I recommended Humboldt Capital on April 2, 2008 to VIC because I thought it was really cheap. My original thesis was based on the idea that they were really more like a closed end fund trading at a discount to their publicly traded assets, and to make it more compelling, the publicly traded assets they held were also trading at a discount to their net audited reserves. If you (hypothetically) consolidated those discounts, you were getting a lot of stuff for free.
It has gotten cheaper, but didn't do as bad as it appears. It's paid out some dividends and the CAD$ has appreciated. I have dutifully watched the quarterly reports and once or twice I even called them up to ask questions. Over time, the discounts have persisted and the underlying stock values have shrunk. They have managed to pay out a dividend or two, and they do buy back shares.
From my original phone call I learned the CEO is old and wants to retire. I thought that was a great catalyst to end this thing. However, he keeps buying/increasing stakes in companies that he follows. It appears he winding down some smaller positions and building up bigger positions (concentrating). They originally had 2 analysts on staff to follow their companies, both of which they let go. They still have a full staff of administrators. They share offices with their largest holding, Diaz Resources, and share staff with them, too.
The most intriguing thing I heard in one of my phone calls was how they were selling their juniors into the liquidity crisis. They said they were trying to preserve capital. It appears, they raised cash during the crisis. To me, this is borderline embarrassing. They had too much cash going into the crisis, now they have even more cash? I don't know what to make of this other than maybe the CEO is fully invested in the stock and manages it like his portfolio (and he's a chicken).
To add to that confusion, when I read the management's quarterly report, it reads like a generic trade journal's assessment of the world economy. It is bland and obvious. If management is trading like they're writing then they will never get ahead because they nail consensus thinking. I hope they put more work into all the microcap names they hold.
Lastly, their DIAZ presentation talked about "selling texas gas assets when prices recover," which is not very encouraging. They don't talk much about internal operations (as they should).
They have a lot of interesting microcaps, 59% of their portfolio is foreign oil & gas microcaps. It's interesting to use their holdings as a starting point for ideas. You'd hope that for a tiny speculative play to make it into their portfolio that Humboldt would have at least done a tiny bit of due diligence on it, giving you a starting point for looking at company that at least isn't a complete scam. Then again, this strategy might be better employed on a company that takes more concentrated positions and has a better success record.
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