B. Riley Financial, Inc. (RILY) is a company that we’ve followed for years and written about many times before, initially highlighting it in our September 2020 Special Situations Newsletter, and watching as the company’s stock went up by over 200%. Over time, we scaled back our B. Riley position, not due to concerns surrounding the company, but in order to free up capital for our April 2022 mid-month opportunity. We revisited B. Riley more recently after a short-seller report, and wrote the following in our February 2023 mid-month update:
The primary thesis of the Wolfpack Research report is that B. Riley’s portfolio of securities was significantly impacted in 2022 and that they believe that the company will report investment losses of up to $700 million in 2023, putting its dividend at risk and a potential collapse of the company. The firm relied on the company’s recent 13F filling to draw some of those conclusions.
There are a couple of issues with this approach. The 13F filing and its associated table of positions that you can view on EDGAR, only includes about $460 million of B. Riley’s positions and not the full $1.3 billion securities portfolio. The second issue is the performance of this portfolio and the expected performance in 2023.
While B. Riley took a large hit in 2022 on its investment portfolio and the kind of companies it holds are not the kind I would personally consider investing in, many of these companies have rebounded strongly off their lows and are up significantly so far this year both due to the January effect and the current market rally in anticipation of a soft landing. I reviewed every company on the 13F list where RILY holds a position of over $1 million and a majority of them have performed well year-to-date.
Ultimately, we found a plethora of issues with the short-seller report and chose not to scale back our position in B. Riley either in our personal portfolio or the model portfolio. However, as always, we recommend each individual investor take a closer look at the actual report and draw their own conclusions. What we did find interesting about the whole situation was not the short-seller report itself, but how B. Riley chose to deal with the situation, stating: