2018 Year In Review – 96 Investment Ideas

2018 has been a fantastic year for Special Situation Investments in terms of both - profitability of the published ideas as well as member activity. A total of 96 investment opportunities were presented on the site, out of which almost two thirds were contributed by the members. Below I am outlining some stats and profitability assessments.

Huge thanks goes to all the members who have contributed with their ideas and discussions.

Hit Rate - 74% with 9% average return

I tend to evaluate each of the special situation on individual basis (detailed info can be seen here) rather than look at it on aggregate portfolio level - this is due different holding periods, different capital requirements at different times and etc. However, if asked to look at aggregate performance, I think the most accurate assessment of success in special situation trades is the hit rate - i.e. % of opportunities that turned out as expected or at the very least delivered positive returns.

There were 96 trades published on the site during 2018 and out of those 18 are still pending the eventual outcome. By counting all of those 78 that have worked out one way or another and defining success as return larger than 1%, I arrive at success hit rate of 74%. These successful trades generated 9% average return over the average holding period of 1.7 months.

Worth noting that this type of calculation blindly averages every single idea posted by me and members on the site. I believe that applying some filtering/selection and allocating more capital to higher conviction picks generates far higher returns.

Here is the full split:

Return # Hit Rate Holding Period Average Return
>1% 58 74% 1.7 months 9.0%
0%-1% 9 12%    
<0% 11 14% 1.9 months -11.6%
Total 78      

 

Excluding Odd-Lots

The results in the table above also include a total of 25 odd-lot type situations (tenders, split-offs, reverse splits, exchange offers). The returns on these are almost always limited in absolute $$ value and generate anywhere between $10-$1000 per account. Last year only 2 odd lot opportunities ended in losses (BLBD and HCG.TO) and the rest generated returns sufficient to cover the annual subscription price to this site several times over. However, worth noting that majority of these odd-lot situations have been Dutch tenders with share price in the middle of the tender range and therefore quite risky.

Below are the site performance stats if these 25 odd-lot type situation are excluded. Success hit rate is slightly reduced to 72%, but the average return increases to 10.9%.

Return # Hit Rate Holding Period Average Return
>1% 38 72% 2.1 months 10.9%
0%-1% 6 11%    
<0% 9 17% 2.0 months -11.1%
Total 53      

 

Excluding Odd-Lots and Illiquid stocks

Aside from odd-lot cases, a number of written-up situations involved low capitalization and illiquid companies. And in some cases only very limited number of members with small PAs were able to take advantage of those. The stats below exclude very illiquid (it's arbitrary) and lower than $100m capitalization cases (and also all the odd-lots).

Return # Hit Rate Holding Period Average Return
>1% 28 72% 2.0 months 11.1%
0%-1% 6 15%    
<0% 5 13% 1.9 months -11.7%
Total 39      

 

40% IRR

2018 was a great year - whichever way I cut the aggregate results I arrive at more than 70% success hit rate and less than 15% of trades loosing money. On average the ideas posted on Special Situation Investments generated 6.5% return (72%*11.1% - 13%*11.7%) with only 2 months holding period - this is IRR of 40%. And I consider that an outstanding result.

Hope 2019 will turn out even better - all the best in investing for everyone.

Published on: January 18, 2019  •  Published by:
Category: Performance
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7 COMMENTS

  1. fishwithwings

    Thanks doing this.
    A few questions:
    If the arbitrage included a stock component, did you always short the acquirer’s stock?
    Did you take into account the cost of borrow for the returns?

    1. dt

      In calculating the return results, where applicable, I have included borrowing costs for the hedged trade. You can find performance results of individual trades on site and if you spot any mistake in my calculations, feel free to correct me.

      I did not invest in all of the 96 ideas published, however i had position in all published by myself and in some of the members’. I try to hedge all stock for stock deals, but in some cases that is not possible (e.g. unavailable borrow).

      1. fishwithwings

        Thanks. Going forward do you mind disclosing which ideas you have a position in? Would be very helpful!

  2. YVRtrader

    Congrats on a great year. ECN was a great one to finish of 2018. All the best in 2019!

  3. leoc00

    Congrats! Great year in special situations for you and me both!

  4. Michael Lax

    It seems like tender offers, both regular and dutch have a success rate above 95%, I wonder what the average proration percentage is, and what returns would look like assuming any left-over shares are sold right after expiration of tender?
    Michael

Comments are closed.