Spin offs – Good for Small Time Investors?
Posted on | August 20, 2009 | No Comments
For the small time investor, or someone just beginning to invest for themselves, you have to remember to look to see where you have an advantage over other participants in the stock market. Odd lot purchases like the Zerba Systems (ZRBA) purchase are a good start. No mutual fund or hedge fund will waste their time with it, too small of a profit.
What other opportunities are there? The next type of special situation worth looking into are spin-offs. A spin off is when a company decides to split off a subsidiary or division and distribute the stock to its shareholders. The opportunity comes after the stock has been spun off. Often investors will sell the spin off stock because they think the new company will be unprofitable on its own, or some instutional investors have limitations on what stocks they can own and what percentage of a company they can own. They may be required to divest itself of the spin off company. This results in a price drop. If you have researched the company and determined its value puts it higher, it may be work purchasing shares. In his book You Can be Stock Market Genius, Joel Greenblatt refers to a study showed that spin off stocks out performed the S & P by 10% per year for the first three years after the spin off occurs.
Certainly worth a look.
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