2011 was a challenging year, especially for fellow investors and website owners. The long hoped for economic recovery hasn’t really materialized yet. Web ad sales have been terrible and interest in stock market blogs was flat at best.

Thankfully, the portfolios I track for Fat Pitch Financials did pretty well in 2011.  The flagship Fat Pitch Financials Port that I track at Marketocracy returned 5.98% last year. Since inception, it is up 56.58% or 6.35% annualized. The Special Situations Real Money Portfolio had a rough year, but it was still able to return 7.14% in 2011. Since inception, the Special Situations Real Money Portfolio is 187.7% or 25.4% annualized! Finally, the Workouts model at Covestor recovered nicely in the last quarter of 2011, so it was able to return 9.51% in 2011. Since inception, it is up 7.07% or 6.01% annualized (Edit: Workout model numbers updated with end-of-year results). My hope that in 2012 I will start attracting some subscribers to the Workouts model now that it is starting to outperform the market.

I plan on kicking off 2012 with a return to fundamentals. I recently finished reading Quantitative Strategies for Achieving Alpha by Richard Tortoriello. My favorite investment tool, StockScreen123 also just upgraded its backtesting function to include dividends in returns, four new benchmarks that include dividends (total returns), and a new screening function for examining stock splits. I’m planning to combine what I learned in Tortoriello’s book with the new features of StockScreen123 to create a series of posts that examine how well the fundamental ratios most watched by value investors performed over the past decade. My end goal is to create a Ted Williams style strike zone chart that will show me when to swing for the fat pitch stocks in 2012.

Thankfully, the Special Situations Real Money Portfolio has produced a total return of 221.95% since inception back in 2004. The annualized rate of return to date is still a healthy 23.63%.

Special situation opportunities have been exceedingly hard to find. Many of the available deals have been of lower quality and higher risk variety. I am hoping things will turn around soon.

Balance: $38,633.48
IRR: 23.63%
Return: 221.95%
YTD: -5.69%

More importantly, the Special Situations Real Money Portfolio returned 25.94% in 2010. I was very please with that performance. However, my 2010 performance was significantly lower than the 50 percent return in 2009.

Since the inception of this portfolio back in October of 2004, I’ve generated a 224.7% total return on my investment.  The compound annual growth rate since inception was 29.73% as of December 31, 2010.  I’m still very close to the 30.75% annualized rate of return that I reported on at the end of 2009.  It’s amazing to think what size this account could grow to in ten years at this pace.  That’s when I’ll start to draw down this Coverdell Education Savings Account to pay for my son’s college education.

This portfolio ended with $9,961.49 in cash on December 31, 2010.  I picked up three new positions in December and I was cashed out of one holding.  That holding was 99 shares of Validus Holdings LTD (VR).  I bought those 99 shares of Validus back on November 12, 2010 for $29.49.  Those shares were tendered for $30 a share on December 15, 2010 and I had to pay a $25 fee associated with voluntarily tendering those shares. After commissions and fees I only eked out a 0.63% return.

I also collected a dividend associated with Fremont Michigan Insuracorp (FMMH) and and interest payment for my Biglari Holdings (BH) redeemable subordinated debenture.

If you would like to learn more about my past trades in this portfolio and review its current holdings, consider subscribing to Fat Pitch Financials Contributors Corner.

Disclosure: At the time this article was posted, I did not hold shares of Validus Holdings LTD (VR). However, I own shares of Fremont Michigan Insuracorp (FMMH) and Biglari Holdings redeemable subordinated debentures.

As you probably recall, the Special Situations Real Money Portfolio is actually my son’s Coverdell Education Savings Account that I set up on October 19, 2004 as an experiment. I wanted to see if an individual investor could earn stable returns from special situations and arbitrage opportunities similar to the opportunities Benjamin Graham called “stock workouts.” The experiment has been a huge success and was the motivation for me to create my premium service, Fat Pitch Financials Contributors Corner. It also inspired me to launch a Workouts model at Covestor this past month.

Year-to-date the Special Situations Port is up 20.74% as of the market close on November 30, 2010.  That is still dramatically better than the S&P 500 return over the same period. Over the long run, I expect the Special Situations Real Money Portfolio to continue to outperform.

Since the inception of this portfolio, my total return is now 211.29% as of the end of the third quarter of 2010. The compound annual growth rate for the Special Situations Real Money Portfolio is a rock solid 29.20%, and it has been around this number for many months now.

In November, I sold 2,000 shares of Presidential Realty Corp. B (PDL.B) for $2.20 per share. I originally bought these shares on September 1, 2010 for $1.80 because the company plans to liquidate its assets, which the company valued at approximately $2.25 per share. I netted $706.03 on that trade, which comes to a 21.74% return.

