Monday, January 02, 2017

2016 Performance

It’s time to reflect on my performance for 2016. The year started off a bit weak, did well mid-way through the year and under performed as the year ended. My net gain for the year was 14.61%, which slightly beat the major indexes (S&P 500 = +11.96%, DOW = +13.42% and NASDAQ = +7.50%). I give myself a grade of a C for my 2016 performance. I executed some poor trades as the year ended, which adversely affected the performance results. I also see these as sloppy trades as I tried to generate additional returns, but did not totally consider the potential risks such as Tronc (Ticker: TRNC) and Rite-Aid (Ticker: RAD).

Overall the Special Situations / Merger Arb plays definitely helped my portfolio as my major long holdings essentially under performed the market. My three largest long holdings and the 2016 returns of each are as follows: Constellation Brands (Ticker: STZ) (+7.63%), Visa (Ticker: V) (+0.60%) and Apple (Ticker: AAPL) (+10%). I still plan on holding these for a while as they all generate substantial free cash flow, which in the long run should support higher stock prices.

I am entering the New Year with the following Special Situation / Merger Arb Plays: WaferGen Bio-systems (Ticker: WGBS) (~ 9% position), Actelion Pharmaceuticals (Ticker: ALIOY) (~14% position) and Kate Spade (Ticker: KATE) (~8% position). WaferGen is the most intriguing one as the takeout price is based on 2017 revenues and I anticipate hearing some preliminary Q4 numbers soon. Actelion looks like is has a good chance of getting taken out by J&J (Ticker: JNJ) or Sanofi (Ticker: SNY) so there will definitively be some news flow on this deal by the end of January. Finally, Kate Spade has put itself up for sale and I’m looking for a price in the low to mid 20’s.

Looking back at the past five years of performance results, I start to wonder when it would be a good time to transition a good chunk of my portfolio to an index strategy. At times, managing an active the portfolio can get quite hectic. For now, I still really enjoy actively managing my portfolio, but I can see myself transition to an index portfolio at some point. When? Maybe when I retire?

2016 Performance Year to Date = +14.61% with the running monthly returns as follows:

January -5.47%
February -3.50%
March +7.51%
April +0.84%
May +6.34%
June -2.6%
July +12.2%
August +6.57%
September +1.94%
October -5.49%
November -1.59%
December -1.3%

Annual performance for the past five years is as follows:

2012 +61%
2013 +44.61%
2014 +29.47%
2015 +33.48%
2016 +14.61%

56 Comments:

At January 03, 2017, Blogger lamano said...

Congrats on another solid year MT, and best wishes for 2017!

Perhaps not in the same range of returns as the last 5 years, but solid nevertheless. Many money managers would love to have your 2016 results as their 'worst performance in the last 5 years'

Cheers
JG

 
At January 03, 2017, Anonymous Anonymous said...

You did beat the market so you are close to A. Arbs play can get tricky but the best one i remember (insurance company which we gave us 100% return over one day).
Overall you do a excellent job. thanks and happy new year

Congrats
Aapltrader

 
At January 03, 2017, Anonymous Anonymous said...

MT,

Congratulations on your 2016 performance and especially your extended 5 year returns. Very well done. Yes, I did notice some irregular trading activity by you in December. Live and learn. No doubt you were under some intense pressure to maintain and raise your 2016 returns as measure up to your past years returns.

Well 2017 looks to be setting up as a real good year with record merger and acquisition activity. Lets all prosper in our own ways. When you mention future retirement we hope you are referring to your day job (not investing). Once retired for you to consider switching from an active to passive role may not be as fun and exciting as you think it is. Please consider rethinking that comment and remain an active investor.


May you and all of your web followers have a Healthy and Prosperous 2017.

Best Regards,

Netbull7

 
At January 03, 2017, Blogger Money Turtle said...

Thanks for all the positive comments. I probably will need to reconsider my active to passive role down the road... :)

 
At January 04, 2017, Anonymous Anonymous said...

Congrats.

What about VAL deal? Is there a risk that FTC could block the deal with divestures above 650M? or the deal it's safe expeting a close to 105$?

 
At January 04, 2017, Blogger Money Turtle said...

I exited the VAL deal. I was expecting a decision from the FTC sooner, but now looks like a decision will be made at the end of Q1. There is definitely anti-trust risk by looking at how the deal was structured.

 
At January 05, 2017, Blogger Eric L said...

MT-

WGBS-Do you know what the revenue= in terms of share price? SO If the annual revenue turns out to be 9 million what will that mean for the stock price?

thanks

 
At January 05, 2017, Blogger Money Turtle said...

WGBS: 9 million in revenues equals to a payout of $1.00 to $1.14

 
At January 05, 2017, Blogger Eric L said...

Thank you

 
At January 05, 2017, Blogger Money Turtle said...

Correction, I didn't adjust for the 5 for 1 reverse stock split: $5.00 to $5.70 with $9 million in revenues.

 
At January 05, 2017, Anonymous Anonymous said...

< 9 million revenue = 5.0
> 9 million revenue = 5.7
is this correct?

 
At January 06, 2017, Blogger Money Turtle said...

WGBS: 9 million in revenues will receive a low of $5.00 to a high of $5.70 based on the expenses incurred by the company.

 
At January 06, 2017, Anonymous Anonymous said...

who is the acquired of WGBS? I forgot. And when we have the news about the revenues? so do you think that a 5$ price it is for sure and estimated close of the deal?

