David, let me say that while I do post, I'm not knowledgeable enough to know what I'm talking about. But I do have some opinions nonetheless .....
I'm still experimenting with the way to play these buyout deals in my own portfolios. I keep the $ amounts to no more than about 25% of the portfolio value. I have some mental difficulty in taking small positions with an arbitrage play. With standard, buy-and-hold stocks I have no difficulty starting an initial position. And even if I were to buy 100 shares, say, of a $30 stock, I could be comfortable with it if I expected the stock to rise 50% in two years. I can envision the $1500 profit (on each 100) shares snd I'm okay with that. But on one of these takeovers, like BGF, it's hard for me to get excited about making just a $2950 investment to get back "only" $200. Even if it is in one month and even if I might be able to make such investments 3,4, more times per year. That's maybe foolish me. The result though is that I think I wrongly tend to overbuy. I start out with much higher buy (share) amounts. So the $ amount in my portfolio (25%) possibly is too high for the number of positions and risks I am taking.
There's no way to alleviate the "fear" and "nervousness" with these deals, imo. Diversification helps. Reading what the media and what stock threads say before buying and while holding helps sometimes. But sometimes provokes even more anxiety. Analysis ultimately means that one makes a judgement call. Perhaps the real analysis is having knowledge of the players. If there's a history of the buyer and seller completing other deals, that may be more telling than anything else.
I don't calculate annualized yield. For me, that overemphasizes the numerical benefit while diminimizing the possibility of loss (the deal collapsing or being renegotiated unfavorably or being delayed). I don't want to start thinking of, or weighing, deals ranked by their annualized yield. As Will Rogers said (paraphrased) "I don't care so much about the return on my investment. I'm more interested in the return OF my investment." I prefer deals that are expected to work out sooner than later, regardless of which would have the greater annualized yield.
I need much more historical data to make any good analyses. We know that some of these deals just don't work out. But if we could estimate which percent of the total , and the range of stock price drops (expected losses) for the decliners, then we might have something. So if a person had 6 (for example) positions and expected that 1 might not work out, the investor could count on the gains on the other 5 to make the 6 total investment work out satisfactorily.
And we need to know something about consecutive investments vs. concurrent. I don't have much experience with consecutive investments (rolling funds from one success into the next deal), but I've got a lot of concurrent investments going on here. And they may all be subject to renegotiation or delay if interest rates rise (even though the companies say they have financing in place.)
Anybody have any comments or ideas here that could be of help to me or the rest of us? |
