Eureka Correspondence

Putting a buy on BKI Investment Company.

Putting a buy on BKI Investment Company

Most unfortunate that as Mitchell Sneddon recommends BKI at the price of $1.68 (see BKI: A steady accumulation of wealth, August 10) they shortly thereafter reveal that their NTA was in fact $1.58. This is not an insignificant amount (pardon the double negative). I know that some of the drop in price can be attributed to the market turmoil but BKI (it has been revealed) was very much overpriced when recommended (to my cost).


Mitchell Sneddon’s response: Thanks for your letter. Firstly I want to say I believe BKI was a good buy at $1.68 before the market pulled back for a long term minded investor and I still believe BKI is a good buy at the current levels for a long term investor. 

You may have noticed if you have followed along with the model portfolio I recently added more to my BKI position recently at $1.57 (see AFIC: The fine art of being dependable, September 14). I had noted in the article I was going to look to average down and if the BKI price falls further look for the portfolio to add even more. 

I originally wrote about BKI on August 11. On August 5 BKI had released its NTA update stating $1.72 for July 31. The next announcement the NTA had fallen to $1.56. This was in line with the market which was to be expected given its exposure. Recently we have seen enormous volatility in stock markets globally and quality stocks are feeling the pinch just as much as the lesser quality. This has weighed on short term performance. Investors need to look through the volatility but it is not always easy.  

I am still happy with BKI at both prices. Also the more I speak with managers of LICs the less I am fixated on discounts and premiums to NTA. Unless something is at a substantial premium or a substantial discount I am more focused on the people and the process behind the LIC. With this in mind given BKI's great track record of growing shareholder value over years and the knowledge that the Millner family and Soul Patt's bring to the table I am happy to purchase BKI at fair value and hold for a very long time and firmly believe the holding will add value to the LIC portfolio.

On another note you can jump on the Eureka Interactive this Friday here where I will be having a chat with BKI portfolio manager Tom Millner and subscribers are encouraged to submit questions live.

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