As a follower of Warren Buffett, I learned about Berkshire Hathaway’s (BRK-A) acquisition of Burlington Northern Santa Fe (BNI) early yesterday morning. Most value investors probably were interested in learning more about how Mr. Buffett valued BNI. What is the intrinsic value of BNI? What kind of margin of safety did Buffett’s $100 per share offer represent? Was Warren Buffett revealing anything about the value of Berkshire Hathaway shares by offering Burlington Northern shareholders the option of $100 in cash or Berkshire Hathaway shares?

However, the first thing I thought of was would this potentially present a fat pitch special situation opportunity. Warren Buffett always keeps his word on merger deals. Could the Burlington Northern offer create another Constellation Energy Group (CEG) opportunity?

As you might recall, last year I made some significant profits from the Constellation Energy Group merger arbitrage. Berkshire Hathaway’s MidAmerican Energy Holdings offered $26.50 per share in cash for Constellation Energy. After the deal was announced, the price of CEG shares drift down to as low as $15 and then up to $30 last year. Mr. Market sure got moody, even with Mr. Buffett at the helm of that deal. Could the same thing happen again with BNI?

I decided to ask my Twitter followers. Here’s my question and their responses:

FatPitch: I’m hoping $BNI will dip down to $90 in the coming weeks. Do you think it will happen? Lower?

rationalwalk: @FatPitch Can’t see BNI slipping to $90…. would require crash in BRK shares well below $80K to do that.  Very, very unlikely.

marketfolly: @FatPitch could happen if market dives as many predict. at same time, few merger/arb plays out there right now; funds swarm to same plays

ModernGraham: @FatPitch If it does, it would be Mr. Market at his finest – there’s no reason for it to be anything but $100 now

MrMarketBlog: @FatPitch I doubt it. I don’t think anyone is going to doubt Warren getting this deal done

vlad0: don’t underestimate irrationality

What are your thoughts on the potential for arbitrage profits with the Burlington Northern Santa Fe deal? Share them in the comments section below or follow me on Twitter.

Sponsored By: Graham Workouts at Fat Pitch Financials Contributors Corner

The Special Situations Real Money Portfolio is a real Coverdell Education Savings Account I created for my son on October 19, 2004. I decided to dedicate this small tax sheltered account to special situation opportunities and Graham style stock workouts. Back in 2004, the primary focus was on going private transactions. Since then, I have also added tender offers, spinoffs, split-offs, net-nets, merger arbitrage, and some other unique event based opportunities.

This little investment experiment worked out much better than I ever dreamed it could. In fact, the results were so good it drew a lot of traffic to the going private transaction table I maintained here on the blog. It seemed that as soon as I posted a deal on the going private transactions table, the profit margins would evaporate.

I also became worried that some of the attention would make it back to the companies that were going private. There is always the danger that they could restructure their offers to the detriment of small individual investors. Therefore, I decided to put the going private transaction list behind a password wall and I created the premium service that I now call Fat Pitch Financials Contributors Corner. In Contributors Corner, I still maintain the going private transaction list and I also now track odd-lot tender offers, cash mergers, spinoffs, net-nets, and manage an active members only forum dedicated to discovering and discussing special situations.

This past month, the Special Situations Portfolio held steady. As I reported last month, the Special Situations Portfolio closed out September with a balance of $26,594.77. When the market closed on October 30, 2009, this account was worth $26,235.05. That’s down 1.4% for the month. Most of that decline can be attributed to one merger arbitrage opportunity that I recently entered, which has subsequently declined in price.

The year-to-date performance for the portfolio remains a strong 41.38% return. Looking back at the portfolio’s performance since inception on October 19, 2004, the Special Situations Real Money Portfolio has produced a total return of 162% as of the close of business on October 30, 2009. The average annualized return since inception remains an amazing 29.0%.

I entered three new positions this month. The names of those stocks are available to members of Fat Pitch Financials Contributors Corner. They include two merger arbitrage plays and one small going private transaction.

I only completed one transaction in October and it involved New Horizons Worldwide (NEWH). Back on April 20, 2009, I bought 24 shares of New Horizons Worldwide at $0.56 per share. My total cost for this tiny transaction was $20.39. This reverse/forward stock split going private transaction was expected to pay out $1.85 per share in cash to shareholders holding less than 25 shares. There was not much profit potential in this transaction, but I thought it would make for a great learning opportunity for new special situation investors. I only picked up these shares when the price dropped significantly down to $0.56. Limit orders are critical on these types of trades given the low liquidity. On October 9th, I was finally cashed out. I received a total of $44.40 for my 24 shares.  That comes out to a 118% return in less than six months. It’s hard to turn down that kind of return, even if the overall payout is only $24.01.

I hope next month I’ll be able to share the results of some larger transactions. Until then, you can track my current trades by becoming a premium member of Fat Pitch Financials Contributors Corner.

Disclosure: I no longer own shares of New Horizons Worldwide (NEWH).

Sponsored By: FPF Contributor’s Corner Special situation opportunities in the stock market for small time investors.

It has been quite a while since I’ve updated folks on the status of my Fat Pitch Financials Value Portfolio.  I launched this paper portfolio back in September of 2004 on Marketocracy with a virtual starting balance of $1 million and a per share value of $10. I created this paper portfolio shortly after I started the Fat Pitch Financials blog as a way my readers could track my stock picks. Now over five years later, I think it paints a pretty good picture of how my long term value stock picks have performed.

Since I last reported at the end of  May on the Fat Pitch Financials Portfolio, the portfolio has recovered from a balance of $946,732.78 to its closing value on October 30, 2009 of $1,146,935.59. That’s up over 21% in five months. Year-to-date the FPF Value Port is up 32.45% versus just 17.05% for the S&P 500. The orange line in the graph below shows how the Fat Pitch Financials Port has done over the past year.

12 Month Price History for the Fat Pitch Financials Port (as of October 31, 2009)

As you can see, the strongest recovery occurred from March through May. Since the beginning of August, the portfolio has been rather flat, except for the rally that occurred in mid-October.

