[This article was originally published on May 29, 2014, we’re bumping it back to the top because a lot of readers have asked about it this week. The article below has not been updated or revised since first publication on 5/29/14]
Gumshoe readers have been asking about the “President’s Private Stock Market” for quite a while now, but I hadn’t gotten around to covering that teaser pitch — an oversight we’re correcting today.
It’s no surprise that this pitch caught the eye of a lot of investors — something about tapping into the insider secrets of politicians, a theme that resonates over and over again for suspicious investors who believe the rich and connected are doing something far different that’s making them wealthy (hint: yes, they probably are doing some things different than you or I … but that’s not why most of them are wealthy, my impression is that politicians are more often either born or bred to wealth or build wealth from book sales, the revolving door, and the speaking circuit, not because they’re great investors).
We’ve seen similarly themed teaser pitches before, from the “secret presidents 770 account” to the many spiels about the secret “Mainz” income earned by Bush, Clinton or Obama, but this one’s a little different. Here’s how it opens:
“‘It’s set up to maximize profits’ — Barack Obama, May 21, 2013….
“The Presidents’ ‘Private Stock Market’
“For Decades, This Closely Guarded Secret Has Discreetly Handed Politicians, Celebrities adn Billionaires Fortunes of $5 Million… $15 Million… Even $4 Billion…
“Here’s How It Could Explode Your Income 2,114% Times Higher Than The Average Investor.”
I’m not exactly sure what “2,114% Times Higher” means, but we’ll guess that it’s “A Whole Lot.”
They even capitalize on perhaps President Obama’s most regretted soundbite…
“… if you’re a business owner, you’ll remember what our commander in chief famously declared just last July 13… ‘You didn’t build that!’
“But take a quick peek behind the curtain…
“And you’ll find a totally different story.
“It’s the true story of a president ‘of the people’ who’s quietly raking in millions of dollars…
“In perhaps the most un-populist way you could ever imagine!
“We call his cash source, ‘The Presidents’ Private Stock Market,’ because Obama has collected as much as $5 million thanks to this backroom market.”
And Bill Clinton, we’re told, made more than $15 million from the same “private” market. What is this market?
“… a set of extremely profitable companies that offer returns far beyond anything you can get through the NYSE, Amex or Nasdaq.”
Huh? We’re going to need some more clues.
“Investors who are ‘in the know’ understand that there’s only one place you can expect to see these kinds of rare, monumental gains.
“In a moment, you will learn how you can get in on this market.
“You’ll also discover why fewer than 1% of Americans have been able to invest in this special ‘Presidents Market’… Even though it’s about 1/40th the size of the NYSE.
Are you getting our free Daily Update
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just click here...“One Wall Street Journal dispatch recently went so far as to call ‘The Presidents’ Private Stock Market’ a strategy ‘traditionally played by institutional investors and the super rich willing to commit as much as $25 million.'”
Dammit, I thought I was “in the know!” Perhaps I will be in a few minutes. What else do we learn about this “private stock market?”
“we’ve just uncovered a ‘back door’ for you… All it takes is just $11 to get started”
Really?
And…
“Business Insider recently ran a piece about “How You Can Become a Multimillionaire” thanks to this very same exclusive market.”
Figured out where they’re heading with this one yet? Yes, the fog is starting to clear a bit. Here are some more clues:
“it involves a way to buy into companies that are extremely profitable…
“But don’t trade on any major exchange.
“For example, take the company GoPro…
“You may have heard about it recently.
“It makes those tiny little hi-def video cameras you can attach to almost anything….
“Anderson Cooper reported that GoPro’s sales soared from $350,000 in 2005 to more than $500 million in 2012….
“You can’t nail down GoPro’s share price… Because there isn’t one.
“GoPro is one of those companies that’s reserved only for ‘private investors.’
“These people take a stake at the very early stages of booming businesses… And then reap the biggest rewards.
“So, if you had gotten in, just how much could you have made in GoPro?
“Well, a mere $1,000 put into GoPro in 2002 would now be now worth about $8.6 million.
“We also know of a handful of “late” investors who took an equity stake in mid-2011.
“At that time, company revenues were in the neighborhood of $225 million….
“Yet estimates now call for final 2013 sales just under $1 billion (twice 2012’s results). And Forbes has just valued the company at $2.25 billion.
“So those ‘late’ investors who got in around mid-2011?
“They’ve seen their money quadruple in just about three years. In other words, they didn’t even need good timing to multiply their money fourfold!”
