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Subject:  Re: observation Date:  11/22/2006  6:54 PM
Author:  DawdlingRamblr Number:  81 of 120

I can see where you can make an argument that spinoffs are becoming more mainstream and are not easy pickings. However, look at WU, H, WYN, CAR, AMP, there was ample opportunity (over the course of a couple of weeks, not quite ample but sill an an opportunity), which I didn't take advantage of by the way, to scoop up those stocks. I haven't looked at all of these or all the ones you mentioned. Looking at a parent, AXP, you could have bought around $53 or less up until August or so, months after they spunoff AMP. According to, that's the average cost at which Greenblatt himself was adding to his position. He's up about 12% since then. Don't forget that Lynch also recommended spinoffs in his book when he lists the characteristics of great stocks/companies.

Some, like HBI, IAR, etc. took off from the beginning. I think that there has been a lot of interest in spinoffs lately, particularly in the companies that have been involved. In my MBA classes, they have been talking a lot about how it's important to focus your busines. Spinoffs are one way to achieve that focus. It could be a fad, or it could be the way of the future. Regardless, spinoffs seem to be getting more attention. The way I look at it is there's bound to be other spinoffs where not every one is watching and there's even more selling pressure. For example, I don't think any of the recent spins could be classified as small cap stocks. I think that's where you'll really see a lot of mutual funds dumping indiscriminately, as long as the parent is a large cap, of course. I've seen articles (too tired to dig them up at the moment) that have stated that small cap spinoffs tend to perform better than larger spinoffs overall.

A slightly different opportunity may be the following...

On, one of the articles talked about how one of the opportunities is to wait for the spinoff stock to not perform as well as the market expects right away, and then buy after the initial disappointment. Greenblatt himself says that you typically have around a year to buy a spinoff because it takes that long for the company's new structure and more focused incentives to take effect. He indicates that spinoffs tend to outperform in the second year. Look at DISCA, it's just bounced between $13.50-$16 for a year and a half. There's other issues at work there as well, but up until recently, you could have bought the stock at the same price John Malone bought about a year ago.

All that to say, I still think there are opportunities in spinoffs, bankruptcies, and other special situations. Will you always be able to take advantage of them? No. Should you even try to figure them all out? No. Figure out the ones you can, buy when opportunities present themselves, and don't fret about the ones that don't take a dive right away. Watch those for a while, however, because something good may happen.

One of my favorite lines from Greenblatt's book is "Pick your spots." So IAR and ACV and others jumped before we could take advantage of them. So what? There'll be other opportunities, some of which we might be smart enough to take advantage of. That's not to say that it doesn't annoy me when I think a stock should drop and it doesn't, but there's nothing I can do about it.

I often hear people quoting Warren Buffett's line about being able to make a lot of money in the difference between the market being efficient all the time and being efficient most of the time. I think this is one of those cases. A lot of people know spinoffs tend to outperform the market. We're looking for those times when they have their doubts or they have to sell/want to sell for one reason or another and we recognize the opportunity that they don't see or don't have the time/desire to see.

I apologize for rambling on and on, but what do you expect from a guy with my screenname? I also apologize for not backing this up with references to particular page numbers, articles, etc. but it's been a long month, and I'm worn out.

Have a Happy Thanksgiving!


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