On November 12, 2010, I was also cashed out of the 700 shares of Alloy Inc. (ALOY) that I held in this portfolio when ZelnickMedia completed its merger with Alloy. I originally picked up those shares for $9.48 per share on August 11, 2010.  That netted me $217.05, which comes out to a 3.27% return.

On November 15th, I sold half my position in China Techfaith Wireless (CNTF) at $4.15 per share.  I originally bought shares on this company on July 23, 2010 at $3.00 per share.  I bought those shares based on the fact that China Techfaith was trading at less than two thirds of its net asset value at the time. That trade generated just over a 38% return.

Finally on November 29, 2010, I was cashed out of the 500 shares of Bowne & Co Inc (BNE) held in the Special Situations Real Money Portfolio when this merger opportunity was cashed out at $11.50 per share. I also received a dividend on November 16th. I bought those 500 shares on September 30, 2010 for  $11.32. My net return on this position was 2.2%.

I also bought a new position in a tender offer opportunity and I added to merger arbitrage position. However, I still had $14,020.02 in cash to use in case any other new opportunities became available. To learn about those new stocks and all my past trades consider subscribing to the Fat Pitch Financials Contributors Corner premium service.

Year-to-date the Special Situations Port is up 25.62% as of the market close on October 29, 2010.  That is still dramatically better than the S&P 500 return over the same period. Over the long run, I expect the Special Situations Real Money Portfolio to continue to outperform.

Since the inception of this portfolio, my total return is now 223.87% as of the end of the third quarter of 2010. The compound annual growth rate for the Special Situations Real Money Portfolio is a rock solid 30.88%, and it has been around this number for many months now.

The Special Situations Real Money Port only had $192.82 in cash at the end of October 2010. The only position I closed out in October was Sunstone Hotel Investors Inc. (SHO).  I sold 108.41637 shares at $10.51 on October 26, 2010. I had originally bought 99 shares of Sunstone Hotel Investors on June 2, 2010 at $19.45 per share.  Sunstone was conducting a tender offer at the time. During the tender offer the company amended the tender offer price range lower. The revised price range was below my purchase price, so I decided not to tender. That ended up being a mistake. This trade resulted in a 41.4% loss. I held on to the stock way too long hoping at first that the high dividend would offset the loss, but the dividend was converted to a stock dividend shortly after the tender offer. Then with the real estate continuing to decline this year, there was little chance that this stock would recover. I should have sold when the special situation opportunity ended.

Fat Pitch Financials Portfolio Returns

The table above indicates that the Fat Pitch Financials Portfolio has returned 40.04% since inception.  I launched this paper portfolio back in September of 2004 on Marketocracy with a virtual starting balance of $1 million and a per share value of $10. I created this paper portfolio shortly after I started the Fat Pitch Financials blog as a way my readers could track my stock picks.  My annualized return since inception is 5.58%, out-pacing the S&P 500 annualized return over the same period by 2.77%.

ALL RANKINGS FOR Fat Pitch Financials Portfolio Date 1 Month 3 Months 6 Months 1 Year 2 Year 3 Year 4 Year Dec 31, 2004 N/C N/C Mar 31, 2005 N/C N/C N/C Jun 30, 2005 N/C N/C N/C Sep 30, 2005 N/C N/C N/C N/C Dec 31, 2005 N/C N/C N/C N/C Mar 31, 2006 N/C N/C N/C N/C Jun 30, 2006 N/C N/C N/C N/C Sep 29, 2006 N/C N/C N/C N/C N/C Dec 29, 2006 N/C N/C N/C N/C N/C Mar 30, 2007 N/C N/C N/C N/C N/C Jun 29, 2007 N/C N/C N/C N/C N/C Sep 28, 2007 N/C N/C N/C N/C N/C N/C Dec 31, 2007 N/C N/C N/C N/C N/C N/C Mar 31, 2008 64.8% N/C N/C N/C N/C N/C Jun 30, 2008 77.6% 13.9% 38.2% N/C N/C N/C Sep 30, 2008 74.4% 79.9%  56.3% 97.7%  N/C N/C N/C Dec 31, 2008 32.0% 25.9% 54.5% 48.3% N/C N/C N/C Mar 31, 2009 64.8% 16.5% 14.5% 23.6% N/C N/C N/C Jun 30, 2009 98.1% 94.8%  77.3%  77.4%  N/C N/C N/C Sep 30, 2009 2.2% 25.6% 84.3%  41.3% 93.9%  N/C N/C Dec 31, 2009 82.8% 94.7%  69.2% 78.3%  79.2%  N/C N/C Mar 31, 2010 85.2% 91.7%  98.1%  94.6%  82.5%  N/C N/C Jun 30, 2010 1.6% 3.3% 19.5% 41.1% 70.6% N/C N/C Sep 30, 2010 94.7% 96.7%  40.4% 90.9%  75.5%  97.1%  N/C

N/C = “Not Compliant”, and means Fat Pitch Financials Portfolio wasn’t compliant for that period. A blue star means Fat Pitch Financials Portfolio was in the top 100 funds for that period. A green star means Fat Pitch Financials Portfolio was in the top 25%. The numbers above are the percentage of compliant funds that Fat Pitch Financials Portfolio beat in the given time period, unless it was in the top 100 for that period, in which case the number displays your rank.

