's a great manager. It's a great portfolio. I know the portfolio really well and it's stuff that I trip over in my own portfolio anyways. It's almost all – I mean, it's very concentrated but it's almost all stuff that I – there's not a single thing in it that I would hedge for the sake of a discount, which if I was just in it for the discounts I would.

So, naked long that – and then GGF, I think, is just great. It's a tax-efficient and fee-efficient equivalent of a top-performing hedge fund. A million dollars that you invest on day one in this fund in 2019 would be over $10 million today net of fees. Another way of saying that is a majority of the assets that he manages, money that he has made through profits, not investor subscriptions – so, it's a – somebody who – I don't think there's much investment talent out there. I don't think there's many people who really have investment talent. I really think Kuppy does.

And so, an actual investor who's variant and who's smart and who's doing interesting things, I think – this might sound like faint praise but for me it's kind of 1%, deserves – he actually doesn't charge 2.20. I always say 2.20 casually but a management fee, which I think is 1.25%, something like that. He deserves the management fee. He deserves the 20% carry. And you can sidestep all of that by investing in Mongolia, which he is managing more or less the same way, and which I think not only will have his talent and his portfolio, which I like and trip over in terms of knowing what's in it and liking it and owning it – separately, kind of Texas hedge, I own that short – the components. And then it's probably going to liquidate and he'll probably capture that whole discount this year or next.

Dan Ferris: Yeah, we've had Kuppy on the show a couple times, two or three times, and Mongolia Growth has come up.

Chris DeMuth Jr.: Yeah, he's great.

Dan Ferris: Interesting.

Chris DeMuth Jr.: So, I won't belabor that because if you can talk to the man himself, there's – I don't want to waste too much time on overcomplimenting a friend. But I think that that's – I'm glad you've had him on and I think that that's just an interesting way – and that's the kind of thing where I can see the value in the underlying thing and then you're just paying this big discount so it's like that's just kind of a layup for the kind of thing that I'm interesting in.

I'll tick off two others that might be of interest. Litigation is a big interest of mine. I've been doing a lot of kind of litigation, heavy-ish issues, often surrounding Latin American – I guess nationalization is the friendly way, but stuff stolen by governments in Latin America. And this is Venezuela, Guyana, Mexico, Guatemala, Argentina. I have different situations I'm involved in that are basically litigating through the courts the value of things stolen by sovereigns. And the most interesting one is Venezuela. A gold company called Rusoro costs about a buck. I think we'll get well north of a $1.50. Kind of – I think it's $1.65. I'm saying – I'm most comfortable saying more than $1.50 but I think it works out to $1.65 or so per share within the next couple months, unless I completely misunderstand the situation.

This was Russian. And it was early on – I think it was the view of the people who started this project, "Sure, Venezuela has a socialist dictator but we're kind of bad guys too so maybe it will be honor amongst thieves." Well, there was no honor amongst thieves and they just stole the Russian assets along with everybody else's and – which kind of scandalized them. And this has been litigated for a long time and the difficulty was the cliche about a bird in the hand versus two in the bush is even a starker ratio when you're dealing with socialist dictators. Them owing you money is very different than having the money.

And the interesting development in this whole thing – I've been following this for years and years and years – been an owner for quite some time, and the interesting development was when the Citgo assets were attached to our claims – so, Citgo is a well-known – I always – I've never actually done this but I've always been tempted to fill up my truck at Citgo and then just drive away quickly and say, "Well, you owe me a billion dollars. Now I owe you a hundred." Well, and it's not really fail to the individual franchise. I'm sure that if I got pulled over for that I wouldn't be able to explain it to the cop why I should be able to steal $100 of oil from them.

However, they did steal a lot from us – or, from the people whose claims we ended up subsequently buying. And they do own Citgo and Citgo is very valuable. And a U.S. court is running an auction process right now and we will shortly see what it gets. But if it gets enough to cover our claims, then we're going to be – our claims are a huge premium to the market price – there's a market... it's not something that people tend to pay attention to. But RMLFF is Rusoro Mining in Venezuela and it's a small Russian coal company there. But more importantly, it's likely to get a dividend of $1.65 or so in a few months or so if Citgo can fetch a good price. I think it will. I think the refineries are good quality. I think that there's a ton of strategic value in one of them called Corpus Christi because it could really be a hub for American petrochemical exports. So, I think that that's extremely valuable. I think there's a number of bidders that are going to really want to own that. If we get a good bid on Citgo, then it's going to be a bonanza for Rusoro.

Dan Ferris: OK. I'm sure we don't want to get too deep into this, but are we talking about making a claim in American courts on a Venezuelan company?