Returns as of October 31, 2009

As you can see in the table above, the FPF Value Port gained 2.66% in October, whereas the S&P 500 lost 1.86%. Over the past 12 months, the Fat Pitch Financials Port gained 25.27%, outpacing the 11.49% total return for the S&P 500 over that same period. Since inception in September of 2004, the FPF Value Port produced an annualized return of 2.66% versus the 0.38% return of the S&P 500. I’m proud that I’m beating the S&P 500 by 2%, but I hope to increase this margin substantially over the coming years.

For the six month period ending September 30, 2009 Fat Pitch Financials Portfolio outperformed 84.3% of the other funds on Marketocracy. My goal now is to get into the top 5% of funds tracked at that site. I hope to do that by deploying the remaining $155,814.29 in cash in my fund in some great fat pitch opportunities as the current market recovery falters.

Current Positions as of October 31, 2009

My best performing position is currently Microsoft (MSFT). At one point it seemed like I was the only value investor talking about Microsoft. However, lately I’m starting to read that many other investors are starting to get interested in this industry giant. The roll out of the new Windows 7 operating system will be a major milestone for this company. I’ll have to watch closely at how it turns out.

Disclosure: I own shares of Western Sizzlin (WEST), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).

Sponsored By: Special Situations Join FPF Contributor’s Corner for the latest arbitrage & special situations.

Here are the top stories of the week at Value Investing News:

1. Walter Schloss Collection
   Inspired by the Walter Schloss: 16 Golden Rules For Investing, I thought i would share my little collection that I have found over the past 2 years or so. A hat tip goes out to Mr. Market Blog for compiling all this great information.
2. 5 Great Companies to Research This Weekend
   Looking for some companies to research this weekend? Here are five that I like. Each passes the ModernGraham tests for the Enterprising Investor, based on the teachings of Benjamin Graham.
3. 10 Stocks Taking Their Dividends Up A Notch
   There have always been great companies that stand head-and-shoulders above their peers and the competition. Just as all great companies have have something in common, great dividend companies also have something in common.
4. Face-Off: Pharmaceutical Distributors
   MagicDiligence puts 3 competitors, all Magic Formula stocks, up against each other in this face-off of pharmaceutical distribution companies.
5. 3 High-Yield Telecom Dividend Stocks
   Adding a degree of risk to your income portfolio can potentially boost your returns. Obviously, this needs to be kept in check because many (most?) risky investments never pan out. So instead of a boost in return, the risky investments end up being a drag on your portfolio.
6. Is now the time to sell your dividend stocks?
   The strong bullish move off of March 2009 lows has lifted many stocks, thus creating large unrealized paper gains for many dividend investors. While prices have enjoyed a steep run-up, dividend yields, which move inversely to prices, have declined in the process.
7. Evan Davis of BBC Talks With Warren Buffett
   BBC’s Evan Davis conducted a great interview with Warren Buffett. I thought it was an entertaining interview in which multiple subjects were covered such as investing, taxes, crisis , derivatives, etc..
8. David Sokol: Looking More Like Buffett’s Successor
   David Sokol appeared on CNBC this morning and commented on a variety of topics. It appears that Mr. Sokol is not only taking on more operational responsibilities at Berkshire Hathaway subsidiaries but is also appearing in public more often and commenting on a wider range of topics.
9. Ideas from the 2009 Value Investing Congress New York
   Investment ideas from the 5th annual Value Investing Congress in New York. Includes stock ideas from Bill Ackman, Whitney Tilson, Alexander Roepers, Julian Robertson, David Einhorn, David Nierenberg, and more.
10. The Financial Crisis as a Symbol of the Failure of Academic Finance?
    The failure of academic finance can be considered one of the symbols of the financial crisis.

Be sure to check out the new Tools and Community drop down tabs on the home page of Value Investing News. Have a great weekend!

Sponsored By: Arbitrage Special situation opportunities in the stock market for small time investors.

This past Monday top value investors from across the country gathered in New York to discuss their investment ideas at the 5th annual Value Investing Congress. I was planning to attend, but some unforeseen events back at home prevented me from traveling to New York. Thankfully, since I was registered for the event, I have access to all the presentation slides. I read through all the presentations yesterday and here are the investment ideas that were shared at the conference.

David Nierenberg of the D3 Family of Funds discussed Brooks Automation (BRKS) management turnaround. A similar process is underway at Move Inc. (MOVE). Nierenberg sees the potential for MOVE to go up by 3.5 times or more. His final pick is Heartland Payment Systems (HPY). Nierenberg believe Heartland Payment Systems has exemplary governance and management, but has faced other challenges including a security breach of their processing network and the forced sale of the CEO’s stock position in the company. Here he sees the potential for the stock to go up three fold.

Sean Dobson of Amherst Securities Group discussed investing and distressed RMBS securities. See Todd Sullivan’s video on Wall Street Media for more details on this excellent real estate presentation.

David Einhorn of Greenlight Capital is investing for inflation. He has bought gold via the ETF SPDR Gold Shares (GLD) and he is now buying physical gold, which he now favors over the ETF.  Einhorn said, “Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible.” Einhorn considers his gold position a better alternative to holding cash. David Einhorn has also bought long-dated options on much higher U.S. and Japanese interest rates. He noted that the options in Japan are particularly cheap because the historical volatility is so low. I prefer options to simply shorting government bonds, because there remains a possibility of a further government bond rally in response to the economy rolling over again. You can read a complete transcript of his presentation titled, Liquor Before Beer… In the Clear by clicking on this pdf link.

Joel Greenblatt of Gotham Capital discussed Formula Investing, his new online management venture. His investment ideas are really the current picks of the Magic Formula.

Julian Robertson of Tiger Management did not prepare a presentation, so I’m not certain exactly what his recommendations were.  According to what I’ve read, Robertson is still bullish on Mastercard (MA) and Visa (V). His more recent picks include Intel (INTC) and Google (GOOG). He is also bearish on the UK Pound Sterling and bullish on the currencies of Norway, Czech Republic, and New Zealand.

