Description

RENN Fund Inc (RCG) is a non-diversified, closed-end management investment company. The Fund executes its investment strategy by regarding investments as fractional ownership in the underlying companies’ assets. This allows the Fund to attempt to achieve its investment objective by acting as a classic value investor seeking high returns on equity, an intrinsic characteristic of the investment, not a reappraisal of a company’s stock value by the market, an external factor. The fund is unique because it is managed by Murray Stahl, whom in the life experience of this writer is the most brilliant, smartest, wisest, most clever, methodical, patient, best read -on any subject - proven successful, money making person i haver ever met in my life.

When Murray Stahl first took over management of the RENN Fund at the beginning of January 2018 it traded at a premium. The premium reached a high of 18.06% on January19, 2018 and remained there for three days and the declined dramatically in the ensuing days, finally going to a discount of -2.76% on the first of February. This occurred despite the NAV being a cent higher than it was on January 19 when it was at its peak premium of 18,06%. There is no explanation for this other than selling in the marketplace lowering the price as far as I know. Perusing the table below one can see the shares traded at a discount throughout the rest of the year mainly at a single figure percentage discount but at times a low teens discount except for the last day of May and several days in June when the market price jumped ahead of the NAV and the shares went to a small premium. After that it in terms of the discount to NAV it was all downhill and in the last month, November it was a real cave in about market price. Up to November 29. On the last day of November, NAV jumped 5% and market price +7.5. With respect to what is owned, one who invested on Jan 1 as of month end November saw NAV increase from 1.47 to 2.00 or 36% but market value of RENN shares only appreciate 3.7%. This occurred because Renn traded at a very deep 22% discount from its NAV for no fundamental reason. Well IMO a reason is the stock is thinly traded and volatile. (note both NAV and market price did take a big jump up on 11/30). There is a superior and very experience manager managing the portfolio. His incentive to succeed is very great. Value will out. 

The portfolio is managed without a management fee. It will continueto be manged with no such fee until the NAV reaches $25 million. If and when that milestone is reached a management fee of 1% will apply only to NAV above $25 million. What a bargain this is IMO. Murray's best ideas for free. There is a free lunch here. Yes there are some expenses such as the audit And above $25 million if that ever should happen he will charge only 1%. Note Murray manages a number of hedge funds for 1 and 20% fees mind you. The fund is not without expenses, audit and some others.These will be reduced as the NAV grows. Murray is working on growing the NAV and a rights offering awaits closing approval from the SEC which will add about $2 million to the the $8.9 million NASV at 11/30. His private firm Horizon Kinetics is paying all of the rights offering expenses. Thus is money raise is really peanuts. Murray surely has something up his sleeve. He is patient for sure, but not managing RENN for nothing for nothing. Thus it should be additionally, noted,  Horizon has entered into a backstop agreement whereby it will purchase all unsubscribed shares, if any, after shareholders exercise their subscription and over-subscription rights.  Paying all expenses and agreeing to purchase the entire offering is, in my view, a clear sign of the confidence he has in the fund

WHO IS MURRAY STAHL
Murray Stahl – co-founder, chairman and CEO of Horizon Kinetics, as well as chief investment officer of his firm and of course RENN. He has 30 years of  experience, is responsible for overseeing proprietary research and portfolio management decisions across his entire firm. He is also the co-portfolio manager for a number of registered investment companies, private funds, including hedge funds and separate institutional accounts. Additionally, Murray is the chairman and CEO of FRMO Corp. (FROM OTC) He is also a board member of the Bermuda Stock Exchange, the Minneapolis Grain Exchange, Winland Electronics, and IL&FS Securities Services Limited.

PORTFOLIO
The portfolio is concentrated in 11 common stocks and holds three of Murray’s favorites discussed below, TPL, Civeo and CACI International

The following snippets are from a recent Q & A with Murray and should be helpful in giving you an understanding of his investment philosophy and a few words about some of his RENN investments including cryptocurrencies and Bitcoin.

