A few days ago, I posted the link to a Reddit collection of Q2 investment letters. Many of these letters plus some others in my opinion are good inspirations to lok for new ideas. With less time available for me to create “original” ideas, I mentioned some time ago that I will use these letters much more to find interesting cases than in the past.
Inittially, I wanted to create my private “to do”list of companies that I want to look at. The criteria for selcting ideas is quite subjective.
However in order to leverage my readership, I decided to create a post with my selected “stolen ideas” and hope for some constructive feedback from my readers. Here is the list what I found interesting and why.
Selected ideas from Q2 letters:
Choice Equities: Par Technology
Interesting case of a “sum-of parts” company with a SaaS business hidden behind other stuff
Tweedy: BASF
One of the better managed German companies. Cyclical but potentially good opportunityin a real economic downturn. Business is hard to disrupt
Alta Fox: Keyword Studios
Interesting business model (outsourcing of Video Game prodcution) and European based company. Expensive but potentially very interesting.
The subtitel claims that the book explains” Venture Capital and How to get it”. It is written by Scott Kupor, “employee Nr. 1 ” of Andreesen Horrowitz (A16Z), one of the most famous newer VC firms in Silicon Valley (Sand Hill Road is a street in Silicon Valley where many famous VCs have their offices).
Merger Masters, written by Kate Welling and supported by Mario Gabelli is a book similar to Jack Schwagers “Market Wizards” series, portraying some famous investors.
In this case the focus is on investors who are active mostly in the Merger Arbitrage Business, Some guys are very well known like John Paulson, Paul Singer or guy Wyser-Pratte but from other guys, who keep a low profile, most invetsors might have never heard of.
Personally I wish this book would have been written long ago and that I head read it long ago. It really offeres a very comprehensive view into this relatively arcane world of arbitrage investing with some very suprising insights.
It is also clear that there is not ONE recipe to be successful as an Arb. For instance the question on when to sell when a deal breaks divides these guys into two groups: Some of them say the only way is to sell directly after the news whereas others say that you should never sell directly but wait for a better price. Other notable differences are levels of concentration, use of leverage and if hostile deals are part of the universe or not.
I was also surprised on the depth of fundamental analysis that most of these guys seem to be doing before entering into a deal, at least they claim to do so.
What makes the book really special and even better than the Market Wizard series is the fact that there is also space for the “other side”, CEOs who have fought the Arbs in hostile deals an ultimately won. Most interesting was the story about the take over attempt of Airgas by Air Products which is described in very good detail and how Airgas Managment ultimately won although the odds were highly against them.
The content is clearly US centric, however I think most of the mentioned rules etc. can be applied internationally.
Summary:
Overall, the book is extremely well written and offers a unique deep insight into the M&A arbitrage world. There is a lot of content in the book and I think I have to read it at least a second time to digest all of it.
Overall I can recommend the book highly to any investor, because sooner or later one will be involved in such a situation. For “special situation” investors this book is a MUST. For me clearly one of the best investment books that I have ever read.
value and opportunity 