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Special Situations & Market Inefficiencies

Special situations and market inefficiencies are highly contrarian investments that may offer huge price appreciation.  They typically fly under the radar, are “too complicated” for many investors to understand, or go against overall investor psychology.  Finding these investments takes great effort but may reap tremendous rewards.

Special Situation – a security whose price stands to appreciate sharply as a result of circumstances unique to that company.

Examples:

  • Introduction of an Exciting Product
  • Hiring of Improved Management
  • Reinstatement of Dividend or Interest Payment
  • Buyout Expectation
  • Redeployment of Assets to Unlock Value
  • Corporate Restructuring
  • Government Legislation
 

Market Inefficiency - an event that causes a security to sell temporarily at a discount to its intrinsic value.

Examples:

  • Fear Surrounding an Event
  • Extreme Media Hype
  • Global Crises
  • Lack of Coverage/Illiquidity
  • Tax Loss Selling
  • Index Rebalancing
  • Investment Complexity