We look for arbitrage opportunities where a certain stock, sector or asset class is trading at a significant discount to the intrinsic value. From time to time, we make bets against a certain stock, sector or asset class when a bubble is spotted. We believe that the market is not completely efficient and there should be an opportunity to beat the market. Although we prefer to make long-term investments, we seek to take advantage of particular circumstances involving a security in which we can profit rather quickly from a change of valuation as a result of a special situation. Special situations involve a large variety of corporate activities such as spin-offs, bankruptcies, liquidations, tender offers, mergers and acquisitions and management control disputes.
A good example of a special situation that would prompt our attention would be a large public company spinning off one of its smaller business units into its own public company. If the market deems the soon-to-be-spun-off company to have a higher valuation in its present form than it will after spin-off, we might buy shares in the larger company before the spin-off in an attempt to realize a quick price increase.
From time to time, we may apply “soft” shareholder activism; shareholder activism is an investment strategy by which we attempt to exercise shareholders’ rights to work constructively with management of a publicly-traded company in order to increase the company’s value, especially when the company’s stock is underperforming. Our shareholder activism requests may include:
- Increase in dividends or buyback of shares
- Increase in transparency by taking a board seat
- Spin-off or break up of a business unit/subsidiary