The Fat Pitch Financials Port is currently outperforming 97.1% of all the compliant funds on Marketocracy over the past three years. Given how difficult market conditions have been over the past three years, I’m pretty proud of my performance.

Fat Pitch Financials Holdings (November 30, 2010)

In addition to the $1,140,834.27 worth of stocks held at the close of the market on November 30, 2010, the Fat Pitch Financials Portfolio currently has $263,561.46 in cash with which to invest in new opportunities.

Fund Positions by Style

As you can tell from the table above, the Fat Pitch Financials Portfolio continues to hold primarily value stocks with 84% of holdings classified as value. Of those stocks, 50% are considered large cap stocks and the remaining 50% are smaller cap stocks. The Fat Pitch Financials Portfolio does not favor any particular market cap category. However, given the value oriented nature of this portfolio, I expect that over time we will likely hold a higher percentage of smaller market cap stocks versus larger cap stocks given that market inefficiencies tend to happen more frequently in smaller market cap stocks.

There were no trades in November to report, but I continue to search for new fat pitch opportunities.

Disclosure: At the time this article was posted, I owned positions in all the stocks mentioned.

The Fat Pitch Financials Portfolio closed on October 29, 2010 with a value of $1,442,813.31. This paper portfolio started out with an even $1 million in 2004.  The portfolio held $266,056.00 in cash and $1,176,757.31 worth of stock at the end of October 2010.

Fat Pitch Financials Portfolio Returns

Fat Pitch Financials Holdings (October 29, 2010)

October Trades

On October 11, 2010 I sold all 6,710 shares of Destination Maternity Corp (DEST) at an average price of $33.13 per share. That position returned 49.48% since I first bought Destination Maternity Corp shares  on July 26, 2007.

Disclosure: I own all the shares mentioned in this article at the time it was posted except Destination Maternity Corp. (DEST).

Workouts Model Summary

This unique model invests in workouts. Workouts are special situations where a corporate event sets the future value of a security. Such events include mergers, tender offers, going private transactions, liquidations, and the like. This model will take advantage of these arbitrage opportunities without using margin or short positions. The Workouts Portfolio will build upon the success of the Special Situations Real Money Portfolio.

Research

Workout opportunities are often difficult to find and track. Fat Pitch Financials searches securities filings and financial media reports daily for corporate events that may lead to investment opportunities. Those workout opportunities are then recorded and tracked in Fat Pitch Financials Contributors Corner database. Those special situations are then examined for risk factors and potential investment value.

Allocation Discipline

The Workouts model will typically hold between 5 and 15 positions depending on the number of workouts currently available. To some degree positions will be weighted by their risk adjusted probable return.

Sell Discipline

Most positions will be closed when a workout is completed and cash is paid out to shareholders. On occasion, a position will be sold before the completion of the workout if the market price approaches the workout value and a better opportunity exists. Positions will also be sold if the corporate event generating the special situation is canceled or drastically modified.

Exceptions

Depending on market conditions this model also may invest in deeply discounted stocks that are trading below their estimated liquidation value on the assumption that either the stock’s price will recover or a corporate action will be taken, such as a liquidation to return value to shareholders. The model may also occasionally exploit value opportunities that result from stock price declines following the canceling of a merger deal or other such event.

The Workouts model will differ a bit from the Special Situations Real Money Portfolio. Trading will be restricted in the following ways to allow for mirroring accounts:

• Market capitalization must be greater than $50 million
• Average daily trading volume must be greater than 10,000 shares
• Minimum time between counter trade (i.e. buy/sell) in same security 15 minutes
• No additional deposits will be added

Subscribe to the Workouts Model

Please share news of the new Fat Pitch Financials Workouts investment model with friends, family and colleagues that may be interested in a more passive way to invest in special situations. You can follow the Workouts model for free to get a weekly summary of the latest trades and performance.

For a limited time, Fat Pitch Financials will throw in a free one year subscription to our Contributor’s Corner special situations research service and investment community to new model subscribers. To subscribe to the Workouts model at Covestor, there is a $5,000 minimum and the fee is 1.50% of assets. Just contact me with proof of your new subscription to an account mirroring the Workouts model, and I’ll set you up for a one year free subscription to Fat Pitch Financials Contributors Corner.

