I'm Not the Only One Who Finds Mergers Attractive... Buffett's Dow Jones Stake

I have commented that announced mergers are some of the most attractive in my eyes these days. Given all the market volatility, an announced merger presents good return (5% to 10% for the reasonably safe ones) regardless of market direction. The only thing is that the deal needs to close.

I'm not comparing myself to the greatest investor of all time by any means but Warren Buffett just filed a report saying Berkshire Hathaway took a stake in Dow Jones. Recall that Buffett said he did not like investing in newspapers (they are glamour stocks trading at high valuations, similar to sports teams, fashion houses, etc) so this is purely an "arbitrage-type" situation. It isn't a true arbitrage because it isn't risk-free profits (that's the definition of arbitrage). There is no way to purely hedge your position here. In any case, Buffett was clearly confident that the deal will close.

Buffett has done a lot of "arbitrage-type" investments in the past. If I remember correctly, he did a lot in the 60's (don't recall if this was with his private firm or when he was working for Benjamin Graham). Also, anyone who thinks Buffett only invests in large-cap value stocks is grossly mistaken (I would recommend that they check out the young Buffett back in the 60's).

I'm looking into these situations seriously these days. I invested my mom's money in ABN-Amro (ABN), hoping to profit from that announced merger. I'm considering whether I should put my own free capital (don't have much) into ABN-Amro and then hopefully sell out by October (closing date) and switch into Tribune (TRB). I'm not sure if Tribune's stock will be trading so low by then. I'm leaning towards buying Tribune outright soon (if I think the market correction is going to stabilize). I wish I had more free money right now. I have some money but that's in my Yen-account and I don't want to swap out of that. I also have around 20% of the my portfolio in the S&P/TSX 60 2x short ETF (HXD.TO). If the TSX drop another 5%, I'll consider selling that short ETF and putting more into one of these "arbitrage-type" situations.

Comments

  1. AnonymousFebruary 10, 2008 at 3:00 PM

    There is a Buffet quote on www.madmergers.com. Check it out!

    ReplyDelete

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