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EScroogeJr (< 20)

I have an opinion, but I don't agree with it

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January 21, 2007 – Comments (0)

International Assets Holding Corp (IAAC) is one stock on which I have two opinions: mine and somebody else's.

I never owned this stock because it has always remained too expensive for my taste. After its recent drop I looked at the numbers again to see if it was a good buy now. I can't say that I was very impressed. The company is making darn little money for shareholders, either in the form of earnings, or in the form of cash flow. There was some $3.5 mln in GAAP earnings this year, and, as far as I understand, maybe some extra $6 mln was earned on commodities but remained unrecognized due to some accounting conventions. But the latest quarter release underscored the fickle nature of these earnings, as the company swung to a loss due to volatility in commodity markets. (Which makes one think, maybe those accounting conventions are not stupid after all). Either way, whether it's $3.5 mln in "reliable" earnings, or $9.5 mln in questionable earnings, IAAC's $180 mln valuation does not strike me as cheap. Qualitatively, I don't see any competetive moat for this business, and I fail to understand why the general market for obscure international stocks should continue to grow. I am not not denying the possibility that American institutions may, for instance, double their purchases of unlisted Nigerian stocks next eyar, but I don't see why. For all I know, they could as well buy less. That's how I would look at this stock if I were left to my own devices.

But in the case of IAAC I have one exellent reason to mistrust my own analysis. It is that the company is operating in a business which I don't understand. After all, if you ask me, "how much do you know about the market-making business?", I would have to answer: "quite frankly, zero". Ditto for "how much do you know about inflows and outflows of speculative capital into pink sheet international securities?", or for "How much do you know about commodity trading?". When you think you don't understand the company's business, it makes plenty of sense to listen to people who do. And some of the players whose opinion I strongly respect, are very bullish about IAAC. When I see TMFOtter, TMFPlatoish, and TMFBent all in the bullish mood, I cannot dismiss it too lightly.

So, whom would I trust more: myself or the others? Well, in this case, when I feel I I don't understand the business, I would probably trust others. It's a better option than pretending to be an expert in international finance, which I'm obviously not.

Not that would buy a whole position in IAAC, or even commit any sizable chunk of portfolio to this stock, but's another story.

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