Thursday, April 27, 2006

Another Blog To Look At

A blog that I have been reading since I first started 6 months ago is George at

I think it is a great blog for new investor like me. I especially like the weekend reading posts where George will suggest some reading material for the weekend.

One of the things George has is a paid subscription to analysis of special situations (going private transactions, odd lot tenders, mergers, etc…if your are not familiar with the terms used I recommend reading up at George’s website…or buying Joel Greenblatt’s first book I have linked on the right here…also

just posted on specials situations).

I think this part of George's blog provides a lot of value to new investors.

This is not to say that I feel you need to pay for the paid service (although I think it is worth it) my point is that thinking about special situations is a good think…here is why from my point of view.

Long term "value" investing takes a lot of patience...I mean you find a mis-priced company with good fundamentals and see that it is going to be a great investment but it might take 4-6 years to reflect that in the stock price....human nature what it is you want to be able to see some near term result while you Buffett says that why there is no rush to value investing…it just goes against normal human thought of thinking in the relative short-term and receiving a reward sooner than later.

The pressure to perform and do something in the interim can best be described this way:

Year 1-- Wife: so how is the stock we bought doing? Steven: Good it’s at $10 and we bought at $9.90.

Year 2--- Wife: so how is the stock we bought doing? Steven: Good it’s at $10. Wife: HMMM you should sell.

Year 3--- Wife: so how is the stock we bought doing? Steven: Good it’s at $10.05. Wife: HMMMMMMMM..Why have you not sold like I told you???

Year 4--- Wife: So how is the stock we bought doing? Steven: Good it’s at $30 Wife: Finally!!!...good thing you did not sell like YOU wanted to.


But with special situations...the pressure to do something in the near term is blown off by doing something in the short term that carries with it a good return with acceptable risk...

Year 1 Q1 Wife: How are the stocks doing? Steven: Good we made $129.34 on a $1,500 investment. Wife: Cool...results.

Year 1 Q2 Wife: How are the stocks doing? Steven: Good we bought at $1k and made $89.26 Wife: Cool. Results.

Etc...You get the point. Pressure to do something both external and internal is the true enemy of the long term investor.

So even if you only get 10% a year (or more or less) from special situations...the true value is that they feed the human desire to demonstrate short term results....which saves you a lot of money by helping to prevent stupid decisions with the larger long term commitments.

Now some of us have the discipline and confidence to make a long term investment and roll with it…others do not. My point is for those people who need to do something in the short-term...special situations may provide a good way to do that. With that said they may not be right for everyone and might only compromise a small part of your portfolio. Read Gannon's blog on the subject. Geoff usually has a great rationale as to why or why not something makes sense when investing, not saying he is right or wrong, just that he makes you think which is all I am looking for.

If you need an easy way to think about special situations and how they might relate to long term value investing...try this...

Many of use can stand to lose some weight. ..and we know that if we eat right…and exercise…over the next 3-6 years we should be able to lose that unwanted 20 pounds…but the prospect of not having any chocolate cake (insert your weakness here) for two or more years is unrealistic because eventually human nature mean you will binge and eat a whole cake…lol you will revert to the

but if you allow yourself a little piece here or there. Than the odds of sticking to the overall goal increase…

Fro me that's long term value investing with special situations. Special situations help avoid the binge and purge that might affect long term goals. Are there pros and cons...sure...but I am talking with repsect to how it may help you with dealing with the emotinal component of investing (I have have seen my worst enemy.... and it is me).