Special Situations Investing

The Road Less Traveled: Special Situations Investing [Slides]

The Road Less Traveled: Special Situations Investing – Using Technology to Screen for Special Situations by Buckley Capital Partners

The Road Less Traveled: Special Situations Investing  – Introduction

  • Well-designed screens are a powerful tool to aid value investors in their search for bargains
  • Often allow you to identify opportunities overlooked by the rest of the market

— By spotting, researching, and investing in these before others, you can beat the market substantially over time

  • Today I will discuss companies I currently own or previously owned in order to highlight the investment opportunity and how I discovered it (keep in mind I did not always trade the companies as well as the charts indicate)

History of Technology Use

  • Investing has evolved greatly over the years

— 1930s: value investing is born as the Graham-Newman partnership buys ”net-nets”

— 1950s-70s: Warren Buffett continues the ”net-net” approach, using Moody’s stock guide to manually find opportunities

— 1962: Compustat launches first financial data source

— 1996: all SEC filings become available online

— Late 1990s: arrival of internet provides widespread access to free financial data

— Today: immediate information and advanced screening capabilities make finding ideas easier than ever before

Taking advantage of technological progress is now a critical tool to gaining an ‘edge’ over the market

Special Situation Screens

  • One particularly useful family of screens are special situation screens

— Generally search for a particular event rather than on traditional valuation metrics

— Technological advances have greatly reduced the legwork they involve

Special Situations Investing

Idea Generation

I think these types of screens can be particularly useful today with the market near all-time highs and many stocks approaching fair value

Special Situations Investing

Joel Greenblatt: Special Situation Guru

  • Joel Greenblatt

— Co-founder of the Value Investor’s Club and a past conference speaker

— Compounded capital at 50% per year from 1985-1994 largely by investing in special situations

“If you spend your energies looking for and analyzing situations not closely followed by other informed investors, your chance of finding bargains greatly increases. The Trick is locating those opportunities”

Today’s Opportunities

  • Several types of special situation opportunities (such as spinoffs and rights offerings) are discussed in Joel’s excellent book ”You Can Be a Stock Market Genius
  • I personally try to follow all special situations that I think will yield at least one good investment opportunity per year
  • Today I will discuss a variety of additional sources of opportunity within the special situation space

— Strategic Alternatives/M&A
— Activist Investors
— Insider Buying
— 13 D/G Filings
— Value Investor’s Club website
— Buybacks
— NT 10 Q/K
— Dutch Tenders
— Delistings

See full slides below.

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