Q: Comment on a Bloomberg article from May 2018, “The 130-Year-Old Bankruptcy That Created a $5 Billion Oil Giant,” with the sub-headline “Texas Pacific Land Trust has surged almost 2,200% since 2010.” Here’s a brief excerpt: “Not everyone missed the rally. In 1995, a low profile fund named Horizon Kinetics LLC published research on the trust titled ‘How to Buy 1 Million Acres of Fine Texas Grazing Land for $20.’ The fund, whose CEO Murray Stahl declined to comment, has been in and out of the stock since the 1970s. When he started Horizon Asset Management as it was first called in 1994, his first authored report was on TPL and the price of the stock was $12; I have a copy. It bought in a big way in 2008, before the rally, and now, as of May 2018, holds 1.8 million shares worth about $1.2 billion.”

A: Even though I declined to comment for Bloomberg, I’ll comment to you, so you’ll now get the entire story instead of only the analytical one.

To begin with, in life, you have to be lucky. In 1984, when I was a young analyst, the New York Society of Security Analysts would hold its meetings downtown. I was going to a meeting of a gold company and, for whatever reason, I was preoccupied. I got off the elevator to go to this Society. You had to turn left, but I wasn’t paying attention and turned right, walking to the end of the corridor. I came to a door that had Texas Pacific Land Trust on it. Realizing I was in the wrong place, I walked to the other end of the corridor and attended the meeting. The gold company wasn’t all that interesting, and the entire time, I was thinking about what Texas Pacific Land Trust was. When the meeting finished, I went back and knocked on that door. I went in and asked for an annual report, which I got and read. There was a woman there; it was a one-person office. The company no longer has an office in New York; it has moved to Dallas. In any event, that was the start of it.

The point of the story is the whole idea is to pick up information other people aren’t likely to pick up. I found it fascinating: this New York Stock Exchange-listed company went bankrupt in something like 1881 and had since been doing nothing with its cash flow other than in something like 1881 and had since been doing nothing with its cash flow other than buying back shares. If you like calculus, this is the stock for you because every time the company buys a share back, the next remaining share purchase is a greater portion of the buying back shares.

That’s the story of how it started. Since I’m a long-term investor, I never lost sight of it.

Q: Why are you optimist on cryptocurrency and Bitcoin (RENN owns some Bitcoin Fund)?

A: Let’s put it this way – Bitcoin is the ultimate contrarian investment. It might be a failure, by the way, and the majority of people think so. I’m not one of them, but then I might be completely wrong, and I’m willing to acknowledge that. The only thing I would tell think I’m right.

The first and less important reason is the situation with your normal bond investment. Let’s say I brought your typical 10-year Treasury bond yielding 2.87% or something like that. After I pay my federal taxes and adjust for the inflation rate, I clearly have a negative rate of return. I might buy a bond with a more robust coupon. Let’s say I bought 100 bonds, and, they yielded 4% or even 5%. Even if I were the greatest credit analyst in the world, I’d be wrong x percent of the time. If I were wrong, say, 20% of the time and lost 20% on my investment every time I was wrong, take 400 basis points off my return. Then I have to pay some taxes. Where am I? The simple fact of the matter is pretty self-evident: in the world of fixed income – and there’s a lot of fixed income in the world – it’s a negative real rate of return. With a cryptocurrency like Bitcoin, it’s not a negative real rate of return because it’s fixed issuance. That’s its first virtue. It’s not going to replace the US dollar. It’s just going to be an alternative, or parallel, currency.