While I was happy to see that my Special Situations Port was up 2.9% in September, that performance lagged the S&P 500 last month.  The S&P 500 was up a whooping 8.9% last month. According to Standards & Poor’s, large-cap issues posting their best September gain (+8.76%) since September 1939 (+16.46%), with 47% of the stocks posting double-digit gains.

Year-to-date the Special Situations Port is up 24.50% as of the market close on September 30, 2010.  That still dramatically better than the S&P 500 return of 3.9% over the same period. I expect that while the major indices may surge on news of an economic recovery, the Special Situations Real Money Portfolio will under perform. However, over the long run, I expect the Special Situations Real Money Portfolio to continue to outperform. This is basically the tortoise versus the hare situation. Slow and steady arbitrage opportunities will likely still beat out growth investing over the long haul.

Since the inception of this portfolio, my total return is now 220.98% as of the end of the third quarter of 2010. The compound annual growth rate for the Special Situations Real Money Portfolio is a rock solid 31.27%, and it has been around this number for many months now. I think there are very few other bloggers that are reporting such high returns for a real portfolio as far back as 2004 as I have.

September was a pretty busy month for the Special Situations Real Money Portfolio. The month started off on a positive note as I received $38.00 per share for the 99 shares Caseys General Stores Inc (CASY) $38.00 that I tendered back in August.  I bought those 99 shares on August 11, 2010 for $37.81.  I ended up with a net loss of $13.14 on that tender offer. I was hoping that this Dutch auction tender offer would have come in closer the the $40 upper end of the offer range. However, the tender offer was oversubscribed and came it at the minimum offer price of $38.00. In retrospect, I probably should have required a larger margin of safety on that deal, but there was slim pickings among the available opportunities at the time.

Then on September 3rd, I sold 1,000 shares of Southwest Water Co. (SWWC) for $10.99 per share. I originally picked up the 500 shares of Southwest Water on April 12, 2010 at $10.46 per share and then I followed up with another purchase of 500 shares at $10.38 on May 19. 2010. My net return on this merger arbitrage trade came to 5.26%. If I annualized those transactions, the internal rate of return comes to 16.07%. That’s a pretty good return for a fairly low risk merger arbitrage opportunity.

On September 15th, I was cashed out of an odd lot tender offer position in WebMD Health Corp (WBMD) for $52.00 per share. I bought those shares for $50.93 on August 26, 2010. That tender offer netted the portfolio a 1.5% return.

I reinvested those returns on 900 Occam Networks (OCNW) on September 16, 2010. I bought those shares for $7.16 per share. I was a bit hasty in placing my order, so I didn’t realize that the offer Occam Networks was not an all cash offer.  I quickly decided to sell these shares since I discovered this error in my reasoning.  Luckily, I was able to sell those 900 shares of Occam for $7.29 on September 24, 2010 and was able to net a 1.6% return.

Finally, I bought 500 shares of Bowne & Co. (BNE) at $11.05 per share on September 22, 2010, and then I bought another 500 shares at $10.88 on September 23rd.  The price of BNE shares rose dramatically on September 30th, so I decided to sell half my position at $11.32 per share.  I plan on retaining the remaining 500 shares until Bowne & Co. shares are bought out at $11.50 or the price of the shares gets real close to that price.

The Special Situations Real Money Port has $15,178.42 in cash at the moment. The current market conditions are making it difficult to find reasonable returns in tender offers and merger arbitrage opportunities. Given that the portfolio is only up 24.5% year-to-date and the difficult market conditions for special situations, I don’t expect to be able to match the 50.5% return of 2009.

Disclosure: At the time this article was posted, I owned a long position in Bowne & Co. (BNE). I no longer own shares of Caseys General Stores Inc (CASY), WebMD Health Corp (WBMD), Southwest Water Co. (SWWC), and Occam Networks (OCNW).

Fat Pitch Financials Portfolio Relative Performance Since Inception

The orange line in the chart above represents the value of the Fat Pitch Financials Port.  The other lines represent the major indices. The green line is the S&P 500, the tan line is the Dow Jones Industrial Average, and the blue line is the Nasdaq.  As you can see in the graph above, the Fat Pitch Financials Port has been outperforming the major indices over the past year.

Performance Numbers

The table above indicates that the Fat Pitch Financials Portfolio has returned 32.63% since inception.  I launched this paper portfolio back in September of 2004 on Marketocracy with a virtual starting balance of $1 million and a per share value of $10. I created this paper portfolio shortly after I started the Fat Pitch Financials blog as a way my readers could track my stock picks.  My annualized return since inception is 4.79%, out-pacing the S&P 500 annualized return over the same period by 2.54%.

Portfolio Holdings as of September 30, 2010

The major performers this past quarter have been Destination Maternity (DEST) and Sotheby’s (BID).  I’m starting to keep a close eye on both of these positions. As they become fully priced, I may decide to sell one or both of them.

