Special Situations Real Money Port on Fire

The Special Situations Real Money Portfolio has been on fire since I last made an update on April 27, 2006. My compound annual growth rate has rocketed from 23.5 percent to 33.6 percent APY now. If I am able to sustain this rate of return, the performance of this portfolio would be up there with Warren Buffett’s performance. However, I know full well that as the funds in this portfolio increase, it will be harder and harder for me to maintain this performance level.

My recent trade in Eupa International (EUPA) stock was the best one day return I have ever achieved. Eupa International was a perfect example of where preparedness and opportunity meet to achieve extraordinary success. Eupa International filed a going private transaction statement with the SEC on June 1, 2006 indicating that they are planning to take their company private by potentially cashing out all shareholders holding less than 9,999 shares for $0.40 per share. When I first looked up Eupa International, it was trading in the low teens. I quickly submitted a trade order and I knew that I had a winner when I got 5,000 shares for $0.18. However, I had no idea that in just one day that the shares would jump up so quickly. With a rapid climb to over $0.30 per share, I realized that I had more too loose than to gain by hanging on to my shares any longer, so I sold. I made a net profit of 76 percent in less than one full day! If the price of Eupa International drops and they issue a definitive proxy regarding their going private plans, I might even buy this stock again.

For the first time, the Special Situations Real Money Port participated in an odd lot tender offer. Odd lot tender offers are a special form of a tender offer where a company buys back a certain amount of stock for a certain price range and then provides a preference to shareholders owning less than 99 shares who are willing to tender all their shares under the offer. The odd lot preference then ensures that odd lot holders will have all their shares cashed out even if the tender offer is oversubscribed resulting in the tender offer being prorated. I purchased 99 shares of DWS Global Commodities (GCS), a closed end fund after I discovered it was planning to pay out 98 percent of net asset value (NAV) to participants in its tender offer and the offer included an odd lot preference. GCS was a successful special situation transaction for me. I made a net total return of 6 percent in just over fifty days for an average annualized return of 45 percent.

Not everything went totally smoothly though. I speculated on the recent Engelhard Corp (EC) tender offer that was issued to counter a BASF bid to take over the company. When I discovered that there would not be an odd lot preference for Engelhard’s offer, I sold my shares for a slight loss. However, if there was an odd lot preference for the $45 per share tender that Engelhard was offering, I would have made an excellent return. Oh well, this opportunity did not go my way. I can’t imagine what my internal rate of return would be now if I did get to tender all of my Engelhard shares for $45. I don’t believe I made any mistakes on this trade, but the odds just didn’t work in my favor.

As you might have noticed, I am trouncing the market by just about any index or benchmark you can think of. Special situations provide great insulation from market volatility and their returns are not correlated to market indexes. If you are interested in following these opportunities, you might be interested in gaining access to Fat Pitch Financials Contributor’s Corner. I provide details to all the going private transactions, odd lot tender offers, spinoffs, and even other opportunities that I or other members discover. You will also receive timely updates of trades in the Special Situations Real Money Portfolio as a member of Contributor’s Corner.

The details of the transactions in the Special Situations Real Money Portfolio as of June 9, 2006 are as follows:

Transaction History

Date

Action

Quant.

Description

Symbol

Price

Amount

06/08/06

Fee

1

DWS GLOBAL COMMODITIES

GCS

$1.00

-$25.00

06/08/06

Cashout

99

DWS GLOBAL COMMODITIES

GCS

$18.88

$1,868.63

06/02/06

SOLD

5,000

EUPA INTERNATIONAL

EUPA

$0.32

$1,593.00

06/01/06

Interest

 

Money Market Fund

 

 

$9.16

06/01/06

BOUGHT

5,000

EUPA INTERNATIONAL

EUPA

$0.18

-$906.95

05/19/06

BOUGHT

99

CUMULUS MEDIA INC

CMLS

$10.99

-$1,094.96

05/08/06

SOLD

99

ENGELHARD CORP

EC

$38.15

$3,769.78

05/01/06

Interest

 

Money Market Fund

 

 

$7.34

04/26/06

BOUGHT

99

ENGELHARD CORP

EC

$38.78

-$3,846.17

04/19/06

BOUGHT

99

DWS GLOBAL COMMODITIES

GCS

$17.46

-$1,735.49

04/19/06

Fee

95

AUTONATION INC

AN

 

-$25.00

04/19/06

Cashout

95

AUTONATION INC

AN

$23.00

$2,185.00

04/17/06

Cashout

1,600

PVC CONTAINER CORP

PVCC

$2.39

$3,824.00

04/17/06

Dividend

200

CENTRAL FEDERAL CORP

GCFC

 

$18.00

04/03/06

Interest

 

Money Market Fund

 

 

$5.27

03/31/06

BOUGHT

95

AUTONATION INC

AN

$21.57

-$2,056.10

03/28/06

Cashout

999

MAJOR AUTOMOTIVE CO

MAJR

$1.90

$1,898.10

03/08/06

BOUGHT

1,600

PVC CONTAINER CORP

PVCC

$2.31

-$3,702.95

03/01/06

Deposit

 

CONTRIBUTION 2006

 

 

$2,000.00

03/01/06

Interest

 

Money Market Fund

 

 

$4.50

02/06/06

Cashout

1,999

TOUCHTUNES MUSIC CORP

TTMC

$0.50

$999.50

02/01/06

Cashout

99

JB OXFORD HOLDINGS INC

JBOH

$2.96

$293.04

02/01/06

Interest

 

Money Market Fund

 

 