OK, so Marc Lichtenfeld is teasing some kind of private equity investment — someone who finances companies before they are public. And since he’s pitching a newsletter to the hoi polloi like you and I who aren’t “accredited investors” who can easily invest in hedge funds, it has to be something you can buy easily — which means it’s some kind of publicly traded BDC (like Hercules Technology Growth Capital, which we covered yesterday or Harris and Harris, which we covered for a Microcap Millionaire’s piece a few months ago) or some other private equity fund or financier.
That assumption is buttressed by the continuing teaser spiel that taunts us with the fact that we weren’t able to invest early into hot names like airbnb, or Uber, or Happy Family. It does not mention, of course, any of the venture-backed or private equity-backed companies that withered on the vine.
And did we mention, Lichtenfeld says it’s very safe — not the word usually assigned to early stage venture capital investments like the huge wins he gives as examples. Here are his words:
“I haven’t even mentioned that this back door involves an extremely safe investing technique.”
He goes on to describe that the President’s Private Stock Market was born when Henry Phipps created the Bessemer Trust, a pile of cash that came from selling Carnegie Steel to JP Morgan and that was used to buy and sell private businesses. The Phipps and Bessemer names have come up a few times in past teaser pitches, including one of our first looks at a teaser for publicly-traded private equity firms back in 2007… which also happened to be a pitch from the Oxford Club.
And then we get the other nebulouos clues to feed to the Thinkolator:
“This group scours the markets to uncover the very best privately held companies in America.
“(Last year alone, they put some 3,000 opportunities under their microscope.)
“They zero in on businesses with the highest profit potentials… the strongest competitive advantages… and the lowest risk.
“In other words, the next GoPros, Ubers, and Airbnbs…
“They look for companies with those great ideas… The ones people can’t stop talking about.
“And then they help regular investors essentially join together to get in on a cluster of these growing companies, for as little as $11.”
And it pays dividends…
“the group I recommend pays out more than six times the income of the average S&P stock.”
… and has had insider buying:
“The guys who put these deals together have never sold even a single share of their own.
“Not one.
“In fact, they’re adding to their stake in this income play even more, practically as we speak.
“As you might imagine, these are some pretty sharp investors.
“For example, one guy, George Elias, a Harvard MBA, put in $102,000 of his own money just a few months ago…
“And his colleague, a Princeton grad, invested more than $6 million.”
So is that enough for us to find our answer? Well, we fed that pile of hints into the Might, Mighty Thinkolator, let it chaw on ’em for a while, and learned quick enough that this is: Prospect Capital (PSEC), one of the larger and higher-yielding Business Development Companies… and one that we mentioned in passing yesterday.
How are we so sure that the Thinkolator is correct about Lichtenfeld’s pick for this “Presidents’ Private Stock Market?” Let us count the clues:
He’s changed the name to throw off the bloodhounds, but “George Elias” is actually M. Grier Eliasek, who does have a Harvard MBA (we’ll try not to hold that against him) and is President and COO of PSEC… and his most recent personal buy was for $102,800 worth of shares last Summer.
And the Princeton colleague is John Barry, PSEC CEO, who did invest more than $6 million last year… though (apparently after this ad was written) he also bought another 100,000 shares earlier this year for another $1 million or so.
And yes, to get into more details, they did have a “total assets” line of $4.784 billion as of the September quarter last year (it’s now about $6.3 billion). And the share price was right around $11 until it dropped to the current $10 or so earlier this month. The drop was caused by a notice that the SEC wants them to reclassify their financials, which, though it would actually increase reported earnings, implies to at least some investors (I haven’t looked that closely) that management was pushing the envelope to maximize their incentive bonuses — the best explanation of if that I’ve skimmed through so far is here from TheStreet.com, but I won’t pretend that I know what exactly is happening or what will happen with the SEC and the handful of shareholder lawsuit announcements that germinated over the last month as a result of the accounting issues.
What we do know is that PSEC has preannounced their dividend, with steady but tiny increases, for the rest of the year — so it would be quite shocking to the market if they reneged on that dividend, and the expected yield is now almost exactly 13%. They were a rapid dividend increaser in their early years in the mid-2000s, and they didn’t have to cut the dividend as so many financial companies did in 2008 or 2009, but since the financial crisis the dividend has been on a very slow creep upward… slow enough that it doesn’t register as “dividend growth” if you round off to the penny. But still, growth is good.