The only new position since I last reported in April was the addition of BP PLC (BP). I added 1,000 shares of BP back on June 1, 2010 at an average price of $37.55.  As of the market close on September 30, 2010, I’m up 11.88% on those BP shares.

The portfolio still holds $44,042.29 in cash.  I will continue to look for Fat Pitch opportunities to add to the portfolio with this remaining cash.

Disclosure: At the time this article was posted, I owned positions in all the stocks mentioned above.

When I last reported on the Special Situations Real Money Portfolio in April, the portfolio had a balance of $34,683.37. By then end of May 2010, the portfolio’s value increased to $35,026.44.  After the market closed on August 31, 2010, the portfolio has grown to $37,421.88.  That’s a gain of 7.9% since the end of April.

So far this year, the Special Situations Real Money Portfolio has gained 20.96%.  That is particularly impressive given that the S&P 500 index returned -4.6% over the same period.

Since inception on October 19, 2004, the Special Situations Real Money Portfolio has produced a total return of 211.85% (as of August 31, 2010).  The average annualized rate of return for this portfolio continues to be an impressive 31.09%.  This is just slightly lower than what I reported at the end of April.

Of the current $37,421.88 in the portfolio, I only held $3,805.31 in cash at the end of August. Yesterday, I invested almost all of that remaining cash in a new liquidation opportunity that I recently shared with subscribers of Fat Pitch Financials Contributor’s Corner. Find out my latest move by subscribing to a one year membership of Fat Pitch Financials Contributors Corner. Use the coupon code FPF10 to get $10 off an annual subscription purchased by September 3, 2010.

Over the next few days I will be detailing the results of all my recent trades that have resulted in my current 21% gain so far this year.  Stay tuned by following the Fat Pitch Financials RSS feed or signing up for free email notification.

Fat Pitch Financials Portfolio Relative Performance Since Inception

Performance Numbers

For the six month period ending March 31, 2010 my fund outperformed 98.1% of the other funds on Marketocracy. For the  1 year period ending March 31, 2010 the FPF Port outperformed 94.6% of other funds on Marketocracy and 82.5% of other funds over a 2 year period.

Portfolio Holdings as of April 30, 2010

Trades in April:

On Apr 20, 2010 I bought 20,000 shares of  NovaMed Inc (NOVA) for $3.60 per share, or a total of $71,912.82.

So far this year, the Special Situations Real Money Portfolio is up 12.11% year-to-date. That is 5% better than the S&P 500 year-to-date return of 7.05%. Overall, the portfolio is up 189.03% since inception on October 19, 2004. The internal rate of return or average annualized rate of return is still an impressive 31.51%.

Let me bring you up to speed on the transactions that took place in the Special Situations Real Money Port this past month. First, I finally received on April 5, 2010 the debentures for the shares of Western Sizzlin held in the portfolio. In total, I received 3,228 Steak N Shake debentures. However, that was rounded down to an even 3,000 debentures, and I received $8.07 per share for the 228 “baby debentures” held in the portfolio. On April 20, the debentures were renamed to Biglari Holdings Inc. Redeemable Sub. Deb. to reflect the name change of Steak N Shake (SNS) to Biglari Holdings (BH).

On April 12, 2010, I was cashed out of my 3COM (COMS) holdings. I held 400 shares of 3COM that I purchased on November 19, 2009 for $7.45 per share. Those 400 shares were cashed out for $7.90 per share. I made a net return of 5.79% on that investment. Considering that investment took 145, my average annualized rate of return on this investment is about 14.6%. That’s a pretty nice return for an unleveraged risk arbitrage trade. That same day I picked up shares of 500 shares of another company undergoing a merger with similar profit potential as 3COM.

On April 16, 2010, I invested $3,686.95 in a different type of special situation. This one involves an activist investor that has a track record for making changes to boards and then improving business profitability. This investment relies on shareholders voting in support of the proxy distributed by the activist investor.

On April 22, 2010, I sold out of my shares of net-net Conn’s (CONN) after shares ran up substantially. I sold the last 500 shares of Conn’s (CONN) is the Special Situations Real Money Portfolio. My stop order was triggered and 400 shares were sold for $9.75 and 100 shares sold for $9.82 per share. The total proceeds from that sale came to $4,875.05. I bought this block of 500 shares on February 9, 2010 at $4.50 per share for a total cost of $2,256.95, Therefore, my total profit for this trade was $2,618.10. The return on these 500 shares came out to be an amazing 116%!

Finally, on April 26, 2010, my shares of Boss Holdings (BSHI) were removed from my account and I should be receiving $7.65 per share shortly. I originally bought the 99 shares of Boss Holdings in my account for $6.00 per share on January 22, 2010. Later in the day on April 26, 2010,  I also put in an order to buy another merger arbitrage opportunity with a small regional bank.

