How to Profit from “Demerger Arbitrage” One popular special situation category is merger arbitrage. In merger arbitrage, an investor buys the stock of a company that is in the process of being acquired. The investor profits when the acquisition closes. Let’s take a recent example. On September 5, 2024, Verizon (VZ) announced that it has [...]
Talking Spin-offs with James Early Last week, I had the opportunity to talk spin-offs with James Early. Here's what we covered: 1:09: My quick autobiography and how I got interested in spin-offs 3:31: Difference between spin-offs, split-offs, and equity carve outs 6:36: How do you know a good spin-off from a bad one? 12:49: [...]
Joel Greenblatt Explains Options Prices You probably know my favorite investment book is Joel Greenblatt’s You Can be a Stock Market Genius. In chapter 3, Greenblatt dedicates a glorious 61 pages to investing in spin-offs. I’ve read it many times and will probably read it many more times in the future. But an underrated part [...]
Spin-off Mailbag: Do you trade “when issued” spin-offs? Recently, a subscriber asked me about trading in the when issued market. Specifically, he wrote the following: “I’m looking at Seaport Entertainment (SEG) trading in the when issued market. Do you ever establish a position in the when issued market or do you just wait for the [...]
3 Spin-offs with Insider Buying One factor that I closely follow in the spin-off universe is insider buying. Here’s what Peter Lynch wrote about insiders and spin-offs in One Up on Wall Street: [Spin-offs] are a fertile area for amateur investors…….A month or two after the spinoff is completed, you can check to see if [...]
What’s the Big Deal? I’ve been a bit perplexed by the recent market decline…. Given I published an article last week titled Why the Small Cap Rally is Just Getting Started, you can safely assume that I did not see the market swoon coming. But it happened. Let’s step back to understand why the market [...]
“Is the Small Cap Rally Just Getting Started?” Over the long term, small cap stocks have outperformed their large-cap peers. According to data from 1936-2023, small cap stocks outperformed their large cap peers by 285 bps annually on average. But over the last ten years, the large cap index has dominated…. And as a result, [...]
How Mohnish Pabrai Made 30x his Money in Turkey Mohnish Pabrai is one of my favorite investors to follow. Not necessarily for his investing insights, but more because he’s a great story teller. I love listening to him talk about entrepreneurship, marketing, and psychology. He was recently interviewed on How I Made My First Million [...]
Buy Medexus Pharma (MEDXF) Market Cap: $34MM Price: $1.38 Price Target: $4+ Upside: 189%+ Summary Medexus Pharma (MEDXF) truly represents an asymmetric opportunity. The stock trades at 2x FCF and 5.2x EBITDA. Does the company have a lot of debt? No! Its net debt to EBITDA is currently 2.2x and will be 1.5x by the [...]
3 High Conviction Buys From China In May, I attended the Berkshire Hathaway annual meeting for the first time. It was awesome. A bit of a circus / cult gathering? Yes. But it was quite fun to be part of the circus. I loved listening to Buffett ramble on for 8 hours answering shareholder questions [...]
Is There an Opportunity in LSXMA?? In December ‘23, Liberty finalized a plan to merge Liberty Sirius tracking stocks with Sirius XM Holdings (SIRI). The merger was announced to collapse a ~39% discount that existed at the time between the various stocks. Under the terms of the agreement, Liberty Media's Liberty SiriusXM tracking stock group [...]
The Founding of a Spin-off Machine Danaher (DHR) is one of the best performing stocks of all time. The stock has compounded at 21% per year for four decades. That works out to a 1,800x multiple on invested capital. 🤯 Since 2016, Danaher has spun off 3 separate public companies and has become a life [...]
Spin-off Links - May 2024 By my count, there have been 7 new US spin-off announcements in 2024. Meanwhile 4 new spin-offs have started trading in the US YTD. Performance as measured by the S&P Spin-off ETF (CSD) has been quite strong with a YTD total return of 12.7% comparing favorably to the SPY. This [...]
Off to Omaha I generally hate to travel for work. It’s exhausting, and I miss my kids. It also puts 100% of the child care burden on my lovely wife. So I generally don’t travel. But occasionally, I make an exception. This week is one of those exceptions. And I couldn’t be more excited. Tomorrow [...]
Turo: The Next Airbnb? One of my favorite stocks is IAC Inc (IAC). It’s a holding company with many different ownership stakes. To value IAC, you need to do a sum-of-the-parts analysis (SOTP). Investment cases built on SOTP valuations are tricky because you don’t know when/if value will ever be unlocked. As such, they can [...]
What will happen to Atmus Filtration (ATMU) after the exchange concludes? One situation that I’m closely following is Cummin’s (CMI) spin off of Atmus Filtration (ATMU). The situation is/was a fun one to watch because there was an “odd lot” arbitrage. In a nutshell, there was an opportunity to make a low risk $2k. The [...]
