Hey all, this question is for those of you with experience investing in spinoffs: when is the best time to buy shares of the entity that has been spunoff? Typically, when do you see pre-spinoff shareholders begin sell off (how long after the spinoff)? How do you identify the bottom of the dip?
For discussion purposes, assume that we are talking about some of the more obscure names (ie: not ebay/paypal type of transaction).
Would greatly appreciate any insight.
totally depends, hard to find value in a lot of spin-offs now b/c everyone gets a boner when something does get spunoff
-If there is actually going to be forced selling, which is pretty rare these days given the coverage, then after the spin.
-If you aren't running constrained money, probably during when-issued trading. See VRTV.
Thanks for the information.. looks like VRTV dipped on the day of the spinoff and one day after. I would be interested in finding some data on similar historical trends across a large number of spinoffs. For example, average dip extends through day 1.5 before correcting.
Here's something Ive long-wondered, but been too lazy to look up:
Do equity MFs have constraints against buying when-issued units?
No, but I think very few actually do. The volume on when-issued trading is quite small.
That was my thinking as well. I've always gone in through the WI units when possible, but the volume seems to cower in comparison to post-spin.
With that said, if its a real stinker (relative to the parent; defined very broadly) then you used to be able to expect the shares to trade off hardcore post-spin. Doesnt seem to be the case anymore (but it worked like 2-3years ago).
Timing the market is a scientific process that shows technical analysis guarantees superior investment results. 99% of the time it works every time.
Why don't you buy it when it trades below your valuation and includes a reasonable margin of safety? Depending on how obscure the company is many may not want the spun-off entity. That being said, predicting x number of days post corporate action is a meaningless exercise.
I generally agree with your sentiment but there are actual supply/demand trading imbalances with spinoffs and when-issued trading that everyone should take into consideration.
I'm sure lots of people thought RYAM was pretty cheap at $37 during when-issued trading. The fact that the parent company was a REIT and had a shareholder base that was totally uninterested in owning a specialty chemical company could have very well played a role in how it has traded the past few months.
Agree with your comment; thanks for the response. Just trying to get a better understanding of spin-off trading patterns. The name is already below my valuation by a nice margin- but I do anticipate a dip due to the situation and would prefer to buy-in near the bottom. If I were to buy purely based on the fact that the stock trades below my valuation, I would be ignoring the additional upside opportunity that the spin-off may present. As bmcrhino stated, there is a risk that I miss a run-up, but because I believe it is more-likely-than-not to dip it makes sense to me to wait. But yes, I agree that say x-number of days as a hard-and-fast rule is not practical.
GrayFox: Interested to hear your opinion on VRTV in a more general context if you have one. Can they expand those margins?
I didn't do any work on VRTV, I just used that as an example because of the absolutely crazy way it traded.
I looked into this at one time and came to the conclusion that, on average, you should wait ~1 month to buy spin. Sure, you'll miss some run ups (STRZA) but you'll also get a deal on some (RYAM).
VRTV looks like a complete train wreck to be honest. When Baupost came out of the closet with that one I was so surprised I had to cover my short. But that's why he has the billions, right?
Thanks for the comment; completely agree with your conclusion. I am perfectly happy missing a run-up to wait for a real bargain opportunity.
RYAM is a great short, maybe go long when the cycle comes back, sell stock till 4x EBITDA
RYAM is a great short, maybe go long when the cycle comes back, sell stock till 4x EBITDA
RYAM is a great short, maybe go long when the cycle comes back, sell stock till 4x EBITDA
The shorts have been well-rewarded. I'm not long, haven't been, and have no current plans to. I like the business but the industry fundamentals are stacked against them with all the new capacity. I've been waiting on the sidelines since it spun, waiting for a good entry point. Even after today's decline I think it still has a way to go before it becomes attractive as a long.
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