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Strategies & Market Trends : Value Investing

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To: TimbaBear who wrote (17480)	7/31/2003 7:50:26 AM
From: David	Read Replies (1) of 79047

<<You need to be willing to suffer with the orginal company (or take the loss). >> I understand this statement clearly having sat with a large portion of my EBSC shares for four years. Its best described as psychological torment. To boost confidence I would review and re-review and re-review the financials and watch the cash flow and debt reduction and buyback of 1/3 of the shares while the price of the stock sank and no one came up to the plate to buy the company. What really frightened me was occasionally over that period of time walking through similar types of those old decrepit department stores from time to time and viewing with my own eyes the inventory and merchandising. <<<Pick your deal carefully because ONE downer kills a whole bunch of winners>>> When sizing up the arb situations I guess the potential annualized losses can be as potent as the expected annualized gains. This is always my stumbling point on most arbitrage deals, although in theory EBSC shouldn't represent a problem here. It seems most buyouts that I look at anticipate a small premium or spread above an already inflated price for the company, so the downside risk always seems huge. I always ask myself whether I would want to own the company if the deal fell apart at my purchase price and usually the answer is no. In theory EBSC is a bargain at $7.00 or at any price below so I guess I shouldn't mind owning more shares at $6.769 waiting patiently for the buyout or whatever will eventually cause EBSC to realize its true value to shareholders. The big psychological hurdle is risking erosion of the large gain and nice return I already have in the stock investing more in an arb play (amazingly I am sitting on a 21% plus per annum long term gain on my core holding). I don't know if I could take it if everything falls apart, temporarily of course (in theory at least).

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