Lloyd Khaner of Khaner Capital Management shared several turnaround examples. The first one was Molex, Inc. (MOLXA) with a one-year turnaround. The second example was Praxair, Inc. (PX) with a three-year turnaround. The final past example was Campbell Soup Co. (CPB) that is approaching the end of a five-year turnaround. Finally, Khaner shared his recent turnaround play, Starbucks Corporation (SBUX), where he expects a one-year turnaround.

Candace King Weir & Amelia F. Weir of Paradigm Capital Management gave a presentation on bottom up stock picking. They favor small cap stocks and also mentioned the specialty retail sector.

Paul Isaac of Cadogan Management  shared his pick, Waste Management (WM). He called it “the Michigan J. Fox of the Large Cap Market.”

Jason Stock and William Waller at M3 Funds discussed opportunities in banks and thrifts. One of their favorite long ideas is Beneficial Mutual Bancorp (BNCL). It is trading at 79% “fully converted book value.”

Kian Ghazi of Hawkshaw Capital Management presented a detailed analysis of Core-Mark Holding Company (CORE). Ghazi valued the stock at between $45 and $50 per share with a potential upside of 50 to 70 percent.

Eric Sprott of Sprott Asset Management recommended Norseman Gold PLC (ASX: NGX), Corridor Resources (TSX: CDH), and Sensio Technologies (TSX-V: SIO).

Alexander Roepers of Atlantic Investment Management provided a case study on The J.M. Smucker Company (SJM). His12-month target price for Smuckers shares is $74, based on 12x EV/EBIT on FY2011 estimates.

Whitney Tilson and Glenn Tongue of T2 Partners presented more grim mortgage numbers. Their stock ideas included shorting the homebuilders via the iShares Dow Jones US Home Construction ETF (ITB) and going long shares of Iridium (IRDM).

Zeke Ashton of Centaur Capital Partners recommended Alleghany (Y). He values the shares at $340-345 using a sum of the parts valuation. Ashton’s second pick was Lab Corp (LH). He assumes that if the market assigns a 15-17X FCF multiple, LH is worth $95-105. Ashton’s final pick was MVC Capital (MVC). It is trading to at a 45% discount to net asset value, but there could be some significant risks.

Bill Ackman of Pershing Square presented on Corrections Corp of America (CXW). He believe it’s worth $40-$54 per share. Ackman also followed up on his short idea Realty Income (O) which he presented on October 6th at the Great Investors’ Best Ideas symposium.

I hope to follow up on several of these investment ideas over the next few days.

Disclosure: I do not own shares of any of the stocks mentioned in this article at the time it was posted.

Sponsored By: Graham Workouts at Fat Pitch Financials Contributors Corner

It was a busy week for value investors. The week started out with the Value Investing Congress in New York and ended with several major earnings announcements. Here are the top stories value investors rated on Value Investing News this week:

1. Apple’s Soar Means Future Sores
2. Venturing for Value
3. Joel Greenblatt Bloomberg 10-19-09
4. Joel Greenblatt On CNBC
5. Selling Options is no free lunch
6. 4 “Not Quite” Magic Formula Stocks
7. Six Dividend Stocks for current income
8. 8 Dividend Stocks With The Right Stuff
9. David Einhorn, Greenlight Capital, “Liquor before Beer… In the Clear”
10. International Diversification Begins At Home

Sponsored By: FPF Contributor’s Corner Special situation opportunities in the stock market for small time investors.

If your weather is anything like it is here, you will likely be spending the weekend at home. Brew up a good cup of coffee and browse through these top Value Investing News stories:

1. Debt coverage for sustainable dividends
2. 5 Problems with a Long-term Stock Holding Period
3. Dividend Payout vs. Free Cash Flow Payout
4. Timing The Market
5. The DIV-Net: Stock Analysis: Wal-Mart Stores, Inc. (WMT)
6. Market volatility and how to handle it
7. 9 John Wooden Quotes for Value Investors
8. A look at 5 Defensive Plays 1 Year Later!
9. Cash Flowing & Growing!
10. MFI Stock Review: DynCorp (DCP)

Also be sure to check out this past week’s Festival of Stocks at TIPBlog.in. Keep dry and have a great weekend!

Sponsored By: Special Situations Join FPF Contributor’s Corner for the latest arbitrage & special situations.

Start your weekend reading off with these top stories of the week from Value Investing News:

• Warren Buffett On Ben Graham via www.valueinvestingpro.com
• Magic Formula Weekly Roundup 10/3 via www.magicdiligence.com
• Lockheed Martin Corporation (NYSE: LMT) via www.jonathangoldberg.com
• 3 Big Names, 3 Big Dividend Increases via dividendsvalue.com
• MFI Stock Review: Dun & Bradstreet (DNB) via www.magicdiligence.com
• The return of the financial dividends via www.dividendgrowthinvestor.com
• Boost Returns By Selling Options via www.jonathangoldberg.com
• SYSCO Corporation (SYY) Dividend Stock Analysis via www.dividendgrowthinvestor.com
• Latest Issue of Columbia Business School’s Graham and Doddsville via www.grahamanddoddsville.net
• Emotionless Dividend Investing via www.dividendgrowthinvestor.com
• Submit Questions: Interview with a Bank Analyst via streetcapitalist.com
• Company of the Week – Baker Hughes Inc (BHI) via www.moderngraham.com

I also want to let you know about the October contest at Value Investing News. This month we will be giving away three subscriptions to MagicDiligence. You won’t want to miss this opportunity.

Welcome to the October 5, 2009 edition of the Festival of Stocks.  The Festival of Stocks is a blog carnival dedicated to highlighting bloggers best posts on stock market related topics. Fat Pitch Financials is the actual birth place of this online weekly event, so it is always a special occasion when I get the chance to host this roving event.

If you aren’t already familiar with my blog, Fat Pitch Financials, it is a value investing blog with a focus on wide moat companies selling at substantial discounts and Graham style workouts. I encourage you to subscribe for free to my blog feed to keep up with my latest postings.

You should also check my Fat Pitch Financials Contributor’s Corner while you are here. It is my premium members only community dedicated to unique arbitrage and special situation opportunities.