Chris DeMuth Jr.: Yes.

Dan Ferris: OK.

Chris DeMuth Jr.: So, how these tend to go is ICSIC – so, ISCID is kind of the international court of settlement and that – but this is a Delaware court, and so Delaware is particularly good at corporate law.

Dan Ferris: Sure.

Chris DeMuth Jr.: And there's an issue called alter ego. And this is actually kind of the legal derivation of that common usage phrase: step into the feet of... And there was a terrible mistake and it was actually kind of an interesting history. I'll just give you a sentence or two because I thought it was fascinating, which is some of the Venezuelans stole a few million bucks from it and that's trivial relative to the many billions of dollars that they stole from corporations. But what's really interesting about stealing a few million bucks is that's when we were able to go to the American courts and say, "They think it's theirs. They just took some money from it." So, even though it was a relatively trivial amount, they're sticking their hand in the cookie jar. We said, "Wait, if that cookie jar is available, shouldn't that be our cookie jar?" Because literally, we have claims against them. They legitimately owe us cumulatively tens of billions of dollars. The last people in line probably won't get anything but maybe the first 10 billion will. That's not for their personal use... that's our money. They could have claimed that it was at a distance before then but that alter ego issue came into effect because of financial shenanigans related to their oil company that then owns a Citgo.

So, that was kind of the history here. And then, there's a bunch of companies in line, but some of them are so big that it's not as material. So, ConocoPhillips is one big claimant, but that's not a very complete investment case for a huge company. Others are private. But Rusoro is small and is kind of the one that's early on the list that I think is the most impacted by this. So, kind of an interesting one.

And so, that's the kind of – we're involved in tons of litigation but that's kind of one of the litigation ones that I think is most – happens to be soonest. And it's one that I just love. I think it's fantastic. Yeah, and one other I was going to mention, but I didn't know if you had any questions on Rusoro or if I... ?

Dan Ferris: No. You've got one more? Let's hear it.

Chris DeMuth Jr.: Yeah. And so, I was trying to think of what's kind of indicative of current but kind of gets at things that I like. And so, the last one I'd mention that I've been kind of working on all morning is a – they do a number of things but it's basically a hospice company. It's hospice and home hospital care. Most of these have been bought up. There's not really that much of a public market for these anymore. It's called Enhabit. It's EHAB. And there are three or four interesting things about this. One, spinoff, normal spinoff dynamics. It's coming up on its two-year anniversary for being able to sell right at the beginning of the third quarter this year. So, we're kind of approaching five weeks or so and then they can sell. I think it will be so. That's interesting.

Secondly, they ran a strategic review that failed. They kind of botched it. But the more – I kind of go into exactly what happened. One of the things that gets me very, very curious when I'm talking to management is when you ask a fair question that has a simple answer and you get something other than a simple answer. "Were their bids at a premium to the market price?" is a fair question with a simple answer, and it could have been yes or no. And you get a huge number of words but you don't really get a lot of clarity from them on what they did.

What it's looking like they did is they kind of ran a process but kind of didn't. They weren't interested in selling to private equity. They wanted to before people got a good sense of the books put a very, very high demand that was not realistic. And it was disorganized and chaotic to the point that it kind of had a lot of problems. There were two obvious strategic buyers of this asset and both of them were very temporarily distracted with other deals and situations but one of the two of them clearly should own this ultimately. It's possible that next year could be better than this for regulatory reasons. We have a hyperaggressive kind of set of regulators in this administration. If there's a change in administration there would be much more regulatory clarity on M&A. Next year might make more sense than this year. But the stalking horse of a high bid from a strategic buyer really should bring private equity now. They're – it's an undermanaged company. The board needs to be refreshed. The management needs to be refreshed. And it trades a little over $9. Kind of my math says that on its own, just kind of run well, I think it could recover to kind of $12 as a standalone, mid to high teens in a deal.

And the thing about a deal is the company needs to get fixed before we'd get a good price from United Health, Humana. The private equity could fix it or public equity could fix it. It's going to take a new board but a large, concentrated holder has stepped forward, is going to run a process, I think, in July to kick out part of the board, refresh the board, refresh the management, cut costs, run it for shareholders. And I think that that would give me much more confidence. I think you'd have a huge improvement in just the optics of quarterly kind of financials could just be – I mean, it's just so clear how to fix this company as a public company that would also bring back all of the strategic bidders, because they could finish up their other deals. We might have a different regulator. And then, it's just a matter of does private equity want to pay a premium here to simply do the work and then flip it to the strategic guys in two or three years?

