Book Reviews, Value Investing

Maurece Schiller – How to Profit from Special Situations in the Stock Market

How to Profit from Special Situations in the Stock Market – April 21, 2016 Maurece Schiller

2016 Reprint of 1959 Edition. Full facsimile of the original edition, not reproduced with Optical Recognition Software. Schiller provides a detailed, practical roadmap to building a fortune from investments in special situations in stocks and bonds. He explains the basic requirements of a special situation-how to find the right situation-when to buy-how to minimize risk-how to protect and take profits. Every conceivable type of special situation is covered. In addition, Mr. Schiller demonstrates how to utilize professional techniques to maximize profit and minimize risk.

How to Profit from Special Situations in the Stock Market

Investors’ Guide to Special Situations in the Stock Market by Maurece Schiller (1966) Referenced and suggested by Joel Greenblatt (2006). Lesson: These opportunities will never go away. STUBS Stubs represent residual interests of companies in process of liquidation. These terminal securities exist because of specific and contingent values remaining to be processed. Reserved and unliquidated properties are repositories of real assets while litigation usually holds clues to contingent interests. Stubs come into being as a result of a major distribution of assets by a company in liquidation. The withheld portion of total assets and claims to be cleared are assets underlying the residual Stub.

Maurece Schiller

A Stub then is unfinished business. Among names for securities having characteristics of stubs are: Certificates of beneficial interest, Certificates of Participation, Certificates of Contingent Interest, and Receipts, Scrip, Stub equity and Liquidation Certificates. Another definition…. A stub is the stock representing the remaining equity in a corporation left over after a major cash or security distribution from a buyout, a spin-out, a demerger or some other form of restructuring removes most of the company’s operations from the parent corporation. A stub may retain the name of the original corporation, or in some cases may take another name as part of the restructuring.[1]

How to Profit from Special Situations in the Stock Market

CAPITAL GAIN POTENTIALS Bona fide values inherent in Stubs harboring capital gain potentials may be uncovered in the following Corporate Financial reports: Stated net assets. Tax litigation. Litigation wherein company is claimant. Reversionary provisions in an agreement between company and security issue. Reserves established for specific contingencies that may or may not materialize. Capital gain potentials in Stubs reflect discount from indicated value and to that extent they are undervalued. The rate of return on money invested should be viewed in relation to expected duration period for holding the Stubs. Stubs represent non-operating companies and as such it is unlikely that earned income will accrue. Therefore, the sole return on money invested will arise as capital gains. Where cost price is relatively low compared to expected potential gain, and then rate of return could be projected over a five year period. If such “timing” would offer a minimum 10% return, then the situation holds interest. A usual practice in Stub liquidating procedures is distribution in small doses of the remaining assets.

Therefore, a good approach when investing in Stubs is to calculate when final distributions are being  made so that little or no money remains in the Stub. Thus, in the life of a stub while time is a factor, it is not a source of concern. Stubs are money deals in that one invests X dollars and expects X dollars in return. While there is little expectancy of additional values developing, it has been observed over the years that Stub situations, particularly those involved in tax litigations can bring windfalls of substantial, unexpected additional payments.

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Maurece Schiller