Special Situations Real Money Portfolio September 2009 Update

A few days back, I reported that the Special Situations Real Money Portfolio ended the month of August with a balance of $25,602.10. I’m happy to report that the portfolio gained another 3.9% this month. The portfolio closed today with a balance of $26,594.77.

The year-to-date return on the portfolio is now up to 43.3%.  Looking back at the portfolio’s performance since inception on October 19, 2004, the Special Situations Real Money Portfolio has produced a total return of 166% as of the close of business today. The average annualized return since inception is now an amazing 30.2%.

Let’s take a look at some of the transactions that took place this past month. On August 14, 2009, I bought 249 shares of Zareba Systems (ZRBA) for $3.65 per share. Zareba Systems is planning to go private via a reverse stock split followed by a forward stock split. The company plans on cashing out shareholders holding less than 250 shares. Shareholders holding less than 250 shares will be given $5.20 per share in cash when the reverse/forward stock split occurs. On September 10th, the company decided to call off the deal. On the morning of September 14th, I sold the 249 shares of Zareba Systems (ZRBA) for $4.9001 per share. I made a nice net gain of 32.5% on this transaction ($297.37 it total profit). That’s extremely good (and lucky) given that this going private transaction was canceled.

Also on September 14th, I sold all 1,500 shares of Heely’s (HLYS) in the Special Situations Real Money Portfolio at $2.75 per share. Shares of Heely’s were up almost 20% on September 14, 2009 with no real news, so I thought it would be prudent to sell, especially considering $2.75 is close to my original calculation of $2.96 in net current asset value per share. It is likely that Heely’s NCAV has declined since my original estimate and I’m not comfortable holding this company above its liquidation value. I originally bought those 1,500 shares on May 20, 2009 at $1.83 per share. My cost basis is $2,751.95. I received $4,118.05 in proceeds from the sale. That’s $1,366.10 in profit from that investment, which comes out to a 49.6% net gain in less than four months.

At the end of September, I now find myself with a relatively large cash balance of $22,950.61. Market conditions are changing and hopefully the new wave of M&A activity will help me find some new opportunities to deploy my cash. However, I want to avoid taking on too much market risk. I think the economy could go either way at this time, so I’m going to remain cautious.

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Disclosure: I no longer own shares of Zareba Systems (ZRBA) or Heely’s (HLYS) at the time of publication.