So, there's a lot of ways to win. There's a lot of moving parts. But for a valuable business for a cheap stock everything has gone wrong to this point. I mean, you just can't – if you job was to goof this up, it would be hard to fail as well as they have. I mean, I think it's down almost 60%, 59%, something like that since it was spun off. And it's kind of – you don't want to be morbid about hospice but it's hardly a kind of business that goes out of style. And could have – the definition of a recession-proof business that should be kind of easy as a business. And the captive ones have been doing wonderfully well within large companies.

So, run right – I know exactly what this business looks like when it's run right. It's worth a lot more than it costs. With a modicum of seriousness on the board or management, I think we're going to get that in a couple months. And coincidentally, we could get a new board and management that is supplying something that's going to be and look much more valuable the same month as we're allowed to sell it. So, we're going to get new supply – we're going to be supplying something better and we're going to have new demand and we're going to be able to refresh demand from the bidders that were unable to participate because of a botched process. We'll run a process well and sell this for what I think could be a lot of money.

Dan Ferris: Sounds good. Well, you've certainly delivered. You've taught us a little bit how to fish and you've given us some very interesting fish. And I thank you for that because our listeners love that. I promise you they're writing down all these tickers and looking things up right now as we're speaking. So, listen, thanks a lot for being here, Chris. It's time for our final question, though.

Chris DeMuth Jr.: Sure.

Dan Ferris: Everybody has to answer this one. It's the identical question for every guest. Even if it's a nonfinancial guest, exact same question. And if you've already said the answer, by all means feel free to repeat it, and we can edit if you need to take a second and think about it. And the question is real simple. If you could leave our listeners with a single thought today, what would it be?

Chris DeMuth Jr.: I'd love to give 10 answers and then you could edit out the nine dumbest ones.

Dan Ferris: There you go. Good strategy. I like that. Yeah.

Chris DeMuth Jr.: After events unfold. And maybe I could even give opposite answers and you could...

Dan Ferris: That's right. [Laughs]

Chris DeMuth Jr.: Well, I think to me it's all about finding an area where you have enough interest and expertise that you can be wildly, radically selective and have so much fun in the research process that that's not even downside, because when nobody's looking you're so interested that without making a penny you just want to do it.

The analogy I tend to give, even though it's not one that fits me at all, I've never once walked through an antique shop and I don't care, and even if you told me I could make a lot of money doing it, I wouldn't care, is there are $10 knockoff, cheap kind of Chinese vases that are worth $10 and you can find those all around the world. You can go to China and there's – the nice way – I have a friend who does Asian art and she says, "Well, we have a lot of art that is for a Western audience." They will supply as much as you demand and they will make it look however you want, but it's cheap price and cheap value. And then, you can spend $100,000 or millions of dollars on a real antique. And all else being equal, it's probably worth that. But if you're willing to look through hundreds and hundreds of these things, every once in a while you find something that's just mislabeled. It's just wrong. And I live for that. And I – that's where I look to make money for my investors and myself.

But I'm having fun all the other times. All the cheap tchotchkes that I paw through, I don't want to spend any – I don't want to spend $10 on a $10 vase but I enjoy pawing through them. And I enjoy looking at something that's beautiful and interesting and valuable, and most things make sense. And it's mind-blowing for me that every once in a while something's just wrong. And I think the examples I mentioned today, I think the price for Enhabit is wrong, I think the price for Rusoro is wrong, and I think the price for Ponce is wrong. But I just paw through these things all day and night and many labels are right but every once in a while there's some little anomaly. So, find something that you love enough that you don't have to have any desperation to need to find something. I'm perfectly happy the days the days that I find nothing, and that's a good thing because that's most days.

Dan Ferris: All right. Great answer, Chris. Thank you. And once again, thanks for being here. I can tell you from the way this went that you will definitely be getting an invite back in the next six or 12 months or so.

Chris DeMuth Jr.: Thank you, Dan. Thank you, Corey. I really – I'm grateful for your time. My wife sometimes kicks me under the table at a dinner party or something because I'm so excited about some obscure stock and she's like "Can you please at least wait until people ask? Some people are only –" she had a somewhat nice way of saying this. She said, "Some people are only a little bit interested in what you're working on."

Dan Ferris: [Laughs] That's very nice of her to put it that way because we know the truth is, –

Corey McLaughlin: Yes. It was a nice way of putting it, yes.

Dan Ferris: – yes, some people aren't at all. And I get the same thing. So, yeah, that's funny. But thanks a lot, Chris. I really appreciate you being here.

Chris DeMuth Jr.: Thanks, fellows. Stay in touch. I appreciate your time.

Announcer: The opinions expressed on this program are solely that of the contributor and do not necessarily reflect the opinions of Stansberry Research, its parent company, or affiliates.