The Extraordinary Share Performance of Shell Companies

Thanks to The Manual of Ideas and Greenbackd for this link.

Here is some research that shows that shell companies have a 48.1% 3-month abnormal return after a reverse takeover is consummated:

October 2009 — Empirical Finance Newsletter on The Stock Price Performance of Shell Companies


Note: The above is not a recommendation nor a solicitation to purchase securities.

SG

Updated Version of Tweedy Browne's "What has worked in investing"

Tweedy Browne Company has compiled a booklet of empirical research demonstrating which investment strategies have produced exceptional returns. It is well worth a read:

"What has worked in investing" by Tweedy Browne

SG

Forced conversion of Canadian income trusts creates attractive opportunity

The other day I had a pretty good idea. It is similar to the thesis for investing in spin-offs and re-organization securities.

The government of Canada recently implemented a tax law that removes the preferential tax treatment of income trusts, which were previously untaxed at the corporate level. Without the preferential tax treatment, financially, these "businesses" are better off under the corporate structure. And as of 2011 they must all be converted to the corporate structure.

These trusts were typically held because of their high annual cash distributions yields. When these trusts convert to the corporate structure they will either cut the dividend drastically in order to keep cash in the business or change to growth oriented model in which the dividend is cut completely. What happens here is that all the pension funds, insurance companies and dividend mutual funds that had owned units in these trusts are forced to dump the units because they must hold income paying securities. The forced selling causes downwards price pressure and the price becomes disconnected from the underlying value of the company. This is an attractive purchasing opportunity; eventually the market will weigh the proper value of the company and will be reflected in the per unit price.

SG