“Sounds interesting”, says your wife as she closes the sliding glass door. She continues, “If you find the right opportunity, you can be a stock market genius”. You’re thinking about your latest reading on Joel Greenblatt Special Situations as you water the grass watching the arching water from the hose shimmer in the afternoon sun. “Is it still viable?”, you wonder.
Joel Greenblatt Special Situations: Still Viable?
Yes, Joel Greenblatt Special Situations are still viable. The reasons for this continued viability are market inefficiencies, reduced competition, value creation catalysts, and diverse opportunities. To state our case, let’s look at these intertwined factors to properly address Joel Greenblatt Special Situations: Still Viable?
Market Inefficiencies – Special Situations stemming from intricate event-driven corporate actions persist and are misunderstood leading to being often overlooked. Knowing of their existence and with focused prospecting, a savvy investor can capitalize on their inherent pricing discrepancies.
Reduced Competition – Large institutional investors and mega hedge funds avoid certain special situations investing due to small transaction size, sector and industry disinterest, and unappealing risk/reward profiles. Less competition can provide capital appreciation opportunities for smaller funds and retail investors.
Catalysts: Value Creation – The corporate change-reaction unleashed by a special situations event-driven action, more times than not, unlocks unrecognized, hidden value. An attractive positive externality of this change is the profit potential is known upfront, such as in a merger, acquisition, and triangular arbitrage, and can be realized in a short time frame.
Opportunity Diversity – Mergers, restructurings, spin offs, carve outs, distressed debt investing, acquisitions, rights offerings, bankruptcies, spin outs, and tender offers provide a variety of opportunities ripe for diversified strategic approaches to capturing short-medium and long-term capital appreciation.
Joel Greenblatt Special Situations seeks to provide the enterprising investor with a directional guidepost as to where to find the potential profit road less traveled. He has steered the investor to a myriad of diverse event-driven options where one can apply her unique investing talents.
As with all investing, there are challenges, anticipated and unanticipated, and risk considerations. Here are a few:
Regulatory and Legal Changes – Regulatory changes and legal compliance requirements are a constant oscillating fixture of the special situations landscape. Consistent monitoring of jurisdictional amendments is a prudent strategy as they can positively or negatively alter the profitability of special situations corporate events.
Market Sentiment – Market conditions and sentiment are profit influencers. Awareness of pertinent macroeconomic climates, such as high volatility and temporary downturns, can adversely affect mergers, currency arbitrage, and jeopardize an acquisition’s consummation due to the increasing interest rate environment.
Information Flow – Advanced information technology begets more sophisticated analytical tools that quickly identify and exploit price discrepancies. Potential profit windows of opportunity now evaporate in milliseconds.
Competition: The Last Word – I do not want to leave you with the impression that no competition exists in the special situations space. Activist investors, retail investors, and hedge funds of a particular focus and size seek special situations opportunities. It is due to their number that arbitrage spreads close and tender offers oversubscribe.
The investing strategies of Joel Greenblatt Special Situations viability is investor-dependent on thorough opportunity research, analytic due diligence, market and competition adaptation, and remaining regulatory change vigilant. The savvy investor with the discipline to navigate the market’s challenges, identify pricing inefficiencies, and implement a patience-infused strategy is well positioned to realize the profit potential of Joel Greenblatt Special Situations investing.
