Fortunes in Special Situations, by Maurece Shiller
Welcome to our first book review! Since we are big fans of special situations investing, we thought we would start with a little read, but very important book on the niche world of special situation investing.
Maurece Shiller wrote five books on this subject in the 1950s and 1960s. For a long time they were out of print, but a recent project lead by Tom Jacobs at http://maureceschiller.com/ has been underway to update the typeset and republish these books for a new generation of value investors.
The premise of Shiller is simple- there are often situations in which one can invest where instead of bearing market risk, one bears corporate event risk. There exist classes of well document corporate events (Shiller calls these special situations) which have a calculable return and definite workout periods. In these investments one bears the risk that the announced corporate event is not consummated.
Corporate events tend to be “market neutral” in the sense that they do not correlate well with the market. This is not an absolute truth- some corporate events, like mergers, have a stipulation that the deal can be canceled if the stock market moves more than 10% before closing. They are a good way to earn high returns, Shiller states, irrespective of what is going on in the market.
In addition to identifying some broad classes of corporate events (many of which still exist today) Shiller discusses how to analyze them, including many examples. Tom has contributed updated case studies from modern investors and fund managers. Anyone who has studied Buffet’s early partnership days will recognize that many investments he made were “special situations”. Buffett often called them “workouts”.
One weakness of the book is that it does not clarify how to find special situation opportunities. They are not as easy to find via screen, as say, classic net-net situations (one should not expect high yielding investments to be screenable). Tips and tricks in this is area is one thing we hope to build out on the site- stay tuned! Make sure to order a copy of both books (through our links on the side of the page of course)- they belong right to your copy of Security Analysis.