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$4.96 -0.11 (-2.17%)
10/10/2008 4:01 PM

Allied Capital Corp (ALD)

CAPS Rating:
**

The Company provides long-term debt and equity investment capital to support the expansion of growing businesses in a variety of industries and in diverse geographic locations.

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Avatar XMFJordan (89.58) Submitted: 5/03/08 10:02 AM : Underperform Start Price: $20.10 ALD Score: 38.06

This might seem a bit harsh, but ALD is simply a Ponzi scheme.

Oh, I am not disputing that they do some business, provide services, and generate revenue. But at the end of the day, the healthy capital distributions (ALD likes to call them dividends, which they aren't) they make regularly are funded by ongoing equity sales.

I first heard about ALD at a Value Investing Congress - as a short - but didn't do much think or do anything about it until reading David Einhorn's book "Fooling All of the People Some of the Time: A Long Short Story" and reviewing his web site http://foolingsomepeople.com/main/.

Before you buy this stock, I urge you to the due diligence so many others have failed to do.

And always remember: if it seems to good to be true (i.e. the dividend), it probably is!

And if you want a BDC (Business Development Corporation), go buy MVC!


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Avatar martinfrosa (22.33) Submitted: 5/14/08 10:24 AM

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I understand Einhorn's disdain for this company but, unfortunately for him, he is wrong, the same way he was wrong for being long New Century and sitting on its board as it went bankrupt. Ouch! All BDCs pay out dividends and raise new capital - that is the nature of the beast. Energy master limited partnerships have the same business model. Since ALD has been pulling off this so-called "Ponzi Scheme" for oh, about 25 years, you would think that people would have caught on by now. Hmm! Banks, investors, debt holders, rating agencies all fooled for over 25 years? Methinks not.

ALD, like all BDCs has been hammered down by the debt crisis, but the company is 23% off its 52 week lows and rising again (your short is underwater). You might want to rethink your position. While I do own MVC, there are much more solid BDCs like ACAS and AINV that you should consider.

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Avatar dond261 (83.58) Submitted: 5/19/08 12:09 PM

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Great reply with one minor flaw; it is 50 years rather than 25 and they have been paying dividends since 1963 ( regularly raising them just not every year).

Einhorn was wrong when he sold them short and lost his shirt (found out he didn't have enough influence to sink the stock',which is what he tried to do) He's been on a crusade ever since against ALD. I hope he follows New Century into oblivion.

I've owned Ald for 27 years and have done very well with it.

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Avatar bluedome (< 20) Submitted: 6/30/08 3:02 PM

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Einhorn could be wrong about the wisdom of shorting ALD (though he looks right lately), but
no one rebuts the actual points that Einhorn made to justify that short. Some of them were, that much of the revenue reported by ALD is transactions with wholly owned subsidiaries (including loans at 25% interest), something that should not be legal. And that its investments, which are valued in every quarterly statement, are not marked down in a timely manner when things go bad. He gives a bunch of good examples.

Times are now bad, has it marked down its investments? I wouldn't count on it.

The two comments above attack the messenger, say nothing about the facts in the message.
Even if ALD is a stupid short, the company seems to have done and/or be doing some things most investors would find suspect if they knew, and no one
bothers defending the company except by saying "look, it has not been caught yet."

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