Gator Micro Cap Portfolio
Manager's Commentary
December 31, 2009

The Gator Micro Cap Portfolio (GMC) had solid performance during the 4th quarter of 2009.  GMC gained 11.9% versus a loss of 0.47% for the Russell Micro Cap Index during the same time period.  The performance was driven by outstanding performance of Bringham Exploration and PMI Mortgage.  We made a few transactions and share our rationale below:

10/19/2009 - Purchased Penn Millers Holdings - We purchased Penn Millers at $10.34.  Penn Millers is a property-casualty insurance company.  The company recently demutualized at a compelling valuation.  We purchased shares at 55% of book value.  We believe the company will benefit from improved earnings as it deploys the capital raised in the demutualization.  As the earnings power of the company becomes evident, we believe the shares will get revalued to a higher multiple of book value.

10/19/2009 - Sold First Advantage - We sold First Advantage at $10.31.  We needed cash to fund our purchase of Penn Millers and thought First Advantage was one of least compelling holdings in the portfolio. 

11/5/2009 - Sold Western Sizzlin - We sold Western Sizzlin at $14.31 due to its pending merger with Steak N Shake.  We were going to receive Steak N Shake shares and a subordinated note from Steak n Shake.  We already owned Stake N Shake in the portfolio, and we were concerned about the liquidity of holding the subordinated note, so we sold our shares prior to the merger closing. 

11/5/2009 - Purchased Mastech Holdings - We purchased Mastech Holdings at $4.84.  Mastech is a staffing company.  It was spun-off from iGate in early 2009.  We believe the stock is cheap and has upside to an improving employment market.  The company has $2 per share of cash on its balance sheet and no debt.  The company is profitable as it ewarned 39 cents in 2009.  This puts the valuation (ex-cash) 7x earnings. 

11/27/2009 - Purchased Two Harbors Investment - We purchased Two Harbors at $9.00.  Two Harbors is a recently formed mortgage REIT.  We believe the management team has a solid track record of creating value in the mortgage-backed securities market through the recognition of pockets of frelative value.  We purchased the stock at a slight discount to book value and believe that the stock will get revalued higher once the company pays a few quarters of dividends.

11/27/2009 - Sold theStreet.com - We sold the theStreet.com at $2.36 because we were concerned about an accounting issue at the company.  Based on our past experience, we felt it was better to conserve capital an exit the position rather than wait for the resolution of the issues.

11/27/2009 - Purchased Edgar Online - We purchased Edgar Online at $1.43.  Edgar Online traditionally provided subscription services to help investors access the SEC filings database more easily.  The company has a new rapidly growing division which helps companies with their SEC filings.  This division is growing rapidly and is the current leader in the segment.  We think it could produce value for the company overall.

11/27/2009 - Trimmed Bringham Exploration - We trimmed our position in Bringham at $10.55.  The position became too large compared to the overall portfolio.  It continues to be our largest holding.

12/18/2009 - Purchased Citizens Republic - We purchased Citizens Republic at $0.605.  We view citizens as a well-capitalized Michigan-based bank.  Because, it is trading at 40% of tangible book value, we felt it was compelling.

12/18/2009 - Sold Valley Financial - We sold Valley Financial at $3.44 to fund our purchase of Citizens.  Although we still think the bank is a good value, we believe they do not have access to additional capital if they need it later in the credit cycle.

12/31/2009 - Purchased Sharps Compliance - We purchased Sharps Compliance at $9.81.  We like the comapny's business model of selling consumables to small testing labs and doctors offices.

12/31/2009 - Sold United Financial Bancorp - We sold United Financial at $13.18 because we wanted to reduce the percentage of the portfolio invested inf inancial services companies.

Stocks Driving Quarterly Performance

Arlington Investment was up 55% during the quarter.  The company invests in non-agency mortgage-backed securities.  the recovery in pricing for these securities drove the company's book value higher.

Bringham Exploration was strong again this quarter with a gain of 49%.  The company continued to show promising results from its drilling in North Dakota and continued to resolve its financing issues on terms favorable to shareholders.

Archived Commentary

September 20, 2009 Commentary