If you have gone through Warren Buffet’s early partnership letters, you would find that he had spilt his partnership portfolio into three categories and one of most interesting category was work-outs

So what are work outs ?

Our second category consists of “work-outs.” These are securities whose financial results depend on corporate action rather than supply and demand factors created by buyers and sellers of securities. In other words, they are securities with a timetable where we can predict, within reasonable error limits, when we will get how much and what might upset the applecart. Corporate events such as mergers, liquidations, reorganizations, spin-offs, etc. Lead to work-outs. companies.

If you want to learn on how to invest in work outs (also called special situation investing / Risk Arbitrage Investing) the best book to pick up is Joel Greenblatts – You can be a stock market genius

In this post we will learn about spin off investing through a live example

First understand what is Spin offs

There are various reasons corporations opt for spin-offs, the primary ones are

Reading the scheme of amalgamation shared by company in their regulatory fillings to stock exchanges would spell out reason for spin off.… Read the rest