Last November, I purchased shares of PORK at $18. If you recall, I’ve previously written about my decisionmaking process on this purchase and concluded I’d bought at too high of a premium. It’s wobbled back and forth a bit since then, but never actually returned to $18, confirming my suspicions of paying too high a price.

On Friday, the stock abruptly jumped almost 7% to close at $17.73, about the closest it’s gotten to my purchase price since I bought it, and today it was revealed that Smithfield Foods (SFD) has announced that it plans to acquire PORK. If approved (and there might be some antitrust concerns), PORK shareholders would receive 0.678 shares of SFD and $1.25 in cash for every share they hold. SFD is currently trading at about $28.50 or so, which would make each share of PORK worth around $20.57 or so. I’m inclined to sell on the news announcement later today, especially based on my experience with PORK so far. (Update: I sold my shares at $20.40.)

I’ll be honest and say I think I lucked out on this investment in terms of not having to realize a loss on it. I’d concluded a while ago that until I know more about what I’m doing, large-cap value plays might be safer choices (assuming there are any to be found), but this has been a nice surprise. The unfortunate reality, however, is that I doubt I’d be able to consistently identify small-cap companies that will be acquired by their larger competitors to the extent that I could make a consistent return on them!

As you might recall, last month, I decided to sign up for Fat Pitch Financial’s Contributors Corner to learn and experiment with a different type of value investment called special situations investing, or workouts. For those who don’t know, George (the creator of Fat Pitch Financials) does a tidy job of researching and listing public companies that are soon to undergo mergers, go private, make tender lot offers, and other “special situations” where there’s some money to be made through a paid subscription service of $10 per month or $90 for the year. I decided to sign up for 3-months’ worth to start.

Before I left for Spain, I decided to purchase 499 shares of Advanced Nutraceuticals (ANII.OB, now BTCP.OB) at $3.46 per share. ANII was planning to turn private via a reverse split on September 8, 2006. Under the proposal, any shareholders holding less than 500 shares would automatically receive $4.00 for each share, assuming the proposal was approved.

All this data was conveniently provided on George’s site at the Contributor’s Corner, but I still read through the preliminary filing and proxy to make sure I was comfortable with the purchase. When investing in these situations, it’s important to keep abreast of SEC filings, news, and submissions. In fact, just last week, there was an announcement from the company that put in doubt that the transaction would go through, but information appearing today seems to show that the reverse split will be completed.

Read the rest of this entry »

One of the pitfalls of taking action as you learn is you occasionally make mistakes. This happened to me recently, after happily having bought some high-yielding CDs at Schwab and then realizing that there were better options out there now that we live in California (with its 9.3% income tax rate) and not Washington state (which has no state income tax).

Once again, ignoring tax implications proves perilous. But, at least I was able to find a better place to park my cash: T-bills.

Why? Unlike the CDs I purchased, interest earned from T-bills aren’t subject to state income taxes.

In fact, depending on your state income tax rate, T-bills might be a much better investment than a regular CD. For Californians like me, here’s a list of the equivalent annual percentage yields (APYs) based on the 8/17/06 1-month bill (via the t-bill thread on Fatwallet):

These are higher than the 5.3% and 5.4% 3-month CDs that I purchased (subject to state income tax) and moreover, they’re shorter-term. In fact, current rates for the 1-month T-bill are higher than the 3-month T-bills as well.

Read the rest of this entry »

Most of my free time’s occupied right now with trying to learn about some new investing vehicles and re-evaluating some of my current holdings. I’ll be sure to post any learnings, tools, or discoveries as they arise. In the meantime:

1. For value investors out there, George at Fat Pitch Financials has been generous enough to post a preliminary excel spreadsheet he’s been using to evaluate the intrinsic value of companies for his own investment decision purposes. You can download it for free, but it requires a plugin to work (available after automatically joining a group via Yahoo! groups, also for free). He’s using linear regression to forecast future free cash flows and looking for feedback.
2. This week’s Carnival of Investing is up at My 1st Million at 33. I submitted a post on what to do with employee stock options, and there are many more that run the gamut from real estate to technical analysis.

Pardon the light posting. More content forthcoming soon.

On Friday, I moved more cash from my money market fund to a 3-month 5.41% APY CD, similar to what I did previously with some CDs over at Schwab. The yield is a full percentage point above what I’m getting at my MMF. My plan is to see what the Fed decides and to re-evaluate my positions in October when my CDs mature.

One commenter pointed out that the 3-month CD would be a good investment vehicle assuming the cash isn’t needed immediately. But even if you need more liquidity, there are usually several banks offering competitive savings account rates, such as Citibank, Emigrant Direct, and HSBC. Emigrant Direct’s 5.15% APY savings account (aff) with no minimum to open is currently the best around.

It’s not necessarily my intention to stay in cash for a long time, but until I can find worthy investment vehicles, it’s great to be able to get this type of return (even if higher rates often go hand-in-hand with higher inflation).

In the meantime, I plan to start experimenting a bit with special situations investing (or as Graham termed them, “workouts”) starting with the information provided by George at Fat Pitch Financials. With his permission, I’ll discuss some of my experiences with this type of investing here.