Now that you are familiar with Fat Pitch Financials, let’s take a look at this week’s Festival of Stock participants. Here are this week’s entries:

Special Situations Real Money Portfolio September 2009 Update post here at Fat Pitch Financials, saying “This real arbitrage and special situations portfolio was up 3.9% in August and year-to-date is now up 43.3%! Check out the latest completed trades.”

Top 20 Canadian Dividend Stocks posted at The Financial Blogger, saying, “Considering the economic context, I would rather invest in a Canadian corporation than any other company. Since the banking system has proven to be as solid as rock, Canadian stocks have their feet on solid ground enabling them to jump even higher.”

Quick Take: United Online Inc (UNTD) posted at MagicDiligence, saying, “United Online is a “mini-conglomerate” consisting of one decent business, FTD, and two in long-term decline, Classmates and NetZero. A low valuation and a nice dividend yield may make it an interesting look for some MFI investors.”

7 Magic Formula Health-Care Stocks posted at Value Investing Pro, saying, “Throughout the years, certain trends develop within the Magic Formula Investing system that one takes notice of. For example, when earnings season arrives, there are more stocks moving in and out of the magic formula screen. Another trend that arises is the number of magic formula stocks that appear when a whole sector is under pressure, in this case the health-care sector.”

888 Characters About Twitter posted at Value Journal. “Damodaran has some thoughts on the recent $100 million T Rowe Price investment to acquire 10% of Twitter.”

RPM International Inc. (RPM) Dividend Stock Analysis posted at Dividends Value, saying, “RPM International Inc. makes specialty coatings and products for the structural waterproofing and corrosion control markets, as well as products for the consumer, do-it-yourself and hobby markets. Linked here is a detailed analysis and commentary.”

Feels Like a Correction is Coming posted at My Wealth Builder. “To me, it feels like a market correction is coming soon. Here are some of the factors that may lead to a correction…”

Passive Investing Protection with Options Collars posted at Blueprint for Financial Prosperity. “This is a guest post written by Mark Wolfinger of the investing blog Options for Rookies”

Floor Traders: Emini Day Trading, Dow Futures, Commodities and Forex, Part 2 posted at Top Dog Trading, saying, “Part 2 of Video Series that pulls back the curtain on floor traders.”

Van Eck Africa ETF posted at OneMint, saying, “Analysis of the Van Eck Africa ETF”

Federal Reserve: Extended Period posted at Good Financial Cents. “The dollar rose about 1% late last week, the most sizable move to the upside in a month, after hitting the lowest level in a year on Wednesday. The rise in the dollar was accompanied by a move toward high quality investments driving declines in stocks and commodities.”

The Federal Reserve Is Being Run by a Money Printer posted at Stuck On Wall Street. “I have huge respect for Marc Faber. His analysis goes way beyond the mainstream pep talk.”

Is This A Double Dip Recession? posted at Financial Highway, saying, “According to some the recession is over, yet other experts believe this will be a double dip recession. Is this a double dip recession?”

Why Fidelity Sucks posted at My Dollar Plan. “I just sent in our contributions, and they were rejected. Apparently they closed my account, because my name didn’t match their records.”

This Is Why I Trade with Scottrade posted at The Sun’s Financial Diary. This blogger list two main reasons why they are with Scottrade.

When Will I Be A Millionaire? posted at Banker Saver, saying, “Do you wonder when you’ll be a millionaire? Depending on how you invest your savings, you can become a millionaire in a reasonable amount of time.”

***

That concludes this edition of the Festival of Stocks. Be sure an leave comments as you visit each of the blogs that participated in this week’s Festival of Stocks. They’ll appreciate knowing folks are reading their articles.

Next week’s Festival of Stocks is still looking for a home. If you are interested in volunteering to host a future edition of the Festival of Stocks, just contact me right away with the name of your site, blog URL, email address, and the date your prefer to host. Submit your blog article to the next edition of Festival of Stocks using our carnival submission form. Past posts and future hosts can be found on our Festival of Stocks index page for those of you interested in reviewing the archives.

Sponsored By: Arbitrage Special situation opportunities in the stock market for small time investors.

As we head into the weekend, be sure to check out these top stories of the week at Value Investing News:

1. Magic Formula Weekly Roundup 9/26
2. MFI Stock Review: United Online (UNTD)
3. Dividend Report: Shoppers Drug Mart (SC)
4. Book Review: The Essays of Warren Buffett by Lawrence Cunningham
5. Utility dividends for current income
6. Brokers Bah!
7. Two Companies Trading at Their Cash Value
8. Big bargains in beaten-down stocks – Bruce Berkowitz
9. Protecting Your Dollars With Foreign Currency
10. Miguel Barbosa Interviews Michael Mauboussin: Author, Investor

I also recommend the following financial blog carnivals:

• Festival of Stocks
• Carnival of Personal Finance
• Money Hacks Carnival
• Carnival of Financial Planning

I also announced the winners of the September Contest at Value Investing News. The three winners are getting a free copy of Building the Next Berkshire Hathaway.

Sponsored By: Graham Workouts at Fat Pitch Financials Contributors Corner

A few days back, I reported that the Special Situations Real Money Portfolio ended the month of August with a balance of $25,602.10. I’m happy to report that the portfolio gained another 3.9% this month. The portfolio closed today with a balance of $26,594.77.

The year-to-date return on the portfolio is now up to 43.3%.  Looking back at the portfolio’s performance since inception on October 19, 2004, the Special Situations Real Money Portfolio has produced a total return of 166% as of the close of business today. The average annualized return since inception is now an amazing 30.2%.

Let’s take a look at some of the transactions that took place this past month. On August 14, 2009, I bought 249 shares of Zareba Systems (ZRBA) for $3.65 per share. Zareba Systems is planning to go private via a reverse stock split followed by a forward stock split. The company plans on cashing out shareholders holding less than 250 shares. Shareholders holding less than 250 shares will be given $5.20 per share in cash when the reverse/forward stock split occurs. On September 10th, the company decided to call off the deal. On the morning of September 14th, I sold the 249 shares of Zareba Systems (ZRBA) for $4.9001 per share. I made a nice net gain of 32.5% on this transaction ($297.37 it total profit). That’s extremely good (and lucky) given that this going private transaction was canceled.