If you’d like to learn more about the positions I’ve been trading in this portfolio, follow my research on new special situations, and participate in our exclusive community of stock workout aficionados, consider joining my premium service, Fat Pitch Financials Contributors Corner.

Disclosure: At the time this article was posted, I owned shares of Biglari Holdings (BH) and Boss Holdings (BSHI). I no longer own shares of 3COM, and Conn’s (CONN).

What caused March to be such a good month? Some of the positions that I picked up earlier in the year finally starting coming to maturity. I sold three different positions this past month.

First, let me discuss a stock that was trading below Benjamin Graham’s deep value screen that selects stocks trading below two-thirds of net current asset value (NCAV). On February 8, 2010, I bought 500 shares of Conn’s (CONN) at $5.33 per share for the Special Situations Real Money Portfolio. I estimated Conn’s NCAV to be about $8.39 per share. On March 11, 2010, I sold those 500 shares of Conn’s for $6.85 per share.  My main reason for selling those 500 shares was because Conn’s was selling above 66% of NCAV on no new significant news. My total profit on this trade was $746.05. That’s a 27.9% return in just over a month! I also had bought an additional 500 shares of Conn’s for $4.50 per share on February 9th when the stock price plunged. I’m hoping to sell those remaining shares at or close to NCAV. Given that CONN is trading around $8.03 this morning, that might not be too far away.

I sold the 99 shares of MDS Inc. (MDZ) held by the Special Situations Real Money Portfolio on March 16, 2010. I sold the shares at $8.45 a share. My total proceeds from that sale came to $829.58. Since I bought those shares on February 22, 2010 for a total of $828.65 my return on this trade was $0.93. I basically broke even. Why did I sell? Basically, I didn’t realize the tax withholdings associated with this Canadian tender offer. Given that this is a tax advantaged Coverdell Education Savings Account, I don’t believe I’d be able to recover the tax withholding on my income taxes next year. Also, I’d have to pay a $25 fee to tender the shares. Therefore, I placed a limit order shortly after I figured this out. That limit order was triggered when MDS shares traded above $8.45. Given that MDS is now at $8.86, maybe I should have waited until the impacts of the reduced share count were felt before selling.

On March 24, 2010, I sold the 4,999 shares of Kid Castle Educational Corp. (KDCE) in the Special Situations Real Money Portfolio. I sold the shares for $0.17 per share, just a penny below the tender price of $0.18 that the company was offering. I’d rather have the certainty of cash in hand rather than wait weeks for the last penny, so I sold at $0.17. The total proceeds from this stock sale came to $842.86. I bought these shares on October 21, 2009 for a total of $606.83. My total return for this trade came to 38.90%. The average annualized return given the trade took 155 days is about 91.6%.

So far this year, the Special Situations Real Money Portfolio is up 8.6% year-to-date. Overall, the portfolio is up 180.00% since inception on October 19, 2004. The internal rate of return or average annualized rate of return is still an impressive 31.27%. If you’d like to learn more about the positions I’ve been trading in this portfolio, follow my research on new special situations, and participate in our exclusive community of stock workout aficionados, consider joining my premium service, Fat Pitch Financials Contributors Corner.

As of the close of the market on February 26, 2010, the Fat Pitch Financials Port had a value of $1,248,266.02. That is down 1.03% since I last report on the Fat Pitch Financials Portfolio in January 2010. Of this amount, $152,614.90 was in cash and $1,095,651.12 was invested in stocks.

Returns as of February 26, 2010

Positions as of February 26, 2010

On February 19, 2010, I sold 112 shares of  Western Sizzlin Corp (WEST) for $8.96 per share for a net proceeds of $1,003.58. I was hoping to sell my entire holdings at $9.00 but the Marketocracy order filling volume requirements prevented that from happening. The main reason I wanted to sell these shares of Western Sizzlin was because the company had announced that these shares would be converted to debentures as part of the merger with Steak N Shake (SNS). I was unsure that Marketocracy would be able to track the debentures, so I decided for tracking purposes it might be best to sell this position in this portfolio. That didn’t happen, so it will be interesting to see how Marketocracy will handle this.

March 2010 Update

As of the close of the market on March 31, 2010, the Fat Pitch Financials Port had a value of $1,355,298.57. That’s up an amazing 8.57% over the past month! The Fat Pitch Financials Port held $1,202,522.81 in stocks and $152,775.76 in cash at the end of March.

Over the past twelve months, the portfolio was up an amazing 78.09%. Since the portfolio’s inception (September 2004), the portfolio has returned 35.14%. On an annualized basis, the return is a respectable 5.60%.