$5.11

01/25/06

BOUGHT

999

MAJOR AUTOMOTIVE COS

MAJR

$1.60

-$1,605.35

01/17/06

Dividend

200

CENTRAL FEDERAL CORP

GCFC

 

$18.00

01/12/06

Cashout

1,999

REFOCUS GROUP INC

RFCG

$0.35

$699.65

01/03/06

Interest

 

Money Market Fund

 

 

$3.88

12/27/05

Cashout

499

FRAGRANCENET COM INC

FGNT

$0.97

$484.03

12/07/05

BOUGHT

1,999

TOUCHTUNES MUSIC CORP

TTMC

$0.42

-$846.53

12/05/05

BOUGHT

99

JB OXFORD HOLDINGS INC

JBOH

$1.90

-$195.05

12/05/05

BOUGHT

1,999

REFOCUS GROUP INC

RFCG

$0.28

-$566.67

12/01/05

Cashout

85

LYNCH INTERACTIVE CORP

LIC

$29.94

$2,544.49

12/01/05

Interest

 

Money Market Fund

 

 

$0.10

11/01/05

Interest

 

Money Market Fund

 

 

$0.79

10/14/05

Dividend

200

CENTRAL FEDERAL CORP

GCFC

 

$18.00

10/10/05

BOUGHT

85

LYNCH INTERACTIVE CORP

LIC

$25.70

-$2,191.45

10/07/05

Cashout

900

COLOR IMAGING INC

CIMG

$1.10

$990.00

10/06/05

Cashout

300

MERCURY AIR GROUP INC

MAX

$4.00

$1,200.00

10/03/05

Interest

 

Money Market Fund

 

 

$0.70

09/07/05

BOUGHT

900

COLOR IMAGING INC

CIMG

$0.90

$816.95

09/01/05

Interest

 

Money Market Fund

 

 

$2.19

08/29/05

SOLD

1,700

REFOCUS GROUP INC

RFCG

$0.35

$587.02

08/23/05

BOUGHT

300

MERCURY AIR GROUP

MAX

$3.45

-$1,042.95

08/02/05

Cashout

99

BESTWAY INC

BSTW

$13.00

$1,287.00

08/01/05

Interest

 

Money Market Fund

 

 

$0.45

07/22/05

BOUGHT

1,700

REFOCUS GROUP INC

RFCG

$0.25

-$432.95

07/18/05

Dividend

 

CENTRAL FEDERAL CORP

GCFC

 

$18.00

07/12/05

Cashout

1,990

CAPITOL FIRST CORP

CFRC

$0.18

$355.41

07/01/05

Interest

 

Money Market Fund

 

 

$0.03

06/24/05

Interest

 

Money Market Fund

 

 

$0.03

06/16/05

Interest

 

Money Market Fund

 

 

$0.51

06/13/05

Interest

 

Money Market Fund

 

 

$0.03

06/07/05

BOUGHT

499

FRAGRANCENET COM

FRGN

$0.58

-$297.37

05/16/05

Interest

 

Money Market Fund

 

 

$0.50

04/18/05

Interest

 

Money Market Fund

 

 

$0.44

04/15/05

Dividend

 

CENTRAL FEDERAL CORP

GCFC

 

$18.00

03/16/05

Interest

 

Money Market Fund

 

 

$0.44

02/16/05

Interest

 

Money Market Fund

 

 

$3.45

02/14/05

BOUGHT

200

CENTRAL FEDERAL CORP

GCFC

$12.39

-$2,485.95

02/07/05

BOUGHT

99

BESTWAY INC

BSTW

$11.01

-$1,102.94

02/01/05

BOUGHT

1,990

CAPITOL FIRST CORP

CFRC

$0.12

-$251.75

01/21/05

Deposit

 

CONTRIBUTION 2005

 

 

$2,000.00

01/18/05

Interest

 

Money Market Fund

 

 

$0.96

01/03/05

Interest

 

Money Market Fund

 

 

$1.38

12/08/04

Cashout

425

ASA INTERNATIONAL

ASAA

$5.00

$2,125.00

11/16/04

Interest

 

Money Market Fund

 

 

$0.27

10/22/04

BOUGHT

425

ASA INTERNATIONAL

ASAA

$4.55

-$1,946.70

10/19/04

Deposit

 

CONTRIBUTION 2004

 

 

$2,000.00

Current Holdings

Date

Quant.

Description

Price

Amount

06/09/06

 

Cash

$1.00

$5,665.95

06/09/06

99

CUMULUS MEDIA

$11.71

$1,159.29

06/09/06

200

CENTRAL FEDERAL CORP

$7.70

$1,540.00

 

 

 

 

$8,365.24

Performance

Since inception on October 19, 2004, the rate of return for the Special Situations Real Money Portfolio has been 33.6% APY.

6 thoughts on “Special Situations Real Money Port on Fire

  • June 12, 2006 at 8:33 am
    Permalink

    Those are pretty good returns, but it’s also a lot of trading. Have you accounted for transaction fees and tax impact of your short term cap gains when you list a 33% APY?

  • June 12, 2006 at 8:54 am
    Permalink

    TJT, all transaction fees have been accounted for in the list of transactions (amounts were taken straight from my broker’s online account history) and also in determining my rate of return. Since the Special Situations Real Money Port is in a Coverdell Education Savings Account (similar in nature to a Roth IRA, except it is for educational expenses), there are no tax costs if future distributions from the account are not more than my son’s adjusted qualified education expenses for the year according to the IRS. The account can compound tax free, and it is very likely that the distributions will also be tax free as well. I highly recommend this type of account for people who qualify.

    Thanks for those great questions. Let me know if you have any further questions.

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