Also on September 14th, I sold all 1,500 shares of Heely’s (HLYS) in the Special Situations Real Money Portfolio at $2.75 per share. Shares of Heely’s were up almost 20% on September 14, 2009 with no real news, so I thought it would be prudent to sell, especially considering $2.75 is close to my original calculation of $2.96 in net current asset value per share. It is likely that Heely’s NCAV has declined since my original estimate and I’m not comfortable holding this company above its liquidation value. I originally bought those 1,500 shares on May 20, 2009 at $1.83 per share. My cost basis is $2,751.95. I received $4,118.05 in proceeds from the sale. That’s $1,366.10 in profit from that investment, which comes out to a 49.6% net gain in less than four months.

At the end of September, I now find myself with a relatively large cash balance of $22,950.61. Market conditions are changing and hopefully the new wave of M&A activity will help me find some new opportunities to deploy my cash. However, I want to avoid taking on too much market risk. I think the economy could go either way at this time, so I’m going to remain cautious.

Sign up for my premium Fat Pitch Financials Contributors Corner to track my research and follow my next moves in the Special Situations Real Money Portfolio.

Disclosure: I no longer own shares of Zareba Systems (ZRBA) or Heely’s (HLYS) at the time of publication.

Sponsored By: FPF Contributor’s Corner Special situation opportunities in the stock market for small time investors.

It’s been a few month’s since I’ve last reported on the performance of my Special Situations Real Money Portfolio. The Special Situations Real Money Portfolio ended the month of June with a record balance of $23,579.28.  By the end of July, that account balance increased to $24,563.65 and by the end of August, the Special Situations Real Money Portfolio climbed to $25,602.10. That’s a nice steady climb, which is rather unusual for the Special Situations Real Money Portfolio.

At the end of August, the portfolio was up 8.6% since the end of June.  Better yet, the Special Situations Real Money Portfolio was up 38.0% year-to-date on August 31, 2009. That crushes the S&P 500 year-to-date total return of 14.97% over the same period.

Looking back at the portfolio’s performance since inception on October 19, 2004, the Special Situations Real Money Portfolio has produced a total return of 156% as of August 31, 2009.  The average annualized return since inception is now an amazing 29.62%. Given the devastating market collapse of 2008-2009, I can now confidently say that the Special Situations Real Money Portfolio has been the most successful financial experiment of my life. This experience has altered my outlook on investing.

Let’s take a look at some of the transactions that took place this past summer. First, I bought 99 shares of Greenville Federal Financial Corp. (GVFF) at $4.90 per share on July 9, 2009. The company plans on going private through a tender offer. On July 16, I turned around and sold those 99 shares for $6.45 per share. I made a quick $139.53, a 28.3% return on that eight day investment.

Next I picked up 499 shares of Collectors Universe (CLCT) by accident on July 13, 2009 for $4.52 per share. This purchase occurred after the tender offer expired, and shares of CLCT have traded down to $4.10 right after I bought the shares. I forgot to lift a limit order I had placed several weeks earlier to purchase Collectors Universe. It was a careless mistake. On July 28, 2009, I sold 100 shares of Collectors Universe (CLCT) for $4.25 per share and then on July 31st I also sold the remaining 399 shares for $4.25 per share. All told, this little mistake cost the Special Situations Real Money portfolio $155.65. The return on that botched move was -6.9%.

On July 20th, I sold 2,000 shares of En Pointe Technologies (ENPT) for $2.38 per share. After that trade, I still had 3,000 shares of ENPT in the portfolio.  On August 11, 2009, I received $7,500 for the remaining 3,000 shares of En Pointe Technologies (ENPT). I got the expected $2.50 per share cash out for the En Pointe Technologies. I originally bought these 3,000 shares of En Point Technologies on March 31, 2009 for $2.06 per share. My total profit from this transaction came out to $1,320. That’s a nice 21.4% return for this straight forward going private transaction merger.

I few new developments occurred earlier this month. I’ll update you on those transactions in early October. If you want to know what those transactions were and want to see my current holdings, I recommend that you subscribe to Fat Pitch Financials Contributors Corner. A subscription to Contributors Corner will also gain you access to my current special situations research, the archives of all the past deals covered, and the intelligent community discussion among current members.

Disclosure: I no longer own shares of Greenville Federal Financial Corp. (GVFF), Collectors Universe (CLCT), or En Pointe Technologies (ENPT) at the time of publication.

Sponsored By: Special Situations Join FPF Contributor’s Corner for the latest arbitrage & special situations.

Here are the top stories of the week at Value Investing News:

1. Banks And Value Investing
2. Are High Dividend Stocks worth it?
3. Magic Formula Stock Review: Corus Entertainment (CJR)
4. Yahoo Are You Kidding Me?
5. Magic Formula Weekly Roundup 9/12
6. 9 Stocks Increasing Their Dividends
7. Maintenance Capex Calculation Bruce Greenwald Method
8. Value Investing Framework
9. Why I am Short Apple (AAPL)
10. Warren Buffett on Lehman Brothers

Also, be sure to check the September contest at Value Investing News. We are giving away three copies of the latest value investing book, Building the Next Berkshire Hathaway.

Sponsored By: Arbitrage Special situation opportunities in the stock market for small time investors.

Warren Buffett was recently interviewed at Fortune’s Most Powerful Women Conference. The video of the interview is available below and I highly recommend it.

The main topic of the interview concerned the failure of Lehman Brothers. According to Mr. Buffett, the government indicated they didn’t have the authority to bail out Lehman. British authorities said that such a large transaction would have required a shareholder vote. Warren Buffett stated that he felt that Lehman should have been transferred in a more orderly fashion. A lot more value was lost due to the chaotic nature of the way things ended with Lehman Brothers. If Merrill Lynch wasn’t sold, Buffett speculates that it too would have failed at the same time and potentially even caused more chaos in the markets.

