The Special Situations Real Money Portfolio hit a rough patch in June. The portfolio ended the month with a balance of $14,854.79. This is down 4% from what I reported as the June 6th Special Situations Real Money Port balance.
Two main issues came up in June. First, I got greedy with my new shares of Lorillard Inc (LO). When I received shares of Lorillard from the split-off of Loews (L), Lorillard was trading at $72.45. It looked like the shares might climb higher, but Mr. Market had other ideas. Lorillard dropped to $67 per share at the end of June and is now trading around $68.
The second issue that came up this past month was with an odd lot tender offer. I bought Sunstone Hotel Investors (SHO) with the intension of making a quick profit by tendering 99 shares of this stock. However, Sunstone Hotel Investors lowered their tender offer range significantly prior to the tender offer expiration date. Even though odd lot tender offers appear fairly risk free, there is still a small risk that the tender offer will be repriced down or called off completely. I decided not to tender my shares since I thought SHO might trade up above the lowered tender price after the tender offer and/or when the market settles down. So far this has been a very bad call. SHO continues to trade lower almost every day. Even though I know that I should sell when my reason for buying no longer remains, my emotional self continues to fail me. Hopefully, I’ve finally learned this behavioral finance lesson this time around.
The year-to-date return for the Special Situations Port is -6.87% as of the market close on June 30, 2008. Sadly, last month’s recovery for the portfolio was temporary. The portfolio’s overall internal rate of return has dropped back down to a respectable 18.03% since inception. The total return for this portfolio is still 48.55%.
Disclosure: I own shares of Lorillard Inc (LO) and Sunstone Hotel Investors (SHO). I do not currently own Loews Corporation (L).