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

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>