One of the investors we like to follow closely here at The Acquirer’s Multiple is Murray Stahl, CEO of Horizon Kinetics. Stahl has a particular knack of finding investment opportunities in ‘special situations’. In this interview with Ticker he discusses areas where investors can find these opportunities saying:
“In a nutshell, we find things that nobody wants to buy for a reason that is not related to fundamentals of valuation.”
An excerpt from that interview:
Murray Stahl: Our analytical team is divided by structural anomalies or constraints. For example, we have analysts who cover spin-offs. When one company spins off another, the new company is not in an index and has no analytical coverage and can be thrown out of portfolios. That is a structural reason for not buying a stock that has nothing to do with fundamentals. So, we have analysts covering every conceivable spin-off.
Another area of interest is pre-packaged bankruptcy. Right now, there aren’t many such companies that apply to the Kinetics Market Opportunities Fund, but we follow them. When a pre-packaged bankruptcy happens, everybody knows that the company is going bankrupt in a month or two. Typically, prior to the filing, the company gets together with the bondholders and tries to reach agreement on a reorganization plan. If the parties agree, the court stamps it. The company then may come out of bankruptcy and move forward in only a few months.
That represents an anomaly for several reasons. First, the parties negotiate prior to the filing and, second, everyone knows the filing is coming. Nobody wants to hold a security that will go bankrupt, so everyone sells it. At the same time, the bankruptcy workout funds avoid the stock, because a deal is likely to happen. Usually, their job is to negotiate on behalf of the bondholders, but if there is already a deal, there is nothing for them to do. So, nobody really gets involved in these stocks.
In addition, when coming out of bankruptcy, it may take weeks to actually obtain the new security and investors hate that. They simply hate waiting with a security that is difficult to value and would rather avoid the whole process. So they just sell the security.
In a nutshell, we find things that nobody wants to buy for a reason that is not related to fundamentals of valuation.
You can find the entire interview here – Murray Stahl, Structural Constraints As Opportunities.
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