Author: Brian Zeng
Now, many investors are studying the teachings of Warren Buffett: investing only in good companies managed by good managers. guess what? This is just the front of a picture. On the back of the picture, you will see that Buffett is also starting to look at the thousands of pages of thick reports that Glybrette said in the hidden corner of the small, "not so good" company.
When Buffett bought American Express, American Express was still a bankrupt credit card issuer, which ran out of book value because of a false warehouse receipt scandal. Most people think that the company's reputation has been shamed forever, and the market share has been snatched away by the newly-issued issuers such as Visa, Mastercard and Discover. At that time, American Express was a bloody stinky stone, hiding in a place that was not to be seen. My daughter would scream and run away when she saw such something: "Hey! Smelly dead!"
But Glin Brett, when he heard screaming complaining of stench and bloody murder, said: "Really? Let me take a look." This is where he finds hidden treasures in the stock market. These places are often black lacquered, unbearable, neglected, and often smell stinky.
According to our exclusive research, the super-investors in the history of finance are all tirelessly exploring the stinking field that is not to be seen, and turning over countless ugly stones in the dark corners where no one wants to be close. Green Brett is such an indefatigable explorer.
On Wall Street, many people will be stumped by the heights of the street. Some people will also find the banknotes and cigars lost by the ups and downs in the same heights. In Greenback's book, "You Can Be a Stock Talent (even if you are not very smart)", Green Brett generously provided a list of hidden places for treasure hunt in the stock market.
2, split
Greenback's favorite hidden treasure hunt is the spin-off. When a company splits a subsidiary into an independent company, it may release the hidden value of this unpleasant subsidiary. Greenbright cited a study that found that many of these spin-off subsidiaries were able to outperform 10% of similar companies in the same industry in the three years after the spin-off, which is surprising. What's more interesting is that the spin-off parent company can also outperform the industry by 6% in the three years after the spin-off. why? Because the previously unpopular subsidiary has been dragging down the performance of the parent company's stock, the subsidiary has been spun off, and the performance of the parent company has naturally improved. On the other hand, the subsidiary was taken before being demolished. The hidden value that is ignored is now reflected, so the performance of the subsidiary will be better.
Institutional investors are often not interested in spin-offs because the spin-off companies are usually smaller. The shares of the spin-off company are usually not sold as IPOs, but are quietly distributed to the shareholders of the parent company. Because these shareholders are usually interested in the parent company, shareholders often sell the shares of the company regardless of price or basic value. Therefore, shortly after the spin-off, the share price of the subsidiary is generally suppressed, which provides an opportunity to buy cheap goods.
Green Brett emphasized that it is very important to judge the interests of internal personnel and executives in every change of the company. If those people hold a lot of shares of the spin-off company, this means that the company has great determination to make the spin-off successful. They will provide credit and resource support.
The spin-off of the subsidiary is usually the least attractive of the many subsidiaries of the parent company. GE will never split its best-selling, best-in-class subsidiary. Unpopular and confusing "bad kids" often drag the value of the parent company. In other words, the spin-off is usually not an exciting company or a good company.
Subsidiaries to be split must submit Form 10 to the SEC (US Securities and Exchange Commission). From the perspective of professional investors, you can find a lot of useful information from the No. 10 form for detailed research.
3. M&A securities vs. merger arbitrage
Green Brett likes to buy securities. He has complex feelings about risk arbitrage based on announced mergers and acquisitions. The so-called risk arbitrage based on announced mergers and acquisitions is to buy shares of companies that have been announced to be acquired. Warren Buffett also acknowledged that the opportunity for mergers and acquisitions phasing has gradually disappeared, because this arbitrage strategy is no longer unknown, no one knows, thanks to Benjamin Graham and Buffett himself.
Risk arbitrage is subject to excessive uncertainty, such as due diligence, antitrust approval, multi-government review, shareholder voting, and changes in market conditions. Sometimes, the merger and acquisition can not be completed, I call this situation "the tiger mouth to eat, unfortunately bitten." The acquirer is prepared to buy at $20 per share, and you will try to buy it for $19.50 and then sell it to the acquirer for $20. Although this strategy is usually effective, things will go out of the way, and newcomers to the engagement have the possibility to blow the lights and wax... You have to face the possibility that the stock price will fall to $15.
However, in mergers and acquisitions, mergers and acquisitions sometimes use other securities instead of stocks to pay. The form of payment may be a bond, preferred stock, warrant or right. Institutions often shun such illiquid and complex securities, and when individual investors get such unfamiliar securities, they usually voluntarily throw them away. As a result, the price of securities will be pushed down, making them attractive bargains.
4, arbitrage
What is the most feared thing on Wall Street? Bankruptcy! This is a hidden opportunity in companies like American Express, the nearest McDonald's or Merck.
The unusual and hidden opportunity that Greenbright said is not a stock, but a bond, bank debt, and trade claim for a company that is not known and will go bankrupt.
When a company goes bankrupt, there will be a lot of eager sellers, like ants on hot pots, and few buyers of bankrupt companies.
The point in time of intervention is a very embarrassing question. Some people think that they should buy when the company is likely to complete the bankruptcy process.
Another paradox is that you need to be careful to choose the "right" bankrupt company to invest. You need to confirm that the Wall Street fried chicken you invested in will be resurrected tomorrow and will be alive and kicking. How do you determine this? (Well, you may be able to visit our website zenway.com for some help.)
5. Corporate restructuring
When a distressed company completes a major corporate restructuring, there are usually bargains to buy.
Because the reorganization has caused tremendous changes and uncertainties, everyone has escaped far. Wall Street analysts will always ignore companies that are undergoing major changes, which further exacerbates share price declines.
You can invest after the restructuring is announced, or you can invest when the company is ready to restructure. Your job is to figure out whether a major change in the company is beneficial or harmful.
Just like Buffett avoids railings as high as 7 feet tall (so high, unless you can fly over, if you trade, you might fall down your belly and fall off your neck), and Green Brett also avoids the incomprehensibility. What kind of complex reorganization has taken place. If you don't know how high the railing is, don't jump and give up.
6. Capital restructuring
Green Brett believes that capital restructuring is an investment opportunity. In the case of capital restructuring, sometimes the company will borrow to carry out stock repurchases.
The reason why the debt-to-equity capital restructuring is interesting is because the company will buy back shares to increase the leverage of the balance sheet. This will increase the tax burden and the tax burden will be passed on to shareholders.
Investors are often frightened by new debt, so stock prices will fall to attractive levels.
Greenbright believes that with regard to capital restructuring, “in the stock market, this is almost the fastest and most lucrative area of ​​research and careful analysis.â€
Source: Selected from the Columbia Business School Investment Handout
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