Author Topic: Returns from Special Situation trades  (Read 41523 times)

LC

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Re: Returns from Special Situation trades
« Reply #10 on: July 18, 2019, 10:28:24 AM »
A little off topic, but how do you guys source your Special Situations ideas?

I do what my previous post mentioned: set up a RSS feed for 10-12 (spinoffs)/13E3 (going private)/SC-TO (tender offer) filings from EDGAR. You can also set up google news alerts for things like "spinoff".

As JayGatsby rightly points out, there is a learning curve to make sure you don't miss potential special situations.

Personally I look for a more hands-off approach so I don't invest in special situations anymore.
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BG2008

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Re: Returns from Special Situation trades
« Reply #11 on: July 18, 2019, 11:39:36 AM »
A little off topic, but how do you guys source your Special Situations ideas?

I do what my previous post mentioned: set up a RSS feed for 10-12 (spinoffs)/13E3 (going private)/SC-TO (tender offer) filings from EDGAR. You can also set up google news alerts for things like "spinoff".

As JayGatsby rightly points out, there is a learning curve to make sure you don't miss potential special situations.

Personally I look for a more hands-off approach so I don't invest in special situations anymore.

I have evolved this way as well.  I think it makes sense if you have a few analysts.  If you are a long term buy and hold.  By the time an event happens, you might have missed a 10 year 5 bagger.  I prefer to own the latter now because it is more tax efficient and allows me the luxury to develop my skillsets. 

oddballstocks

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Re: Returns from Special Situation trades
« Reply #12 on: July 18, 2019, 11:40:33 AM »
A little off topic, but how do you guys source your Special Situations ideas?

I do what my previous post mentioned: set up a RSS feed for 10-12 (spinoffs)/13E3 (going private)/SC-TO (tender offer) filings from EDGAR. You can also set up google news alerts for things like "spinoff".

As JayGatsby rightly points out, there is a learning curve to make sure you don't miss potential special situations.

Personally I look for a more hands-off approach so I don't invest in special situations anymore.

I have a similar answer.  I had a ton of RSS feeds from EDGAR, would be trawling through them daily.  The problem was I'd occasionally miss good things, and I wasted a LOT of time on weird stuff trying to find some edge.  The odd lot trade was awesome until it wasn't.  Spin-offs were awesome until they weren't.  Split-outs were awesome until they weren't...

Originally you could be terrible with timing and it'd work out.  You purchased some spin, sat then sold for a 35% gain.  Then the spins became garbage and you could do ok if you sat at the terminal and waited for a good print, then sat and waited for a good exit point.  It became too involved, I'd be trying to watch trading blocks to estimate when selling pressure was done, or if there'd be buying support.

Instead of a rich playing field too many of these became "look at the gain if you purchased at 2:37pm on Thursday the 5th and sold at 9:48am six months, two weeks and four days later. Otherwise you lost money."

I have this view that value investing is like pools of oil, you suck a pool dry and move on.  The trick is in most cases the pool isn't dry, it's just harder to get what's in there.  So eventually it makes sense to go back to the old pools, but you have to work harder than before.
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spartansaver

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Re: Returns from Special Situation trades
« Reply #13 on: July 18, 2019, 04:08:15 PM »
A little off topic, but how do you guys source your Special Situations ideas?

I do what my previous post mentioned: set up a RSS feed for 10-12 (spinoffs)/13E3 (going private)/SC-TO (tender offer) filings from EDGAR. You can also set up google news alerts for things like "spinoff".

As JayGatsby rightly points out, there is a learning curve to make sure you don't miss potential special situations.

Personally I look for a more hands-off approach so I don't invest in special situations anymore.

I have a similar answer.  I had a ton of RSS feeds from EDGAR, would be trawling through them daily.  The problem was I'd occasionally miss good things, and I wasted a LOT of time on weird stuff trying to find some edge.  The odd lot trade was awesome until it wasn't.  Spin-offs were awesome until they weren't.  Split-outs were awesome until they weren't...

