Mr. Market Blog "Investing is Most Intelligent When it is Most Businesslike"

17Jul/13Off

The Anatomy of a Special Situation

(First and foremost, @MRRobey deserves credit for initially finding the example below. I'd recommend following him on Twitter, and you can do so by clicking here)

Special situations continue to be an excellent way for small investors to pick up extra dollars for little risk or, if you're a larger investor, provide a convenient way to take your significant other out to dinner. All that's required is a little time, reading, and patience.

To show you what’s involved, I’ll be breaking down the case of Cellteck, INC. The key to finding these niche deals is to look for the words “reverse stock split” in filings. I have an alert setup through Edgar Online that e-mails me the filing when those words are used. With an alert setup, it will take only a few minutes every day to scan through what’s garbage and what’s not. Here’s what I saw with Cellteck:

Now this looks pretty good, right? At the time, you could have bought 1,999 shares for $29.98 and received a cash distribution of $49.97. Stop for a minute and think of how many Dilly Bars you can buy for $20:

However, it’s not time to celebrate yet, you still need to read the complete terms of what management is offering. So as we keep going down the filing we get to the entire of overview of what’s being offered:

AH-HA, now this is where it gets interesting. Here’s the key: “….by stockholders who each in aggregate own 2,000 or more shares of our common stock will be reduced in accordance with the exchange ratio of 1-for-800 (ie: Our 2001 shares would go down to 2.5 shares), except that any fractional share resulting from the selected exchange ratio for the reverse split will be rounded up to the nearest whole share (ie: ok now they’re going to take us from 2.5 to 3 shares), and any of these stockholders who would have less than 100 shares of common stock as a result of the reverse stock split will have their shares of common stock rounded up to a “round-lot” of 100.” (ie: bingo!)

Here’s what really happened in my personal account. On 1/18/13, I purchased 2001 shares for .015/share or $30.

Now comes the exciting part, waiting. We wait and wait and wait. In June, the shares go contra asset, split 1-for-800, and 2 shares land in my account under the new symbol EOPT. Whoa whoa, 2 shares? Aren’t you supposed to get 100? I am, but the new shares aren’t trading yet, so I figure there isn’t a reason to call my broker. On July 8th the shares finally round up to 100 and I sold them all for $5.00 or $500:

Which means I got paid $470 to read a document for 15 minutes and then hang out for 6 months. As they say, “It’s great work if you can find it.”

Generally a healthy dose of skepticism exists about these little deals when I tell people. Most people don’t understand why these types of things exist so they assume something is wrong with the thesis and end up doing nothing. I’ve come up with two plausible reasons for their existence:

1. People are lazy and they don’t like to read documents
2. Many feel these tiny deals won’t “move the needle” for their portfolio

A hedge fund manager, who was presenting to Bruce Greenwald’s class, once made the best argument I’ve ever heard for taking advantage of these special situations. He took out a crisp $20 bill, showed it to the students, and then proceeded to say, “If I throw this $20 bill on the ground right now and walk away, how many of you aren’t going to pick it up?” The class was silent.

Whether you decide to start searching these small inefficiencies out is up to you, but I quite enjoy them. If nothing else, they let me buy a nice bottle of wine from time to time.

7Apr/13Off

This American Life: Trends with Benefits

Recently, This American Life on NPR aired a very intriguing episode about Americans on disability. It's worth an hour of your time.

3Feb/13Off

Buffett vs Schloss

Unbeknownst to many, a great investment battle raged during the 1960s between two future greats. Buffett bested his old co worker every year except one.

18Jan/13Off

NPR Planet Money – A Billion-Dollar Bet Against Weight-Loss Shakes

http://www.npr.org/blogs/money/2013/01/18/169719749/episode-431-a-billion-dollar-bet-against-weight-loss-shakes

Quote from Ackman, "I'm rich already. I don't need this. This is a moral obligation."

Herbalife, a company that sells weight loss shakes, vitamins and other similar products, is worth billions of dollars. The company has been around for more than 30 years, and it's traded on the New York Stock Exchange.

Bill Ackman thinks the whole thing is a pyramid scheme.Not surprisingly, Herbalife disagrees.

Ackman manages a hedge fund that has shorted more than a billion dollars' worth of Herbalife stock. If the stock falls — and Ackman says he thinks it will fall all the way to zero — the fund will make money.

On today's show, we talk to Ackman and to Herbalife. And we consider what it means when an investor bets that a company will fail

18Jan/13Off

Walter Schloss Returns

From his memoirs:

18Jan/13Off

Price: Pent Up Demand of Consumers, Businesses

18Jan/13Off

Floats and Moats

18Jan/13Off

Vitaliy Katsenelson Workflow

16Dec/12Off

John Malone Interview

Joe Magyer from The Motley Fool (@Magyer) talked about this John Malone interview on Wednesday during Motley Fool Money. I ended up watching it tonight and enjoying it, so I thought I would share.

12Dec/12Off

Hilarious Bill Ackman interview

Classic. I personally love when he keeps rolling through the outro music.