PSEC is one of the more equity-exposed BDCs, they are also a middle-market lender but they have equity exposure to almost all of their companies and have actual control of a substantial number of them like a traditional private equity firm would, so that’s probably part of the reason that they tend to be priced as “riskier” than many competitors. Shorthand valuations in the BDC space are almost always done on a basis of yield, since we know that most such investments are held by individual investors and they are interested in the income… if the yield is high, like PSEC’s 13%, it’s perceived either as more risky or as less likely to grow the dividend… if the yield is lower, like Main Street Capital (MAIN) or Ares Capital (ARCC) at 6-8%, it’s perceived as safer or as having more growth potential.
Prospect Capital is a pretty polarizing name right now (a “no brainer” safe dividend per this Fool author, another Foolie calls attention to their questionable underwriting and weak performance compared to ARCC), and lawsuit announcements and accounting questions often drive shares down more sharply than the numbers warrant… which might mean that there’s an opportunity to buy into a pretty large (and growing) private equity portfolio and get a solid yield. But as with Hercules yesterday it’s important to note that these kinds of investments are interest rate sensitive and cyclical to some degree… and that they tend not to produce capital gains unless you are fortunate enough to buy them when they are hated and cheap. You can make an argument that PSEC might be edging toward that “hated and cheap camp” this month, and the shares have done worse than the BDC index recently, but it’s still quite close to the average $11 price it has held for most of the past two years.
So is PSEC worth a flier? Think this will continue to generate 13% dividends for the foreseeable future and buttress your portfolio? Let us know with a comment below.
Wow, First to comment! Too bad I don’t have much to say about BDC’s but I do like the back door way to potential IPO’s such as GoPro in this instance. Travis, does the teaser actually say that GoPro is one of theirs? If so, this could be huge as a trade! Other than that, the O club guys are pretty squared away so I would trust a pick from Marc Lichtenfeld. Thanks Travis and to the Mighty Thinkolator.
No, Prospect is not invested in GoPro — that and several others were examples of the kind of huge winners sometimes generated by venture capital investments. I don’t think any of GoPro’s venture backers are publicly traded, but I haven’t scoured the info to make sure.
It’s funny that Nathan Slaughters of Street Authority is recommending this same stock right now as well. Could we have a case here where the majority is wrong?
Perhaps a P&D in the making?
I think if you are an active watcher of your portfolio you could do worse than Marc Lichtenstein. Albeit he looks like a used car saleman in Miami LOL. I have a few shares of this and am watching it daily. If you buy it on the cheap and just take the dividends until you think it is feasible to add more?I think its “OK” I think it is simply picking the best of each type of investment have a variety ,and see. HOWEVER? I like other things better for their safety and better business practices. I have a broad assortment of things all the way from the big 3 Blue Chip Dividend champions to PDLI. I also have my some of my fixed income portion in 2 purchased “Settlements” one a lottery ” at %6.75 and another a Structured settlement at %5.90. They are safe court ordered and assigned to me. I bought them really discounted several years ago so I’ll get a nice lump sum .I have some in PDLI, solid tech ,some oil and gas Canadian stocks. I’m going to be very watchful until this bad administration is gone.
Hey Deb,
Can you tell me more about the structured settlement investments you speak of?
how does 1 go about buying structured settlements? Sounds intriguing!
Thanks for all your comments I was about to sign up with guy and try my luck. I know nothing about stocks and investing but need to make money just to make ends meet. Think ill just invest my money on myself instead I’ll be so lost and sounds like I will just be losing money instead of making money. ..
well lets see your list, if it is so good
I have had PSEC in my portfolio for one year and it is still churning out the dividends I am always after.
I own Prospect and will ,but terrified because anything can happen ,now is very close to NAV ,so they said but who knows,beside even stock holders could turn arround and hit too
and then the market coorrrreccttion and then……..
Prospect Capital Corporation (PSEC)-NasdaqGS
Prev Close: 10.00
Open: 10.05
Bid: N/A
Ask: 10.04 x 100
1y Target Est: 11.68
Beta: 0.86
Earnings Date: Aug 18 – Aug 22 (Est.)
Day’s Range: 9.93 – 10.06
52wk Range: 9.17 – 11.62
Volume: 5,785,139
Avg Vol (3m): 5,847,450
Market Cap: N/A
P/E (ttm): 8.32
EPS (ttm): 1.20
Div & Yield: 1.33 (13.00%
So what is so special about PSEC? Several years ago it was part of my portfolio only to lose money over time. It traded at $13 at the time. With the yield comes the risks. Nothing new.
