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Special Situations Investing

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DelayedInvestor
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Special Situations Investing

#318398

Postby DelayedInvestor » June 14th, 2020, 9:21 pm

Does anyone on here have any experience with special situations investing? In particular, I'm talking about things like merger arbitration, spin-offs, recapitalisation etc.

I've recently finished 'You can be a stock market genius' by Joel Greenblatt and he describes various situations where the smaller investor can profit by taking advantage of the way institutional investors behave during events like spin-offs. Essentially, he argues that by reading through the submitted documentation for these corporate actions one can spot good value bets that institutional investors avoid. However, the book was written in the late 90s so I'm wondering if similar situations crop up now.

My own personal hunch is that the market inefficiencies that produced these situations in the 90s have dried up now in the same way as merger arbitration went from being a good way of making a profit in Ben Grahams day to a risky enterprise by the time Greenblatt was trying it.

Any thoughts or opinions welcome.

Alaric
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Re: Special Situations Investing

#318405

Postby Alaric » June 14th, 2020, 9:43 pm

DelayedInvestor wrote:I've recently finished 'You can be a stock market genius' by Joel Greenblatt and he describes various situations where the smaller investor can profit by taking advantage of the way institutional investors behave during events like spin-offs..


Greenblatt is presumably writing in the context US Company law and practice, so whatever ideas he proposes may not work in a UK context.

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Re: Special Situations Investing

#318418

Postby DelayedInvestor » June 14th, 2020, 10:54 pm

Alaric wrote:
DelayedInvestor wrote:I've recently finished 'You can be a stock market genius' by Joel Greenblatt and he describes various situations where the smaller investor can profit by taking advantage of the way institutional investors behave during events like spin-offs..


Greenblatt is presumably writing in the context US Company law and practice, so whatever ideas he proposes may not work in a UK context.


True, enough. There'll be different regulatory requirements and the like in the UK - one of the key points was that details had to be submitted to the SEC. However, as far as I'm aware most of the situations he described could still be accessed by a UK investor. The question of whether or not such situations exist in the UK too is another one entirely though..

kempiejon
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Re: Special Situations Investing

#318419

Postby kempiejon » June 14th, 2020, 10:58 pm

DelayedInvestor wrote: However, as far as I'm aware most of the situations he described could still be accessed by a UK investor. The question of whether or not such situations exist in the UK too is another one entirely though..

And is it that you say they do?

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Re: Special Situations Investing

#318549

Postby DelayedInvestor » June 15th, 2020, 1:21 pm

kempiejon wrote:
DelayedInvestor wrote: However, as far as I'm aware most of the situations he described could still be accessed by a UK investor. The question of whether or not such situations exist in the UK too is another one entirely though..

And is it that you say they do?


Sorry kempiejon, I'm not sure I follow your question. If you're asking whether I think that special situations exist in the UK then I think the answer is they might, but I wouldn't really know. Like I was saying in my original post I'm not entirely sure if these situations continue to exist anywhere, I just thought that someone on these boards might have some experience in this area.

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Re: Special Situations Investing

#318556

Postby kempiejon » June 15th, 2020, 1:54 pm

DelayedInvestor wrote:
kempiejon wrote:
DelayedInvestor wrote: However, as far as I'm aware most of the situations he described could still be accessed by a UK investor. The question of whether or not such situations exist in the UK too is another one entirely though..

And is it that you say they do?


Sorry kempiejon, I'm not sure I follow your question. If you're asking whether I think that special situations exist in the UK then I think the answer is they might, but I wouldn't really know. Like I was saying in my original post I'm not entirely sure if these situations continue to exist anywhere, I just thought that someone on these boards might have some experience in this area.


Yes that is exactly what I was asking, do these situations exist and how often does apparently spotting them pay off profitably in the end. I'm not sure obvious price differentials do exist in spin offs. The argument that institutional investors avoid potential profits sounds a bit spurious - but I've not read the book nor looked at Greenblatt's method.

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Re: Special Situations Investing

#318591

Postby DelayedInvestor » June 15th, 2020, 3:49 pm

kempiejon wrote:I'm not sure obvious price differentials do exist in spin offs. The argument that institutional investors avoid potential profits sounds a bit spurious - but I've not read the book nor looked at Greenblatt's method.


Yes, on the surface it does seem counter-intuitive. However, Greenblatt's point is that there are a range of reasons that an institutional investor mightn't want to hold onto the spin-off holdings that they would receive as holders of the parent stock: The spin-off's capitalisation will be too small, the business model of the spin-off will be outside the institutional investors purview, the spin-off involves assets that the institutional investor isn't interested in like warrants, preferred stock etc. And, of course, whenever an asset is being sold for any reason other than it's inherent value it's worthwhile taking a look.

The other point to note regarding spin-offs is that they do seem to have a habit of outperforming the market.

It's worth noting that this isn't all academic from Greenblatt's perspective either. His returns from the period when he was following these strategies were pretty spectacular. So he was either very long odds lucky or he managed to spot some pretty big inefficiencies.


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