“You can make a pile of money investing in spinoffs.  The facts are overwhelming. Stocks of spinoff companies signficantly and consistently outperform the market averages. “

Joel Greenblatt, Founder of Gotham Capital, Generated 50% returns annually for over a decade

“Spinoffs often present attractive opportunities for value investors.”

Seth Klarman, Founder of Baupost Capital, Legendary Value Investor

“Carefully study spinoffs.”

Charlie Munger, Billionaire Investor and right hand man to Warren Buffet at Berkshire Hathaway

Stock Spinoffs: How to Pick the Winners

Ever since I read Joel Greenblatt’s “You Can be A Stock Market Genius” I have been fascinated with spinoffs.

For those that aren’t familiar, Joel Greenblatt is a certifed rock star in the special situations investing world. His hedge fund returned ~50% annually for 10 straight years.

In his book, Greenblatt makes a compelling case for investing in stock spinoffs. However, Greenblatt’s book was written in 1999. I wanted to see if spinoffs still outperform. So I reviewed all the spinoff studies that I could find…

Study #1
Penn State professors analyzed 174 spinoffs between 1965 and 1994. They found that spinoffs outperformed the S&P500 by 10% per year for the first three years after the spinoff date.

Study #2
Penn State professors analyzed 174 spinoffs between 1965 and 1994. They found that spinoffs outperformed the S&P500 by 10% per year for the first three years after the spinoff date.

Study #3
Penn State professors analyzed 174 spinoffs between 1965 and 1994. They found that spinoffs outperformed the S&P500 by 10% per year for the first three years after the spinoff date.

Study #4
Penn State professors analyzed 174 spinoffs between 1965 and 1994. They found that spinoffs outperformed the S&P500 by 10% per year for the first three years after the spinoff date.

Study #5
Penn State professors analyzed 174 spinoffs between 1965 and 1994. They found that spinoffs outperformed the S&P500 by 10% per year for the first three years after the spinoff date. They found that spinoffs outperformed the S&P500 by 10% per year for the first three years after the spinoff date.

Do all spinoffs outperform?

Not all spinoffs outperform. Just look at Orchard Supply (2012 spinoff from Sears) and Lone Pine Resources (2011 spinoff from Forect Oil), which both went bankrupt.

So I decided to review all the spinoff studies that have ever been published in order to answer the following question:

What are the pre-identifiable characteristics of spinoffs that go on to outperform?

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