My impression is that Marc Lichtenfeld (it’s not Lichtenstein) of Oxford Club is a smart guy and works hard – but my advice is to be very careful about subscribing to one of his “premier” services. So far this year, in his “Lightning Strike” service he has had the following results:
Recommendation #1 stock – currently up 25%
#2 stock – sold for a loss (price dropped and hit its 25% sell stop)
#3 stock – sold for a loss
calls – sold for a loss
#4 puts – 100% loss
#5 stock – sold for a loss
#6 stock – sold for a loss
#7 puts – presently down – 70%
#8 stock – sold for a loss
calls – sold for a loss
#9 stock – currently up + 6%
#10 stock – currently up + 2%
calls – essentially even (depending on entry price)
#11 stock – down 2%
calls – down 17% below recommended entry limit
And yet this “service” is being VERY heavily hyped right now by Oxford Club and Marc. To quote Marc: “The people who act on my recommendations are doing exceptionally well.” That might have been true last year – I gather it was, though his “service” was then called “Healthcare Profits Alert,” which apparently attracted few subscribers – but his results over the last 4 months don’t even remotely match up to that. Yet he says “people…are doing” (present tense) exceptionally well – which is just pure nonsense.
I’m not sure why this type of thing doesn’t actually cross the line into illegal false advertising – his “present” results certainly don’t qualify as “exceptionally well” under any usage of the English present tense. (I sent Marc a note asking why he didn’t at least wait until he had one result – one single result – that merited the hype before launching an aggressive marketing campaign – no response.) I think these guys (in the newsletter business) are lucky they seem to fall under SEC scrutiny (but very very rarely) rather than the FTC – which it seems like they should since they’re marketing a “product.”
Clear case of buyer beware…. The warning “past performance is no guarantee of future results” has never been truer.
Sounds like going opposite of what is he posts is the better strategy! Someone should do this as an experiment.
Thanks so much for the extra info. I started to watch his video pitch, but it was sooo long. Apparently, you have to play the entire thing to find out exactly what he’s selling for how much-an approach I instinctively don’t trust. He kept referencing companies that went from relatively flat to super performance over three to ten months. He’ll use his matrix to “safely” pick the company, identify the take-off catalyst, and let his subscribers know when to buy and when to sell. Frankly, he sounds like a Florida used-car salesman 🙂 It’s good to hear that he seems to be fairly respected as a researcher, but unsettling to see his most recent record for the Lightning Strike service. He is careful to throw in a (very) few clear statements that no system is perfect and his picks don’t always win. I appreciate everyone’s comments that help paint a more balanced picture.
I just shrunk the screen so only the little notepad keeps showing – kept the volume on and then in the other part of my screen read emails, did a jigsaw puzzle, about 3 or 4 card games, checked my facebook, looked at a billion wedding pics from my grandson (a little exaggeration there), checked for some new healthy recipes ……………Yes it was a very looooooong video. LOL
Here is a neat trick to avoid sitting through long video presentations that are infomercials. Click the link that takes you to the video. Then (I use Firefox, but probably the same on other browsers) click on the “x” in the top of the tab that is used to close the tab. Then, a message comes up that says: Are you sure you want to leave this website? Click Watch Video to continue watching the video. Click READ TRANSCRIPT to read about this opportunity.” You click on that, and like magic, the transcript of the video appears and you can skim through it painlessly or skip to the bottom line if you want. It seems to work on any email I get that has a link to a promotional video.
I never listen to the video pitch. I click out and when it asks if I want to leave the page or stay on the page, I click “Stay on the Page” and I get the printed script. Then I can scroll down to the important info!!
I’m not sure but some politicians may have made a little money from insider trading as it is not illegal for them to do so. It is ok due to all the sacrifices that they make for the good of the people.
— “Sacrifices that they make for the good of the people” ?? ….Wow…. I can only hope that was sarcastic comment. Maybe you could remove the knife from our backsides and wallets from the last couple dozen times our great and helpful politicians (yes sarcastic) sacrificed your and my good for the gain of their own friends and investments (aka supporters).
It’s done for the people, or for the children, or whatever fools the rubes.
Carlos, we all know that politicians are selfless servants of the Public and deserve whatever meager crumbs they can scrape together from insider trading due to the many sacrifices they make for our benefit!!!!
Be advised, this is tongue-in-cheek, people…
I have had PSEC for more than 3 years. I own it in my 401k account, and have turned the dividend re-investment flag on, so the dividends get re-invested. So my monthly dividend has gone up 50% (partly because I have more stock due to re-investment) and overall the position value has increased by 30%. I have watched this stock for a long while and this is one of the stocks I value for compounding dividends .. I don’t care about the short term with this one. If it falls “too much” like in 2008, will add to my position. Of course, one could buy into BDC ETfs – BIZD, BDCS – or even the leveraged version – BDCL – but everything needs to be watched.
