Such events include
- sale of the business,
- merger,
- recapitalization,
- reorganization, and
- liquidation.
A great deal of money has been made by shrewd investors in recent years through the purchase of bonds of railroads in bankruptcy - bonds which they knew would be worth much more than their cost when the railroads were finally reorganized.
Similar large profits have been made in the preferred and common stocks of public-utility holding companies which either were being broken up under the so-called death-sentence clause of the 1935 legislation or were subject to recapitalization plans.
The underlying factor here is the tendency of the security markets to undervalue issues which are involved in any sort of complicated legal proceedings.
An old Wall Street motto has been: "Never buy into a lawsuit."
This may be sound advice to the speculator seeking quick action on his holdings.
But the adoption of this attitude by the general public is bound to create bargain opportunities in the securities affected by it, since the prejudice against them holds their price down to unduly low levels.
"In general, the market undervalues a litigated claim as an asset and overvalues it as a liability. Hence students of these situations often have an opportunity to buy into them at less than their true value, and to realize attractive profits - on the average - when the litigation is disposed off."
The exploitation of special situations is a technical branch of investment which requires a somewhat unusual mentality and equipment. Probably only a small percentage of our enterprising investors are likely to engage in it.
Benjamin Graham
The Intelligent Investor
calvintaneng
Haha!
One of my Johor buddies bought 3 million shares of Mui Bhd when it dropped to 15 cents.
It was the divorce news between kkp and Pauline that caused the selling.
And Pm Corp sold down as low as 7.5 cents.
I have seen others
Mp Corp was sold down due to lawsuits on Company and new shareholder Mr. TPY
Recently Supermax was also sold down because Stanley was charged over insider trading.
Over in the US Mold was sold down because of lawsuit. And it dragged down the price of BJ Corp to further Bargain Basement Price.
In all these Only Brave, Shrewd, Value Investors will dare to buy where others ofear to thread.
Calvin Tan Investment Maxim
VALUE INVESTORS BUY NEGLECTED VALUE STOCKS LONG BEFORE THE MARKET TURN BULLISH WHILE THE MARKET CHASE THEM LONG AFTER THEY TURNED VERY POPULAR
2015-01-18 14:54