Apparently, Mr. Buffett was contacted before Lehman Brothers declared bankruptcy about a deal. The head of Barclay’s called Mr. Buffett the weekend before with a transaction to help them acquire Lehman. The transaction was just too complicated for him to understand. Mr. Buffett asked for more details, but never received a fax he requested with more details regarding the transaction. If Mr. Buffett didn’t understand it, who knows how convoluted it must have been.

AIG also wanted help from Warren Buffett. He turned down their first offer for their property and casualty business. Then AIG came back shortly with a reinsurance transaction, but that ultimately blew up even though Buffett was interested in that deal.

When asked what worse things didn’t happen in the crisis, Warren Buffett thinks that it would have been much worse if the Fed didn’t act to guarantee commercial paper. Merrill could also have gone the same day as Lehman Brothers. If that happened, who knows what might have happened in the markets. The real heroes of the financial crisis according to Mr. Buffett were Bernanke and Paulson. We made it through this “economic Pearl Harbor” with their help.

Mr. Buffett thinks we are a lot better off than we were one year ago. When asked about the chances of a second downfall, Mr. Buffett thought the odds were against that unless there is a terrible exogenous event. “We are on the mend,” he quipped. Mr. Buffett also indicated that residential real estate has gotten much better. I was a bit surprised at Mr. Buffett’s assessment of the current economic situation. I’m a bit more skeptical of this recovery, but I’m starting to rethink that now.

When asked about what indicator of economic activity he would watch, if he could only choose one, Mr. Buffett stated that freight carloadings and truck tonage moved would be the ones he would track. I’ve been keeping an eye on air freight, but now I’m considering adding those two metrics to my tracking radar. After a quick search, I found the Weekly Railfax Rail Carloading Report.

The topic of Kraft’s (KFT) offer for Cadbury (CDY) came up. Interestingly, Warren Buffett stated that he thinks Kraft’s stock is undervalued. Mr. Buffett believes that this undervalued stock price is what is disadvantaging Kraft in its attempt to acquire Cadbury. Mr. Buffett thinks Kraft’s offer for Cadbury is “full price,” and the CEO will need to do a lot of things right to justify this price. If Kraft doesn’t end up acquiring Cadbury, buying shares of Kraft (KFT) below $26 a share might be a no-brainer.

Disclosure: I own shares of Kraft (KFT) at the time this article was posted.

Sponsored By: Graham Workouts at Fat Pitch Financials Contributors Corner

Welcome to the September 14, 2009 edition of the Festival of Stocks.  The Festival of Stocks is a blog carnival dedicated to highlighting bloggers best posts on stock market related topics. Fat Pitch Financials is the actual birth place of this online weekly event, so it is always a special occasion when I get the chance to host this roving event.

If you aren’t already familiar with my blog, Fat Pitch Financials, it is a value investing blog with a focus on wide moat companies selling at substantial discounts and Graham style workouts. I encourage you to subscribe for free to my blog feed to keep up with my latest postings.

You should also check my Fat Pitch Financials Contributor’s Corner while you are here. It is my premium members only community dedicated to unique arbitrage and special situation opportunities.

Now that you are familiar with Fat Pitch Financials, let’s take a look at this week’s Festival of Stock participants. Here are this week’s entries:

China ETF List posted at OneMint. ETFs that give you exposure to Chinese stocks.

The Main Question Might Be Getting Answered posted at Prudent Money Market Outlook.

MFI Stock Review: CGI Group (GIB) posted at MagicDiligence. CGI Group is the largest IT consulting and outsourcing firm in Canada. There is nothing to be excited or concerned about here, and with a cheap valuation the stock is likely to deliver MFI investors decent returns.

WW Grainger Inc. (GWW) Dividend Stock Analysis posted at Dividends Value. Grainger (W W) Inc. is the largest global distributor of industrial and commercial supplies, such as hand tools, electric motors, light bulbs, and janitorial items. Linked here is a detailed analysis and commentary.

Leveraged Funds Switching from Daily to Monthly – Great News! posted at Everyday Finance. This article highlights some changes coming to the leveraged fund business which will be a net positive for investors (not so much for traders!).

Paying millions for a domain name? Crazy? Not so fast… posted at Intelligent Speculator. To many, someone paying $5.1 million for a domain name such as Toys.com is insane and a bad business decision.

Warren Buffett Stock Picks: Part 4 posted at Old School Value. In this post, Jae analyzes Berkshire Hathaway (BRKa) holdings: USG Corporation (USG), Union Pacific Corp (UNP), United Parcel Service (UPS), United Health (UNH), Wal-Mart (WMT), Washington Post (WPO), and Wellpoint (WLP).

The Importance Of The Price to Book Metric posted at Barel Karsan. How useful is price to book value as a metric? This article examines the research of Bauman, Conover, and Miller.

Investment Plans for the Rest of 2009 posted at My Wealth Builder.

Registered Education Savings Plan (RESP) | The Canadian Finance Blog posted at The Canadian Finance Blog. Registered Education Savings Plans (RESPs) allow Canadians to save for a child’s post-secondary education.

Building A Retirement Portfolio posted at Investing Toolkit.

Broker Reviews

Online Stock Brokers With Cheap Brokerage Fees posted at The Smarter Wallet.

Discount Brokerage IRA Comparison posted at The Oblivious Investor. A comparison of all the major discount brokerage firms, intended to help you determine the lowest cost place to open an IRA.

Cheap Stock Trades at Discount Stock Brokers posted at Blueprint for Financial Prosperity.

Scottrade Review: Top Brokerage For Small Investors posted at The Digerati Life.

Best Discount Brokers for Online Stock Trades and Option Trading posted at The Dough Roller. A review of the top discount brokers for online stock and options trading.

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That concludes this edition of the Festival of Stocks. Be sure an leave comments as you visit each of the blogs that participated in this week’s Festival of Stocks. They’ll appreciate knowing folks are reading their articles.

Next week’s Festival of Stocks is still looking for a home. If you are interested in volunteering to host a future edition of the Festival of Stocks, just contact me right away with the name of your site, blog URL, email address, and the date your prefer to host. Submit your blog article to the next edition of Festival of Stocks using our carnival submission form. Past posts and future hosts can be found on our Festival of Stocks index page for those of you interested in reviewing the archives.