PSEC-I have a substantial position in this equity also and agree with you RAVI. I shall not be adding to my position until we find out about the FED and possible interest rate changes and try to time the bottom. Best-Benjamin
How do I find out on how to get started investing in the 2,114% pres private stock market? I know there is a back door way, but, how do we do it? Can anyone tell me? I thank you all so kindly. Curt Grothoff
be careful thouh on PSEC. i bought it at 11.22 , 2.5yrs ago , and now its down to 8.12, the high interest rate did not compensate for the loss of principal. very senstive to news , as higher interest rates or them lowering there interest rates as this week. so beware!
Good point, thanks.
Agreed. I sold our rather substantial positions between $10 and $10.64. Expect to stay out for a while. It had a good several years, but it’s time to wait and see. FSC is having the same problem, unfortunately I did not catch it as soon.
Actually, PSEC did cut the monthly dividend in the most recent declaration on 12/8 from .110625 to .08333. They also eliminated the small monthly increase; the .08333 will be paid in March, April and May.
I’m in PSEC already… and for the long term. Daily ups and downs don’t bother me too much. Even with the reduced dividend, it’s still a great yield (and probably even safer now). I’m fairly confident I’ll come out the right side of the line in the long run.
FYI, I’m also an Oxford Club member [Communique Letter]. Their picks are usually spot on. I’ve made nice money on them over the years. Signed up for Marc’s Income Letter for 12 months. It was a little too complicated for me (3 different catagories to go with his 10.11.12 theory). GLTA.
I recently sold PSEC, ARCC, CODI, FGB, FSC, HTGC after holding them for two years or so. With the yield, I made about 0.0005 % profit! 🙁 …..Broke even on HTGC 🙂
It is obvious that I did not and do not understand this type of stock. It seems to me that the companies should do better with lower interest rates, because they can borrow more easily and be able to loan more money to companies that do not qualify for more mainstream loans, such as banks.
What’s wrong with this thinking? Is it that with lower rates it is easier for their potential customers to get regular loans?
NOW I think to ask! 🙂
Matt Frankel from Motley Fool has reduced his exposure to this stock.
“Matt Frankel: I have been a Prospect Capital Corporation (PSEC) shareholder for some time now, but lately I have started to scale back my position a little bit. There are a couple of reasons I’m starting to get a little skeptical of Prospect.
First is the company’s strange dividend announcement. Prospect usually declares three months’ worth of dividends at a time, and well in advance. For example, in May, the company declared its dividend payments through the end of the year.
However, when the company announced its most recent earnings in September, no such announcement was made. After investors were clearly concerned about this, the company declared its January 2015 dividend to calm everyone down, but it’s not working. Now, in the company’s most recent earnings release, it said it doesn’t intend to announce any further distributions until February.
And, Prospect has been selling shares below net asset value according to a proxy filing from September, and asked shareholders for approval to continue to do so. In the past, Prospect has said sales below net asset value were for extreme situations, so this is definitely troubling.
Having said all of that, I still believe in Prospect as a business, and think that shares represent a decent risk/reward at the current price. Still, my perceived risk has risen, so I felt the need to reduce my exposure.”
The stock is at 8.64 atm is that a good entry point for this stock ? These guys seem pretty sharp to me,but I put the HOI in hoi polloi .
Hoi Polloi = The Many, so Hoi is the The 🙂
I’ve owned PSEC for 5 years and been very happy with it. I wouldn’t worry too much about their exposure. It’s short-term rates that you have to watch. These might go up in late 2015, or in 2016, pretty unlikely before. So the whole BDC class might have another 3-6 months of good times, or longer, before it comes down to earth.
Really, you must have a CAPITAL LOSS on this stock over the last 5 years:
http://finance.yahoo.com/echarts?s=PSEC+Interactive#
Hardly what I would expect of a Resident’s Private Stock over 5 yrs., what say you Travis?
In the video pushing the presidents private stock market is stresses that this company is not traded on a public trade. So how do you guys figure that PSEC is the company that they are calling the presidents private stock market if it’s traded on NYSE?
The ad is cleverly worded — it’s not that you can’t buy PSEC or the similar BDCs on the public market, it’s that PSEC and others are a “back door” through which you can invest in private companies.
I am excited about receiving the next newsletter! Keep them coming