Geoff Gannon April 20, 2006

On Special Situations

I don’t discuss special situations investing on this blog both because it is not my forte and because I don’t think special situations investing is something most readers are interested in.

However, investing in special situations can be very profitable. In fact, if not for its demands on time and temperament, special situations investing might be the best way for individual investors to put their money to work.

Unfortunately, the demands on time and temperament are real, and they do preclude most investors from successfully pursuing this strategy. Simply put, you have to be willing to put some extra time and effort into such investments.

There is an almost constant flow of possible opportunities. Like any kind of investing, you are going to have to say no a lot more often than you say yes. That isn’t a lot of fun for most people. In fact, many investors will not succeed in this area, simply because they will be too eager to do too much too quickly.

But, if you’re still interested in special situations investing, I’d recommend you do two things:

1. Read “You Can Be a Stock Market Genius” by Joel Greenblatt

2. Visit Fat Pitch Financials

Greenblatt’s book is a good introduction to special situations investing, because it discusses the topic in a way that will make sense to investors who have never considered this area before. There are some other books that treat select subjects in greater detail, but they aren’t the best place to start – this book is.

George of Fat Pitch Financials discusses some excellent special situations on his blog. There’s a membership access area that discusses current situations. But, if you just want to learn more about special situations investing, the free content at Fat Pitch Financials is more than sufficient. To give you some idea of what I’m talking about, here’s an excerpt from George’s most recent post:


As you might recall, I purchased AutoNation on March 31, 2006 for the Special Situations Real Money Portfolio. This was my first odd-lot tender offer opportunity that I’ve taken advantage of.


Odd-lot tender offers provide small individual investors a unique opportunity that the big boys don’t have. By owning less than 99 shares of the stock that is being tendered, my shares received preference in this tender offer since there was an odd-lot provision to the tender. The AutoNation Inc tender was very oversubscribed and most shareholders that tendered their AutoNation shares only had 26 percent of their shares cashed out. However, since I had an odd lot, my tender was not subject to being prorated. This presented a very nice opportunity.

Let me show how nice. I purchased 95 shares on March 31, 2006 for a total cost of $2,056.10. This morning I received $23 per share for a total of $2,160.00. My broker charged me a $25 dollar fee in addition since this tender was a voluntary action. My total profit was $103.90 or a 5.1 percent gain. That comes out to a 92 percent average annualized return for this 20 day investment!

Visit Fat Pitch Financials

Related Reading

Value Investing Encyclopedia: Joel Greenblatt