You can be a stock market genius book summary
- After purchasing 6-8 stocks in different industries, the benefit of adding more stocks to decrease
risk is small
- overall market risk will not be eliminated by adding more stocks
Basics:
- do your own work
- don't trust anyone over 30
- don't trust anyone 30 or under
- pick your spots
- don't buy more stocks, put money in the bank
- look down, not up (margin of safety)
- there's more than 1 road to investment heaven
- corporate events to look out for: spinoffs, mergers, restructuring, rights offerings, bankruptcies,
liquidations, asset sales, distributions
- invest in what you know and understand
Spinoffs:
- institutions don't want it (and their reasons don't involve the investment merits)
- insiders want it
- A previously hidden investment opportunity is created or revealed
-rights offering with spinoff (oversubscription privilege is a bargain)
- check out the motives of insiders
Risk Arbitrage and Merger Securities
- opportunity in merger securities (bonds,preferred stocks or other securities offered to sweeten the
merger deal)
Bankruptcy and Restructuring
- for bankruptcy, stick to companies with strong market niche, brand name, franchise or industry
position
- don't buy common stock of bankrupt companies. Look for new issues that just came out from
bankruptcy
- corporate restructuring. Selling off major businesses to stop losses, pay off debt or focus on
promising business
- look for limited downside, attractive biz to restructure, and well incentivized management team
- magnitude of restructuring must be significant relative to size of total company
- invest in a situation after major restructuring has been announced, or invest in a coy that is ripe for
restrucuting
Reacpitalization and Stub Stocks, Leaps, warrants and options
- recaps: issue bonds to lever and distribute cash to shareholders
- stub stock: the stock after the recap
- invest in the stub stock to make money
- look for leveraged spinoffs instead as recaps are not common now
- create your own stub stocks with LEAPS calls
- warrants are issued by underlying company and can have maturity dates more than 2.5 yrs
- use options with spinoffs, corporate restructuring, merger
- buy options that expire several weeks or several months after spinoff is done
- in restructuring or stock mergers, the date of significant cash distribution or date of sale of assets
can correspond to significant stock movements
- in mergers, if acquisition is paid with stock, closing date of merger can be catalyst for major price
moves
Where to get ideas
- michael price focus on value and special situation, look at those holdings which is close to his avg
purchase price
- Marty Whitman of 3rd avenue
- Richard Pzena: good for LEAPS ideas, check his 3 or 4 largest holdings
- 10k (annual report), 10Q (quarterly report)
- executive remuneration, stock options found in proxy statement (schedule 14A)
- Form 8k for corporate events
- Form S1 to S3 are for issuing new securities
- Form S4 for securities being distributed thru merger or exchange offer, etc
- Form 10: for spinoff info
- Form 13D: substantial shareholdering
- Form 13G: Institution shareholders
- Schedule 14G-1: tender offer statement
- schedule 13E-3 and 13E-4: going private transac