Current Positions as of March 31, 2010

Fat Pitch Financials Portfolio One Year Price History (as of April 6, 2010)

As you can see from the graph above, over the past year the Fat Pitch Financials Port has been outperforming the major indexes. I hope I can continue to maintain this trend throughout 2010. No new trades occurred in March, but given the dramatic price rebound the market has experienced over the past 18-months, I am starting to consider selling some positions.

Disclosure: I own shares of Western Sizzlin (WEST), Steak N Shake (SNS), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).

The main issue this month was that none of the deals I’m invested in came to completion. It was a rather boring month in general.  There have been very few new opportunities and there hasn’t been much activity on existing deals. This pattern makes me wonder if the economy is at an inflection point or whether it is just stagnating.

I did pick up some shares of a stock trading below two-thirds of net current asset value. Right after I picked up the shares, the price promptly dropped 15% the next day. I kept my wits and doubled my position at the new low. I always find it mentally challenging to double down on a position so quickly, but it often proves to be the wise thing to do.

I also picked up an odd lot tender offer. However, I made an error this time. I learned that if you participate in tender offers for foreign company shares you have to be aware of potential tax withholdings. Foreign taxes can be imposed even in a tax sheltered account, like Coverdell Education Savings Account, which is what the Special Situations Real Money Portfolio is. My plan on this position will be to hold it until it produces a slight gain and then sell it before the tender offer expires. If the share price falls substantially before then, I’ll tender the shares and face the 15% tax withholdings. Live and learn.

Overally, the Special Situations Real Money Portfolio is up 155.81% since inception on October 19, 2004. The internal rate of return or average annualized rate of return is still an impressive 29.07%. If you’d like to learn more about the positions I’ve been trading in this portfolio, follow my research on new special situations, and participate in our exclusive community of stock workout aficionados, consider joining my premium service, Fat Pitch Financials Contributors Corner.

Since the portfolio’s inception on October 19, 2004, my total return at the end of January 2010 was 158.8%.  The average annualized rate of return has been an impressive 30.12%

The main development at the end of January was the increase in cash in the portfolio. My cash position has increased to $22,196.00.  That’s primarily due to two reasons. First, I was cashed out of my large position in Sun Microsystems and my small position in MAXXAM. Second, there haven’t been too many good opportunities to redeploy cash.

Back on December 14, 2009, I bought 210 shares of MAXXAM (MXM) at $10.45 per share. MAXXAM planned to go private via a reverse/forward stock split. Shareholders with less than 250 shares would be cashed out for $11.00 per share. I was cashed out on January 22, 2010 and I received $2,310 for my 210 shares. My net profit on that transaction came to $108.55. The return was 4.93% for that 40 day transaction. I estimated the average annualized rate of return for this transaction to be 45%.

I was also cashed out of the 1,000 shares of Sun Microsystems (JAVA) in the Special Situations Real Money Portfolio on January 28, 2010. I purchased shares of Sun Microsystems on multiple occasions. First, I bought shares of Sun Microsystems October 2, 2009. I picked up a 1,000 shares for $9.01 on that trade. Second, I bought 600 shares of Sun on October 23, 2009 for $8.40 per share. I went on to sell those 600 shares for $9.23 per share on December 14, 2009. In total, I made $967.00 on all these trades. That cames to a 6.88% return. Looking at the internal rate of return over all those trades, I calculate an annualized rate of return of 29.54%. That’s pretty good for a simple merger arbitrage play with no leverage.

You can follow my latest research and see the latest trades in the Special Situations Real Money Portfolio by subscribing to my premium service, Fat Pitch Financials Contributors Corner. As a member of Contributors Corner, you will also gain access to my extensive archive of special situations and workout opportunities, and you will become a member of the active forum community, which shares new opportunities and discusses the latest developments on the stocks we are following.

Disclosure: I no longer own shares of Sun Microsystems (JAVA) or MAXXAM (MXM).

I launched this paper portfolio back in September of 2004 on Marketocracy with a virtual starting balance of $1 million and a per share value of $10. I created this paper portfolio shortly after I started the Fat Pitch Financials blog as a way my readers could track my stock picks. The objective of this portfolio is to invest in companies with wide moats that are selling for prices that provide for a significant margin of safety.

Over the past 12-months the FPF Value Port is up 60.84% versus just 30.10% for the S&P 500. The orange line in the graph below shows how the Fat Pitch Financials Port relative to the major indexes.

Price History for the Fat Pitch Financials Portfolio (as of January 29, 2010)

As you can see, the Fat Pitch Financials Port has outperformed the major indices since the end of last spring. According to Marketocracy, the Fat Pitch Financials Portfolio has outperformed 79.2% of all other Marketocracy funds over the past 2 years.

Returns as of January 30, 2010

Since inception in September of 2004, the FPF Value Port produced an annualized return of 4.37% versus the 1.12% return of the S&P 500. I’m proud that I’m beating the S&P 500 by 3.24%, but I hope to increase this margin substantially over the coming years.

