The Special Situations Real Money Portfolio ended the month of October with a total value of $38,864.82. That is up 0.9% since I last reported the value of the Special Situations Real Money Portfolio at the end of September. 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.
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, for those wanting to invest, learn more about ways to save here. I should have sold when the special situation opportunity ended.