July has been a really busy month. I spent most of my time avoiding losing money and that was no easy feat in this market.
I closed July out with $12,044.13 in the Special Situations Real Money Port. Back in May, the account was worth $12,239.27. As you can see, I’ve lost a little bit of ground over the past two months. The account is down about $200 since May. However, that’s not too bad considering how the indexes have been dropping.
The good news is that I am still up 26.4% for the year. My internal rate of return (IRR or APY) is an impressive 24.2% since inception, which is exceeding my expectations for this account. To put it in simple terms, I’m up 50.6% on my investment of $8,000 ($2,000 each year since 2004).
Now let’s get to the details about what’s happened this month. In June, I was cashed out of Tribune (TRB) in a tender offer. That deal netted me $90.81 or a 2.8% return after all commissions and fees we taken into consideration. On an average annualized basis, that comes out to 26% for the the 39 days that I held Tribune. This is above my target annualized rate of return, so I was happy.
I took those proceeds from Tribune to purchase 199 shares of BNS Holding Inc. (BNSIA) for $11.75 per share. This position climbed up to $12.75 at one point as a lot of other individual investors started taking advantage of this opportunity. However, BNS Holding pulled a fast one on us. On July 27th, the company issued a press release indicating that it was instructing brokers to not provide for cash payouts to any stockholders holding shares of common stock in street name. Street name is the way shares are typically held if you are using a broker. I was totally caught off guard. I thought this was a done deal since the vote for the going private transaction was already successful and only a few days remained until the August 2nd date to effect the 1 for 200 reverse split. Since the Special Situations Real Money Port is a Coverdell ESA and only a few days remained before the reverse split was to occur, there was no way for me to register these shares in my son’s name in time. Shares of BNSIA plunged as all the street holders tried to sell. I ran into trouble selling my shares due to a technical issue and my busy schedule. I finally was able to sell some of my shares yesterday for $10.75 and I hope the remaining shares get sold for as much soon.
The Special Situations Real Money Port also had a position in Navigant Consulting (NCI). Navigant Consulting was conducting a dutch tender offer that gave preference to odd lot holders before any prorating if the deal was oversubscribed. I estimated that the Navigant Consulting tender would come in somewhere around the midpoint of the offer range of between $19.50 and $22.50. I bought my shares for $20.65, but I only picked up 85 shares on May 10th because the account ran out of cash. I made my tender conditional on the offer being greater than $20.75. Well, the deal came in at $20.50 so my shares weren’t tendered. Then the stock began to sink. By the time I realized that I didn’t want to be a long term holder of NCI I was only able to sell out at $19.50 per share. I lost $111.68 on that trade for being stupid. If I had been smart, I would not have made my tender offer conditional and I would have lost a lot less.
Now that I’ve gotten all that bad news out of the way, I have some excellent results to report about my investment in the Halliburton Co. (HAL) split-off of KBR Inc. (KBR). As you might remember, I bought 99 shares of Halliburton on March 13, 2007 for a total of $3,174.95. I opted to convert these shares to KBR shares in the split-off tender offer made at the time. On April 16th, I received 157 KBR shares for my Halliburton shares. I decided to hold on to this position for a bit since it seemed that the market was mispricing KBR. Sure enough, KBR shares climbed from the low twenties to a high of $36. I placed a stop order at $31 to lock in my gains. Last week when the market tumbled, my shares were sold for $30.90. The total proceeds from that sale were $4,843.80 after commissions. I had a net gain of $1,643.85 (adjust for a $25 tender fee). That’s a 51.8% return on my original investment! Given that it only took 135 days to earn this return, this comes out to a 139% average annualized rate of return for my Halliburton to KBR split-off investment. I can’t wait to find my next split-off opportunity.
If you too are looking for the next split-off opportunity, consider joining Fat Pitch Financials Contributor’s Corner. At Contributor’s Corner you will have access to the latest trades and holdings of the Special Situations Real Money Port. You’ll also have access to the latest going private transactions, odd-lot tender offers, spinoffs, and other special situation opportunities. The members of Contributor’s Corner are very active in the forum where the discussion even includes more traditional value plays in microcaps and Graham net-net stocks. Contributor’s Corner is so active because I reward members with 3 additional days of credit on their subscriptions for the latest updates on special situation opportunities. I’m amazed at how fast members of Contributor’s Corner report on changes and updates to special situation opportunities. It’s hard to beat the collective research of this motivated group for such a reasonable price.