Current Positions as of January 30, 2010

There were no new transaction in January. I’ve been waiting patiently for the market go into another panic. I looks like that could happen now in February.

The major news in January is that Destination Maternity (DEST) finally turned a profit in quarter one. It also looks like Kraft (KFT) is going to Cadbury (CBY) regardless of Warren Buffett’s advice to the company. Finally, I also reported on Premier Exhibitions Investor Day Presentation in January. I’m hoping that I’ll find a fat pitch opportunity in February to put some of the $153,474.32 in cash remaining in this portfolio to work.

Disclosure: I own shares of Western Sizzlin (WEST), Steak N Shake (SNS), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).

My overall annualized rate of return since inception is 30.75%. The Special Situations Real Money Portfolio started on October 19, 2004 with just $2,000. Each year since then, I’ve added the maximum Coverdell Education Savings Account annual contribution of $2,000. The total amount I’ve invested in this account is $12,000. Given that the Special Situations Real Money Portfolio ended 2009 with a total value of $30,938.09, my total profit as of December 31, 2009 is $18,938.09. The total return since inception is 157.30%. I hope to maintain this record of performance for the next eleven year until my son starts college.

Stepping back a bit, I’d like to talk a bit about how last month went. As you might recall, the Special Situations Real Money Portfolio in November ended with a balance of $26,972.91. I made a $2,000 deposit last month. The portfolio had a balance of $30,938.09 when the market closed on December 31, 2009.  Adjusting for the deposit, the portfolio gained 6.78% in December. As of December 31, 2009, the Special Situations Real Money Portfolio held the following positions:

If you want to review all the trades of this portfolio and my special situations research, subscribe to Fat Pitch Financials Contributor’s Corner. As a premium member, you will be notified of new trades in the Special Situations Real Money Portfolio, have access in all the research used to find special situations opportunities for this portfolio, and be able to participate in the active forum composed of fellow savvy investors interested in special situation opportunities.

Disclosure: I own shares of MAXXAM (MAXX), 3Com (COMS), Sun Microsystems (JAVA), Kid Castle Educational (KDCE), Sunstone Hotel Investors (SHO), and Western Sizzlin (WEST).

I launched this paper portfolio back in September of 2004 on Marketocracy with a virtual starting balance of $1 million and a per share value of $10. I created this paper portfolio shortly after I started the Fat Pitch Financials blog as a way my readers could track my stock picks. The objective of this portfolio is to invest in companies with wide moats that are selling for prices that provide for a significant margin of safety.

The FPF Value Port returned 42.44% versus just 26.47% for the S&P 500 in 2009. The orange line in the graph below shows how the Fat Pitch Financials Port relative to the major indexes.

Fat Pitch Financials Portfolio 2009 Performance

As you can see in the chart above, my portfolio began recovering more quickly than the market indexes after the March low. I’m hoping the Fat Pitch Financials Port will continue this trend of outperformance into 2010.

Since inception in September of 2004, the FPF Value Port produced an annualized return of 4.00% versus the 1.84% return of the S&P 500. I’m proud that I’m beating the S&P 500 by 2.15%, but I hope to increase this margin substantially over the coming years.

Fat Pitch Financials Portfolio Performance Since Inception (As of December 31, 2009)

Fat Pitch Financials Portfolio December 31, 2009

Total Value: $1,233,461.25 Cash Value: $154,312.72 Stock Value: $1,079,148.53 Shares: 100,000 Price: $12.33

Fat Pitch Financials Portfolio Style Allocation

Marketocracy also provides a style breakdown for its portfolios. According to the table above, the Fat Pitch Financials holds mostly value stocks. The 11% allocation to large cap growth stocks is attributed to my Kraft (KFT) and eBay (EBAY) positions. As far as the size of the companies held, the FPF Port is balanced between 51% allocation to large cap stocks and most of the remaining allocation split between small and micro cap stocks. I’m thinking that I should look to see if I’m missing any opportunities in mid-cap stocks.

Fat Pitch Financials Portfolio Positions by Sector and Industry

The Fat Pitch Financials portfolio holdings are predominately in consumer discretionary and information technology stocks.  These two sector categories make up 81% of the portfolio. Unfortunately, I held 10% of the portfolio in financials, but thankfully they recovered nicely at the end of 2009. My 3% position in the health care sector seems a bit scimpy, but given the changes in the health care sector given the government’s reform efforts it might actually be prudent to see how the changes shake out.

There were no new transactions in December. The only real change was the 20 to 1 reverse split that Steak N Shake (SNS) conducted. I think that reverse split was kind of silly, and it has given me some reservations regarding my Steak N Shake investment.

I look forward to 2010 and hope to continue beating the market.

Disclosure: I own shares of Western Sizzlin (WEST), Steak N Shake (SNS), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).