Special Situations Real Money Port on Fire

The Special Situations Real Money Portfolio has been on fire since I last made an update on April 27, 2006. My compound annual growth rate has rocketed from 23.5 percent to 33.6 percent APY now. If I am able to sustain this rate of return, the performance of this portfolio would be up there with Warren Buffett’s performance. However, I know full well that as the funds in this portfolio increase, it will be harder and harder for me to maintain this performance level.

My recent trade in Eupa International (EUPA) stock was the best one day return I have ever achieved. Eupa International was a perfect example of where preparedness and opportunity meet to achieve extraordinary success. Eupa International filed a going private transaction statement with the SEC on June 1, 2006 indicating that they are planning to take their company private by potentially cashing out all shareholders holding less than 9,999 shares for $0.40 per share. When I first looked up Eupa International, it was trading in the low teens. I quickly submitted a trade order and I knew that I had a winner when I got 5,000 shares for $0.18. However, I had no idea that in just one day that the shares would jump up so quickly. With a rapid climb to over $0.30 per share, I realized that I had more too loose than to gain by hanging on to my shares any longer, so I sold. I made a net profit of 76 percent in less than one full day! If the price of Eupa International drops and they issue a definitive proxy regarding their going private plans, I might even buy this stock again.

For the first time, the Special Situations Real Money Port participated in an odd lot tender offer. Odd lot tender offers are a special form of a tender offer where a company buys back a certain amount of stock for a certain price range and then provides a preference to shareholders owning less than 99 shares who are willing to tender all their shares under the offer. The odd lot preference then ensures that odd lot holders will have all their shares cashed out even if the tender offer is oversubscribed resulting in the tender offer being prorated. I purchased 99 shares of DWS Global Commodities (GCS), a closed end fund after I discovered it was planning to pay out 98 percent of net asset value (NAV) to participants in its tender offer and the offer included an odd lot preference. GCS was a successful special situation transaction for me. I made a net total return of 6 percent in just over fifty days for an average annualized return of 45 percent.

Not everything went totally smoothly though. I speculated on the recent Engelhard Corp (EC) tender offer that was issued to counter a BASF bid to take over the company. When I discovered that there would not be an odd lot preference for Engelhard’s offer, I sold my shares for a slight loss. However, if there was an odd lot preference for the $45 per share tender that Engelhard was offering, I would have made an excellent return. Oh well, this opportunity did not go my way. I can’t imagine what my internal rate of return would be now if I did get to tender all of my Engelhard shares for $45. I don’t believe I made any mistakes on this trade, but the odds just didn’t work in my favor.

As you might have noticed, I am trouncing the market by just about any index or benchmark you can think of. Special situations provide great insulation from market volatility and their returns are not correlated to market indexes. If you are interested in following these opportunities, you might be interested in gaining access to Fat Pitch Financials Contributor’s Corner. I provide details to all the going private transactions, odd lot tender offers, spinoffs, and even other opportunities that I or other members discover. You will also receive timely updates of trades in the Special Situations Real Money Portfolio as a member of Contributor’s Corner.

The details of the transactions in the Special Situations Real Money Portfolio as of June 9, 2006 are as follows:

Transaction History

Current Holdings

Performance

Since inception on October 19, 2004, the rate of return for the Special Situations Real Money Portfolio has been 33.6% APY.