The second and more important thing has to do with the standard computer systems in finance. There are just too many attack topologies to keep the system safe, so whether the corporations of the world like it or not, they will have to move to cryptocurrency and something called blockchain. It doesn’t have to be Bitcoin, but it’s coming, and it’s coming really fast. Also, cryptocurrencies have improved a lot and are much more understanding of what they do. There are now futures available. The blockchain systems are more robust. More companies are interested in them, and one day, we are going to get effective regulation and have custody. Institutional grade custody is maybe the last pathway we need for success, and I believe we’ll get it within a year, and we’ll see cryptocurrency become a legitimate asset class. When that happens, it will be worth a lot more. Of course, I could be wrong, and time will tell.

Q: Best Ideas?

A:I will mention four stocks I like. I’m leaving Dundee out because it’s so liquid. Aside from Texas Pacific Land Trust, there is a company called Civeo, which was spun off from Oil States Petroleum several years ago. It has lodgings in natural resource areas, hotels or motels, if you like, for workers so they can be reasonably comfortable at the end of a working day. In all these remote areas, the projects with the declining natural resources, mostly oil, collapsed and so did revenue. Crudely speaking, it lost 90% of its revenue. Could things are ever so slightly better than a bottom, and it’s a maybe. In any event, the company is cash flow-positive. There’s a certain amount of debt on the balance sheet, and I believe it can service the debt. This is an example of what I said before about leverage. It’s not that leveraged by the Miller-Modigliani capital structure and variance theorem. There are only two possibilities: either it’s getting better or it’s not. If it gets better, it’ll get more revenue, the cost won’t go up, earnings will be a lot higher, and it will be a great stock. If it doesn’t get better or it doesn’t get materially better, gradually, it will pay down the debt and the equity will be worth more. It will be a reasonable investment, not an extraordinary one. That’s, in brief, the story here.

Then there’s a British company called Clarksons PLC, which is a ship broker. If you look on its website, there’s a really neat diagram. It has an index of rates for all kinds of shipping. In the last few years, shipping rates are roughly 67% down, maybe even more. Anyway, as a broker, it’s ad valorem pricing, like a real estate broker. In other words, you get commission based on the value of the charter. If the charter rates rise, you’ll be getting a constant percentage of a greater amount of revenue, and the costs stay the same. I think it’s going to happen in the next couple of years because there are a lot of vessels that burn high sulfur fuel. This will become illegal at the end of 2019, and most vessels are too expensive to retrofit. It’s reasonable to suspect the supply of ships is going to contract. All things being equal, assuming the mandate is the same, it should raise the charter rates, and this should be an intriguing investment.

Last but not least, there is a company I’m always hesitant to talk about because it’s a little more expensive than I would normally buy, but I bought some at lower prices. It’s called CACI. It’s a defense contractor, but not your typical defense contractor. It’s one of the several they call beltway bandits in Washington. These companies do computer work, really top security and hush-hush work, things like intelligence gathering and cybersecurity. It has been awarded some extraordinarily large contracts relative to the size of the company. They would be good contracts if Boeing won them, and CACI is a $4 billion market cap company. If you read the DARPA annual statement, where defense dollars are going to go is into this sort of thing because an adversary interfering with your data or your ability to interfere with the adversary’s data is the difference between victory and defeat on the battlefield. Intelligence information processing is the key to the modern battlefield. There are only a handful of companies that do it, and I would regard them as the best.

Catalyst

Investors realizing Murray Stahl is managing RENN they will be attracted to this CEF just as they are to his variouis open end funds such as WWPNX and a variety of 1 and 20 hedge funds which trade at NAV and have fees because:
   1-Murray Stahl a well known, outstanding successful analyst/portfolio manager is managing RENN for no fee.
   2-Murray's reputation is on the lline.
   3-Murrya's firm, Horizon Kinetics, is about to make an investment in the fund and is prepared to take up all of a $2 million rights offering which is unsuibscribed for.
   4-One may buy imto RENN today at a very substantial 22% discount from NAV.
   5-The discount to NAV may tighten or even disappear and conceivably go to a premium (it was as high as 18% last January) because of there is  no management fee, the Murray factor and or dividend payments.