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