Sponsored By: FPF Contributor’s Corner Special situation opportunities in the stock market for small time investors.

Welcome to the August 24, 2009  edition of Festival of Stocks. The Festival of Stocks is a blog carnival dedicated to highlighting bloggers best posts on stock market related topics. Fat Pitch Financials is the actual birth place of this online weekly event, so it is always a special occasion when I get the chance to host this roving event. Here are this week’s Festival of Stocks participants:

Warren Buffett Stock Pick Portfolio posted at Old School Value, saying, “A look at the intrinsic value and stock holdings of Berkshire Hathaway run by Warren Buffett. Graphs and fair value estimates included.”

Short interest posted at StockWeb, saying, “What is short interest and where to find useful information. Short interest filter, short interest in chart and reports.”

Jim Rogers On CNBC August 11, 2009 posted at All Things Jim Rogers.

Best Way to Profit from Over Valued Oil Prices posted at Investing in Canada: Best Investment Blog, saying, “Why oil is over priced and a simple way to make a huge profit if oil does come off strong.”

Investment Real Return posted at ABCs of Investing, saying, “A simple explanation of investment real return.”

Religare Enterprises | Financial Services posted at Indian Markets – Your investments in India.

Investments for Beginners: Types of Mutual Funds posted at Internet Stock Trading for Beginners.

Do Leveraged ETFs Have a Place in Client Portfolios? posted at ETFdb.

Update on QLTI posted at Experiments in Finance.

Quick Take: Hillenbrand Inc (HI) – MagicDiligence posted at MagicDiligence, saying, “Hillenbrand, a recent spin-off of Hill-Rom, is the holding company for Batesville Casket, the leading player in the casket industry. With a strong brand, a good dividend, and a predictable business, Hillenbrand is an interesting look for conservative or dividend investors.”

Kimberly-Clark Corporation (KMB) Dividend Stock Analysis posted at Dividends Value, saying, “Kimberly-Clark Corporation is a global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark. Linked here is a detailed analysis and commentary.”

Starwood IPO Benefits Underwriters – Investors Take Losses posted at ZachStocks, saying, “The Starwood IPO has traded off largely due to the fact that 6% of the IPO price was funneled to the underwriters. Weakness in the commercial mortgage market may present a challenge for STWD investors”

Chubb (CB) Dividend Stock Analysis posted at Dividend Growth Investor.

How to Choose the Right ETF posted at Diversified Focus.

Option Hedge Strategy: 2 by 1 Put Spread is Cheap and Effective posted at Everyday Finance, saying, “This article provides a low-cost way to hedge the recent rapid runup in the stock market by using a ratio spread, which can return over 2000% with a nominal cash outlay.”

Unlock Your IRA: How to Cash Out an IRA Without Penalty posted at Blueprint for Financial Prosperity.

India Fund (IFN) Trade Example posted at My Simple Trading System.

John Wiley & Sons – Stock Analysis for Dividend Portfolio posted at Dividend Tree, saying, “I like JW.A diversified revenue stream and geographical presence. Overall, it is a US based company that will provide hedge against dollar fluctuation and proxy for foreign developed/emerging markets. It has been raising dividends for last 16 years.”

Five Good Stocks for Long Term Investor posted at TIPBlog.in, saying, “The 20s and 30s investors must realize that the fast pace investing (or trading) does have potential high returns in a very short time. However, it also comes with very low probability of success and very high risk.”

The Outlook for Distressed Debt posted at Distressed Debt Investing.

Euro vs Dollar (USD): Weak US Dollar Ahead? posted at The Smarter Wallet.

Facing Investment Risks: Watch Your Money! posted at Investing Toolkit, saying, “On investment risks.”

What the Heck is an Asset? posted at Investing School, saying, “We always use the term but what is it really? Here’s a brief explanation.”

How To Survive a Stock Market Crash posted at Jeff Rose.

Scottrade Review posted at Money Ning, saying, “Scottrade has demonstrated its customer focus as a key driver to its growth. If you haven’t checked them out yet, definitely do so.”

Scottrade Remains Our Broker of Choice posted at My Dollar Plan.

Scottrade, OptionsHouse, and tradeMONSTER Review posted at Cash Money Life, saying, “Reviews of Scottrade, OptionsHouse, and tradeMONSTER, three of the top online discount brokerage firms.”

Best Online Stock Brokers For Cheap Stock Trades posted at The Digerati Life.

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That concludes this edition of the Festival of Stocks. Be sure an leave comments as you visit each of the blogs that participated in this week’s Festival of Stocks. They’ll appreciate knowing folks are reading their articles.

Next week’s Festival of Stocks will be hosted at Modern Graham. Submit your stock related blog article to the next edition of Festival of Stocks using our carnival submission form. Past posts and future hosts can be found on our Festival of Stocks index page for those of you interested in reviewing the archives.

If you are interested in volunteering to host a future edition of the Festival of Stocks, just contact me right away with the name of your site, blog URL, email address, and the date your prefer to host.

Sponsored By: Special Situations Join FPF Contributor’s Corner for the latest arbitrage & special situations.

We are in the heat of the summer now. Many of you may be on vacation, but these hot stories this past week at Value Investing News are worth checking out:

1. August Contest – Value Investing Congress FREE Admission Raffle
2. Magic Formula Weekly Roundup 8/8
3. Dividend Stocks: Lowering Risk By Increasing Dividends
4. 7 Investor Traits to Achieve Success
5. 13 dividend stocks to enter on dips
6. 9 Dividend Stocks in the news
7. The Penalty for Ignoring Goodwill
8. Wal-Mart (WMT) Dividend Stock Analysis
9. Dividend Aristocrats: YTD Raisers vs. Cutters
10. Interactive Data Corp (IDC) is an Attractive Value Stock
11. What Would Warren Do?
12. Dividend Stocks Secret Ingredient

Be sure to voice your opinion on these story links by either voting up or down on the articles by using the arrows to the left of each of the article descriptions. Help pick next week’s top stories by then reviewing the stories that just recently arrived in Value Investing News Queue. Thank you and have a great weekend.