Originally you could be terrible with timing and it'd work out.  You purchased some spin, sat then sold for a 35% gain.  Then the spins became garbage and you could do ok if you sat at the terminal and waited for a good print, then sat and waited for a good exit point.  It became too involved, I'd be trying to watch trading blocks to estimate when selling pressure was done, or if there'd be buying support.

Instead of a rich playing field too many of these became "look at the gain if you purchased at 2:37pm on Thursday the 5th and sold at 9:48am six months, two weeks and four days later. Otherwise you lost money."

I have this view that value investing is like pools of oil, you suck a pool dry and move on.  The trick is in most cases the pool isn't dry, it's just harder to get what's in there.  So eventually it makes sense to go back to the old pools, but you have to work harder than before.

Oddball, you said you "had" feeds and whatnot. What have you transitioned to?

I've been working on studying ideas that worked out, then attempting to reverse engineer how I might have found them in a more efficient manner. I think I am making a little headway, but I am still very early in this process.

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oddballstocks

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Re: Returns from Special Situation trades
« Reply #15 on: July 19, 2019, 05:50:08 AM »
A little off topic, but how do you guys source your Special Situations ideas?

I do what my previous post mentioned: set up a RSS feed for 10-12 (spinoffs)/13E3 (going private)/SC-TO (tender offer) filings from EDGAR. You can also set up google news alerts for things like "spinoff".

As JayGatsby rightly points out, there is a learning curve to make sure you don't miss potential special situations.

Personally I look for a more hands-off approach so I don't invest in special situations anymore.

I have a similar answer.  I had a ton of RSS feeds from EDGAR, would be trawling through them daily.  The problem was I'd occasionally miss good things, and I wasted a LOT of time on weird stuff trying to find some edge.  The odd lot trade was awesome until it wasn't.  Spin-offs were awesome until they weren't.  Split-outs were awesome until they weren't...

Originally you could be terrible with timing and it'd work out.  You purchased some spin, sat then sold for a 35% gain.  Then the spins became garbage and you could do ok if you sat at the terminal and waited for a good print, then sat and waited for a good exit point.  It became too involved, I'd be trying to watch trading blocks to estimate when selling pressure was done, or if there'd be buying support.

Instead of a rich playing field too many of these became "look at the gain if you purchased at 2:37pm on Thursday the 5th and sold at 9:48am six months, two weeks and four days later. Otherwise you lost money."

I have this view that value investing is like pools of oil, you suck a pool dry and move on.  The trick is in most cases the pool isn't dry, it's just harder to get what's in there.  So eventually it makes sense to go back to the old pools, but you have to work harder than before.

Oddball, you said you "had" feeds and whatnot. What have you transitioned to?

I've been working on studying ideas that worked out, then attempting to reverse engineer how I might have found them in a more efficient manner. I think I am making a little headway, but I am still very early in this process.

For hard to get stuff I purchased shares to get reports in the mail.  That's an edge you can't get online.

I also started to do a lot of manual work, would look at sites that you couldn't scrape daily for changes.  I used changedetector for a while too.

In some ways I just moved to different markets.  On an odd-lot you could make a grand at most except in very rare cases.  Now I'll trawl around, buy broken electronics, fix them and resell them, about the same margin.  I've done the same with weird and rare toys, find sellers who don't know the value and resell to collectors.  Margins and gains are very similar to odd lots, and it's a lot more fun.  In my office I have a stack of routers that were sold to me for $100 apiece that were "dead".  I fixed them and am currently unloading at $300-500 apiece.  Just like an odd lot, keeps me busy.
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oddballstocks

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Re: Returns from Special Situation trades
« Reply #16 on: July 19, 2019, 06:01:02 AM »
I guess the other thing on these special situations was I started to calculate the gain per hour spent researching.  This metric moved me away from them quickly.

