The Record Date Myth: Why Most Investors Miss Out on Spin-offs for No Reason There's a question I get all the time from investors who are new to spin-offs. It usually sounds something like this: "I saw this spin-off coming and thought the setup looked really interesting — but I missed the record date. I [...]
My Favorite Special Situations Investors to Follow One of the most common questions I get asked is, “Who are the best people to follow for special situations ideas?” In this article, I will share my favorites. I intend to update this article periodically because 1) I know I will forget a few people and 2) [...]
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 [...]
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 [...]
“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, [...]
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 [...]
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 [...]
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 [...]
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 [...]
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 [...]
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. [...]
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, [...]
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 [...]
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 [...]
How to Invest in Biotech (without being a specialist) I know many investors who don’t invest in certain sectors because they require specialized expertise. A few of the most common examples: Financials Energy Biotech And there is definitely something to be said for staying within your circle of competence. But for better or worse, [...]
Learn This BEFORE You Start Trading Options When it comes to options trading, there’s literally an ocean of disparities in what different traders bring in terms of their technical, theoretical and practical knowledge. Because there are scant barriers to entry, you have a market where hedge funds using algorithmic trading software programmed by Math and [...]
How Long Will the Bear Market Last The U.S stock market has been brutal in 2022. Through the first two quarters of the year, the S&P 500 is down 20%. While the market is up slightly in July, it’s not much of a consolation. We are in a bear market, and it doesn’t feel good. [...]
10 Rules for Spin-off Success I've been investing in spin-offs for the past 15 years and have learned many lessons. How'd I learn them? Mainly, the hard way! But today I'm sharing those lessons so you don't have to make the same mistakes. #1. Forget that “spin-offs outperform” In aggregate, they generally will but [...]
Buffett On Inflation Over The Last 50 Years There have been four key times when Warren Buffett has given his insights on inflation in Berkshire Hathaway's annual reports since the 70s. 1979 - After explaining that Berkshire’s book value compounded 20.5% annually for the previous 15 years, Buffett comments: “But before we drown in [...]
Spin-offs In The 1950s Maurece Schiller was one of the first investors to write about special situations investing. In 1959, he wrote the book “How to Profit from Special Situations in the Stock Market”. After leaving Dartmouth, Schiller went to Wall Street to work as an investment advisor. He began studying the way corporate actions [...]
Value Investing Q&A Series - Brown University Earlier this year, I had the opportunity to talk about spin-offs (and answer questions) with members of the Value Investing community at Brown University. It was a lot of fun! What we covered: My background (0:57) Why I focus on spin-offs (1:49) What resources would I recommend [...]
How Peter Lynch Beat The Market Peter Lynch is known as one of the best stock pickers of all time. At Fidelity’s Magellan Fund, he averaged an astonishing 27.9% return over the course of 13 years. He also was a notorious fan of spin-offs. Here's what Lynch looked for when picking stocks. Look for [...]
How to Short a Spin-off Before It Begins Trading I love spin-offs (shocker, I know). The main reason is that the indiscriminate selling pressure associated with spin-offs allows me to buy bargains. Why do spin-offs sell off when they begin trading? Seth Klarman of the Baupost Group explains why this dynamic exists in Margin [...]
Why You Need to Use Twitter I’ve wanted to write this article for a while. I delayed it time and again because I wanted to add more material. But I figure I will just publish this version, and then update the article over time. From 2006 to 2018, I worked at a large investment manager [...]