Old Niu made two excellent posts on his blog about the advantages of small investors and how he has been able to utilize the Going Private Transactions list here at Fat Pitch Financials. Until I checked my server logs recently, I didn’t even know his blog existed, but Nui sure has been digging into Fat Pitch Financials.
In his first post, Old Niu discusses my “investment secret” with going private transactions. I think he does an even better job than I do of explaining the details of a company going private and how you can profit from it as a small investor. Nui uses the example of FragranceNet.com to explain how it works. I especially like the way he discuss the two possible reactions you may have to the profit potential of these going private transactions:
The first reaction, you may get very interested in leveraging George’s secret to make some money. But before you decide to jump in, I recommend you study his list and read through his posts on his individual investments. I have to put in a disclaimer here that I am not advising you to buy any stock and neither does George. Do your own dual diligence and make your own decision. I especially encourage you to read George’s post on FFDF and Central Federal Corp so that you can see things could go wrong on these deals and you can loss money.
The second reaction, you may be disappointed by how small the profits are from these opportunities. Yes, you could make an annualized return of more than 300%, but the absolute profit is just over $200. If this is your reaction, you definitely want to come back in a week or two to read my follow up post where I will share with you how to really play “fat pitch” with these potential opportunities regardless you have a $10,000 portfolio or a $300,000 portfolio.
I can tell that Nui is in the first camp and is hooked on these going private transactions. He reports some great results:
Thanks to George, I made four trades based on his Going to Private List. One of them (Refocus Group Inc) has already been closed out with a 40% profit. Three trades are still open: Mercury Air Group and Color Image Inc. in addition to FragranceNet.com. All three have completed the split and are in the process of distributing cash.
The second post I recommend by Old Niu, “A Small Investor’s Advantage” details how going private transactions allow small investors the opportunity to invest in arbitrage plays. He make three rules to follow when taking advantage of these going private transactions as a small investor:
- [T]he first rule is don’t play where the big guys play.
- [T]he second rule is to avoid the crowd by looking at smaller deals.
- [T]he the third rule is to seek high return.
Nui feels that if you have a very small portfolio of under $5,000 that these going private transaction opportunities might be the perfect strategy. I’m not so sure I would make such a strong statement. I think it is important to have diversity in your investments. If you do decide to invest in going private transactions in a portfolio with less than $5,000, I would be sure to not invest more than a third of your portfolio in any single transaction in case you have the unfortunate luck of having a deal fall through.
Nui also notes that if you have a larger investment porfolio, it is likely that you have several types of investment accounts. He recommends that it might be best to use a tax deferred account like an IRA or a Coverdell Educational Savings Account, like I use. I totally agree.
If you have never tried investing in companies that are going private, I recommend that you visit Old Nui’s blog. Even if you are somewhat familiar with these investments, Nui’s posts are still very informative. If you find these opportunities as appealing as Nui and myself do, you might be interested in gaining access to my going private transactions list by becoming a contributor to Fat Pitch Financials.