You spend five hours looking at an odd lot tender that nets you $500, so $100/hr.  But to get that $500 you need to invest $6,250.  Alternatively you can invest $6,250 in some company that has the potential to appreciate 50% and pays a 3% dividend over two years.  So you get $375 in dividends and $3,125 in gains.  Maybe it takes 20 hours to research said company, that's $175 an hour.  But the math is skewed because in the odd lot you're limited to $500 structurally, whereas you can invest $12,500 and double your hourly rate, or invest $62,500 and 10x your hourly rate.

The best special situations (which aren't around anymore) were ones were you could invest in a scalable way and still scalp the 8-10% return.

Although at that point you're now competing with well funded professionals for the same positions.

It's a game of diminishing returns.

The best special situations are the ones that appear during a financial crisis or after when there isn't much liquidity.  I'll be looking for them again once we hit a crash, which probably won't be for another 30 years...ha!
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Rod

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Re: Returns from Special Situation trades
« Reply #17 on: July 19, 2019, 07:17:03 AM »
I've found I can do really well with special situations when I invent my own. Instead of looking at the same spinoffs everyone else is looking at I create my own "patterns". I've come up with about a dozen or so. For some of them I might be the only guy doing it. You can figure out some ideas yourself that you can apply to small, weird, and illiquid stuff. And it can work at pretty good scale for an individual investor. After all, someone had to come up with the spinoff idea. There are other ideas you can discover. It works in Canada anyway.

fishwithwings

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Re: Returns from Special Situation trades
« Reply #18 on: July 19, 2019, 10:35:53 AM »
I've found I can do really well with special situations when I invent my own. Instead of looking at the same spinoffs everyone else is looking at I create my own "patterns". I've come up with about a dozen or so. For some of them I might be the only guy doing it. You can figure out some ideas yourself that you can apply to small, weird, and illiquid stuff. And it can work at pretty good scale for an individual investor. After all, someone had to come up with the spinoff idea. There are other ideas you can discover. It works in Canada anyway.

Do you mind giving some examples?

Rod

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Re: Returns from Special Situation trades
« Reply #19 on: July 19, 2019, 11:06:06 AM »
I've found I can do really well with special situations when I invent my own. Instead of looking at the same spinoffs everyone else is looking at I create my own "patterns". I've come up with about a dozen or so. For some of them I might be the only guy doing it. You can figure out some ideas yourself that you can apply to small, weird, and illiquid stuff. And it can work at pretty good scale for an individual investor. After all, someone had to come up with the spinoff idea. There are other ideas you can discover. It works in Canada anyway.

Do you mind giving some examples?

One pattern I've used recently is something I call "Illiquid Arbitrage Pairs". Sometimes you can find two stocks that are economically equivalent and so should trade in tandem. Usually some computer arb will be at work trading these so there is no opportunity. But if one of them is extremely illiquid, the arbs don't get involved. I have one pair like this I follow and own because I think it's worth holding in it's own right, but once a year or so I get the chance to swap between them because they diverge and I can add about 10 extra percentage points to my return. I easily make 20 to 30% annually with this. And it can absorb a few hundred thousand dollars.

A few years ago there was a private golf club in Toronto where you could buy a membership for $10k while the land value per member was over $100k. The club ended up selling out to a developer. The pattern here is that cooperatively owned assets are sometimes mispriced. I look at every co-op situation I can find.

Another good pattern is extreme leverage. I mean 10 to 1 or more. The idea here is that when leverage is high enough the debt holder is starting to share in your downside, but they never share in the upside. The debt needs to be non-recourse, have a reasonable interest rate, and have at least a couple years left before maturity. The more volatile the asset the better. I know some people have talked about his idea here, but there are so many unique ways to apply it. I've found one in the stock market that I am not going to reveal because even if a few people started doing it the opportunity would disappear.

There are many, many different patterns you can come up with if you are a little creative.
« Last Edit: July 19, 2019, 11:08:41 AM by Rod »