This week’s Festival of Stocks is up at Fundamental Insights and Ideas. This 153rd edition of the Festival of Stocks includes articles on goodwill accounting, David Dreman, Cisco Systems (CSCO), Becton Dickinson & Co. (BDX), Supervalu (SVU), and more.

Next week’s Festival of Stocks will be hosted at Modern Graham. You can submit recent stock related blog articles for consideration using the Festival of Stocks submission form.

Sponsored By: Arbitrage Special situation opportunities in the stock market for small time investors.

This week’s edition of the Festival of Stocks is up at Modern Graham.  This 152nd edition of the Festival of Stocks includes articles on Southwest Airlines (LUV), GigaMedia (GIGM), Dover Corp (DOV), AT&T (T), NGG, and more.

We are already taking submissions for the next Festival of Stocks. Just fill out this submission form if you’ve written a recent blog post about stocks and would like to have it considered for next week’s Festival of Stocks at Fundamental Insights and Ideas.

Finally, I just wanted to note that we are always looking for volunteers to host upcoming editions of the Festival of Stocks on their blog.  Just contact me if you are interested and look at the Festival of Stocks schedule to find an open slot.

Sponsored By: Graham Workouts at Fat Pitch Financials Contributors Corner

Welcome to the July 27, 2009  edition of Festival of Stocks. The Festival of Stocks is a blog carnival dedicated to highlighting bloggers best posts on stock market related topics. Fat Pitch Financials is the actual birth place of this online weekly event, so it is always a special occasion when I get the chance to host this roving event. Here are this week’s Festival of Stocks participants:

Sun presents Trade Carbon Emissions with ETFs posted at The Sun’s Financial Diary.

nickel presents Investment Performance: Stocks vs. Bonds posted at fivecentnickel.com.

Dividend Growth Investor presents Buffett Partnership Letters posted at Dividend Growth Investor.

Super Saver presents GE Removed from Core Holdings posted at My Wealth Builder.

AlexG presents Updated Magic Formula Results | Value Investing Pro posted at Value Investing Pro.

The Financial Blogger presents 6 Investing Rules Revisited Part 4: Gold Goes Up When Stock Markets Go Down posted at The Financial Blogger
, saying, “When the world is about to fall apart, we all agree that gold will remain a sure value. When we are not able to give a value to a piece of paper written $20, we will still recognize the value of a golden piece.”

Dividends4Life presents Dover Corp. (DOV) Dividend Stock Analysis posted at Dividends Value, saying, “Dover Corp. manufactures a broad range of specialized industrial products and sophisticated manufacturing equipment. Linked here is a detailed analysis and commentary.”

Barry presents Stay Nimble For Your Investment posted at Jeflin’s Investment Blog.

Michael Schindler presents 4 Benefits of Index Fund Investing posted at Your Personal Finance Source, saying, “Index fund investing is a great and smart way to build wealth over time. Although it has many advantages, this article highlights 4 primary benefits of index fund investing.”

Heather presents Special Report: 401(k) Plans, ETFs and You | ETF Trends posted at ETF Trends, saying, “Your 401(k) is killing you. What’s the solution?”

Jeff Rose presents Another Look at TIPS (Treasury Inflation Protected Securities) posted at Jeff Rose.

jim presents What Are Tax Lots? posted at Blueprint for Financial Prosperity.

Steve Alexander presents Quick Take: Pain Therapeutics Inc (PTIE) – MagicDiligence posted at MagicDiligence, saying, “Pain Therapeutics is a drug development firm focusing on Remoxy, a tamper-proof version of Oxycontin that could be a big blockbuster for partner King Pharmaceuticals.”

Pinyo presents Stock Volatility Kills posted at Moolanomy, saying, “Volatility can kill your portfolio value in an instant. Before you invest, make sure you know how to deal with this portfolio killer.”

ChristianPF presents Should you convert your IRA to a Roth in 2010? posted at Money in the Bible | Christian Personal Finance Blog, saying, “There are many advantages to having a Roth over a Traditional IRA, but before deciding to convert it you should make sure you know all the facts…”

Ron Sommer presents Spotlight On: Aerospace & Defense posted at Measured Approach.

Investing School presents Compare Online Brokers posted at Investing School, saying, “Online brokers are all pretty awesome but some just stand out above the rest. Here are a few you should look into.”

Dorian Wales presents The Personal Financier: Diversification is Dead. Long live Diversification posted at The Personal Financier, saying, “Don’t give up on diversification through asset allocation just yet”

MoneyNing presents 401k Plans and My Contribution posted at Money Ning, saying, “The good and the bad of 401k plans and how you should contribute your retirement savings.”

Silicon Valley Blogger presents Investment Tools, Software and Resources You Can Get For Free posted at The Digerati Life, saying, “Thanks!”

AlexG presents Stocks On The Move 7.25.09 posted at Value Investing Pro, saying, “Each week I track which stocks are moving in and out of the top 30 and 50 from the Magic Formula Screen. This screen in ran for companies with a minimum market cap of 50, 2000, and 5000 million. Here are the moves for the week ended 7-25-09 on the top 50 lists.”

The Smarter Wallet presents Stock Mutual Funds: Building Your First Investment Portfolio posted at The Smarter Wallet, saying, “Thanks!”

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That concludes this edition of the Festival of Stocks. Be sure an leave comments as you visit each of the blogs that participated in this week’s Festival of Stocks. They’ll appreciate knowing folks are reading their articles.

Next week’s Festival of Stocks will be hosted at Modern Graham. Submit your stock related blog article to the next edition of Festival of Stocks using our carnival submission form. Past posts and future hosts can be found on our Festival of Stocks index page for those of you interested in reviewing the archives.

If you are interested in volunteering to host a future edition of the Festival of Stocks, just contact me right away with the name of your site, blog URL, email address, and the date your prefer to host.

Sponsored By: Arbitrage Special situation opportunities in the stock market for small time investors.