How to Buy Your Favorite Stock at a Discount One of my favorite strategies for adding to a favorite stock is by selling puts. When you sell a put, someone is paying you cash today to buy a stock below its current price. What’s the catch? You must genuinely want to own the stock and [...]
Spin-off Mailbag: How do you get in touch with Investor Relations? One of the reasons that I love investing in small and micro-cap companies is that generally it’s easy to get in touch with management and/or investor relations. But sometimes, investor relations is hard to track down. Today, I’m going to walk through the specific [...]
A “SOTP” Horror Story Sum-of-the-part or SOTP analysis is a key tool that I use when analyzing a spin-off. Most conglomerates trade at a “conglomerate discount” and so SOTP analysis can be useful to understand if a spin-off will create value. However, SOTP analysis cannot be followed blindly. I just published a case study on [...]
Spin-off Mailbag: Why Don’t Investors Short All Spin-Offs? I got a great question in my Twitter DMs related to shorting spin-offs.... Here's my answer: First, it’s hard to short spin-offs right when they come out. Typically, no shares are available to borrow from my broker (Schwab) so shorting is challenging (maybe some brokers are better?). [...]
Spin-off Calendar Danaher (DHR) spun off Veralto Corporation (VLTO) on September 30. You can read my deep dive on Veralto here (paywall) Aramark (ARMK) spun off its uniform services business, Vestis (VSTS) on Sept 29. You can read my deep dive on Vestis here (paywall) On October 2, 2023, Kellogg (K) spun off WK Kellogg (KLG) in a tax-free transaction. You can read my notes here. On October 4, Novartis (NVS) spun off Sandoz [...]
Spin-off Links - October 2023 There has been a TON of spin-off activity. Let’s get right into it…. New Spin-off Announcements On September 21, 2023, W. P. Carey (WPC) announced that it will exit the office assets within its portfolio. It will sell 87 office properties and put another 59 into a new company which [...]
Seth Klarman Special Situations Investing Case Study Seth Klarman, famous value investor and CEO of Baupost Group, was recently interviewed on the “Capital Allocators” podcast. It was a terrific interview, and I recommend listening to the full conversation. Today, I want to highlight a case study that Klarman walked through. I LOVE case studies. [...]
Talking Spin-offs with Schroders The Value Perspective I recently had the opportunity to talk spin-offs with Juan Torres Rodriguez, host of The Value Perspective. I had a blast! Here's what we covered: 3:02: My Background 7:28: What is Special Situation Investing? 11:38: What are the main challenges of investing in special situations? 15:24: Special [...]
3 Biases to Avoid as a Special Situations Investor I was recently interviewed for a podcast, and the host asked me about behavioral biases. Specifically, the host asked: What are the behavioral biases most commonly found around special situation investing? For me, the 3 most relevant biases are: Disposition Effect Overconfidence Effect. Consistency Bias. Today, [...]
Joel Greenblatt Podcast Joel Greenblatt is my favorite investor. He specializes in special situations and generated 50% annual returns for a decade. Whenever he’s interviewed, I drop everything and listen in. Greenblatt was recently interviewed on the Investor’s Chronicles podcast. The whole interview is interesting, but my favorite section was towards the end when the [...]
Spin-offs Links - May 2023 It’s been a busy five months in the spin-off world. Let’s get right into it…. Recently Announced Spin-offs On May 18, 2023, Alibaba (BABA) announced that it will be spinning off its Cloud Intelligence Group in the next 12 months. This follows the company’s March 28 announcement of a large [...]
5 Ways That I Use BamSEC One of my favorite investing tools out there is BamSEC. Here are the 5 ways that I use it: 1) Let's start with spin-offs.... Months before it starts trading, a spin-off will file a Form 10 with all its historical financial information. A Form 10 is similar to a [...]
Updated Spin-off Calendar Star Holding (STHO) was spun off of iStar (STAR) on Friday, March 31. You can read my thoughts here. Imminent Spin-offs: 1) Crane Co (CR) will be spun off from Crane NXT on Monday, April 3. You can read my notes here. 2) Madison Square Garden Entertainment (MSGE) will spin off Sphere Entertainment Co (SPHR) on April 20. You can read my notes here. Want a printable spin-off calendar? Here you go: Upcoming Spin-off Calendar [...]
Warren Buffett and Spin-offs Warren Buffett, the world’s greatest investor, has a complicated history with spin-offs.On the one hand, he’s made a lot of money investing in them.But he would never spin off a Berkshire subsidiary unless forced to by regulators.And I have to say, I agree with his seemingly contradictory approach.Let’s dig into his approach [...]