I’ve decided to follow George’s footsteps over at Fat Pitch Financials and actively manage the investments in my son’s Coverdell account. Coverdell accounts are great because you can open one up and invest the money much more freely than in a 529 plan, they’re tax advantaged, and because their funds can be applied to secondary school rather than just college and graduate school. However, the maximum contribution that can be made to a beneficiary each year and across all sources is only $2K, and contributions can only be made until the beneficiary reaches 18 years of age.
This means I need to try to grow the money in the account as much as possible while limiting any downside. Enter special situations investing, which turns out to be a great way to invest smaller amounts of money with pretty big returns. Of course, no investment is risk-free, but I’m hoping that by choosing workouts wisely, I’ll be able to get a better return on the account than if I bought a few odd-lot shares of an ETF or mutual fund.
For my first investment, I purchased 900 shares of En Pointe Technologies (whose ticker symbol was ENPT until it went private on Monday). Fat Pitch Financials’ Contributor’s Corner had it listed for some time as having entered into a merger agreement with the CEO to be bought out and taken private at $2.50/share, so when the stock dropped to $2.03 back in April, I decided the time was right.
As an aside, I have to say that for whatever reason, the fact that I was investing my son’s money somehow made the whole transaction more nervewracking even though I’ve made larger purchases of various investments in my own accounts. I guess it’s good and perhaps even normal to feel this way, but it wasn’t something I expected.
Even though ENPT had filed papers entering into a definitive agreement, the deal was far from guaranteed. The termination date (the date by which the agreement to merge could be terminated by either party) moved from July 31 to August 14, and various additional filings and amendments were submitted between the time I purchased the stock in mid-April and the announcement (yesterday) that the deal had been closed and that all shareholders would receive $2.50 for each share of stock they own.
Including the $8.95 fee I had to pay for purchasing the shares and basing the end date as of Monday, my return was 22.6%. In comparison, the S&P 500 went up about 20.5% during the same period, so I’m glad I still beat the index, even though the market has been going straight up since April. (I’ll recalculate the second figure once I receive the cash for my shares in my account. Update: received the cash in my account this morning, 8/12!) Additionally, I’ll start hunting for new workouts or special situations to invest in, and hopefully I’ll have found another good investment by the time I receive the cash in my account.