 
At January 06, 2017, Blogger Money Turtle said...

WGBS is being acquired by a Japanese company, Takara Bio. Based on the Q3 earnings report, the company expects to easily exceed $9 million in revenues with guidance of $10-$12 million for the year. I like the odds with the price at $5.00 or below. I believe the company can do at least $10 million for the year so there is potential for more upside.

 
At January 06, 2017, Anonymous Anonymous said...

but when the deal will be completed?

 
At January 06, 2017, Blogger Money Turtle said...

The deal is expected to close after the completing the audit of 2016 results. Looking around late February.

 
At January 06, 2017, Anonymous Anonymous said...

do you see any risk that this deal can have some issue or be cancelled from the japanese? if we get 5.7 is a really good opportunity.

 
At January 06, 2017, Blogger Money Turtle said...

WGBS: Of course there is risk in any deal, but I see this deal breaking as low. The biggest hurdle in this deal was obtaining the shareholder vote, which they were able to obtain after additional solicitation. Wafergen will fit well with the other Takara products. It's a nice strategic acquisition for Takara.

 
At January 11, 2017, Anonymous Anonymous said...

Back in RAD?

 
At January 12, 2017, Blogger Money Turtle said...

Yes, back in RAD.

 
At January 17, 2017, Anonymous mergerpie.com said...

I think the RAD deal will be finally approved..the nearly 4% spread indicate still some doubts in investors minds as Fred has not been approved by FTC yet as the buyer of the stores. However, it is a good bet that Fred will eventually be approved within this month or next. I would hav bought into RAD but still invested heavily in SYT shares.

 
At January 17, 2017, Anonymous Anonymous said...

I am expecting RAD approval this week.. hopefully

 
At January 19, 2017, Blogger Money Turtle said...

Mergerpie, I agree with your analysis on RAD. Wouldn't be surprised if approval was pushed out a bit, but I fully expect that the FTC will approve the deal.

 
At January 19, 2017, Anonymous mergerpie.com said...

started a small position on RAD today :)

 
At January 20, 2017, Anonymous Anonymous said...

RAD again.. damn

 
At January 20, 2017, Anonymous Anonymous said...

NY POST inside should be thrown out the garbage from now on

 
At January 20, 2017, Anonymous Anonymous said...

U got stopped out or u staying in RAD?

 
At January 20, 2017, Anonymous mergerpie said...

got in a bit more ard 7.50.. 2 possible scenarios, 1. FTC disagrees with the scope and locations of divestitures and 2. more serious is that FTC doubt Fred has the ability to absorb and compete effectively.

I am thinking it may be a mix of both. The deal is not totally dead yet but more risk ahead in terms of closing time.

 
At January 21, 2017, Anonymous Anonymous said...

It is the latter (Fred's ability to be a standalone store) - I believe the FTC had a couple of failures with divestitures. However, given the change in administration, this deal may still go through. WBA has to ask for more time and then work with the new people at FTC.

 
At January 21, 2017, Anonymous mergerpie said...

i agree..that's why i invested abit more at 7.5 even though the timeline may need to be pushed back. i had mentioned the possibility in MT's previous post comments that this week approval timeline seemed tight and that a delay will improve the chances of closure under trump admin. As Fri morning came and no reports frm FTC, i was waiting to pull the trigger on any slight downturn on the decision delay... I was caught by surprise on the negative new reports and massive reaction that i hesitated to pull the trigger at low $7..

 
At January 23, 2017, Blogger Money Turtle said...

I'm out of RAD. Can't argue with the market right now...

 
At January 23, 2017, Anonymous mergerpie.com said...

i am in about 500 shares only on $RAD. Today NXPI dropped in sympathy to Qualcomm. Qualcomm would be buying NXPI no matter how the lawsuits turn out. I am in for short term at ard $96.50 and planned to exit close to $100. Long term wise i am not so optimistic for regulatory approvals due to China.

 
At January 25, 2017, Anonymous Anonymous said...

Which is the situation/status of NXPI QCOM deal? I put aside this deal so I forgot everything. Which issue has QCOM to acquire NXPI? Can you make a resume of the deal story please? how many chance do you give to this deal to close?

 
At January 25, 2017, Blogger Money Turtle said...

QCOM is acquiring NXPI for $110 per share. This deal is anticipated to close by the end of this year.

For the background of this deal see link below and select from the table of contents: Background of the Offer

https://www.sec.gov/Archives/edgar/data/804328/000119312516771498/d295023dex99a1a.htm#opttoc295023_12

This is a large deal so lots of regulatory approvals needed. The big question is whether China will hold this deal hostage based on the Trump's action on China.

 
At January 26, 2017, Anonymous mergerpie.com said...

Congrats MT! Actelion deal today 17% upsize from yesterday.

 
At January 26, 2017, Blogger Money Turtle said...

Thanks, it's about time something works out. :)

 
At January 26, 2017, Anonymous Anonymous said...

MT,
Are you holding till the deal closes. Looks like the stock is trading at 274 at Swiss exchange, giving the new company little valuation. Does the ADR entitle new co? Your thoughts please?

 
At January 26, 2017, Anonymous Anonymous said...

I think the crash of VAL at 98/100$ was a bargain opportunity. I still ask me and MT why we lose those quite safe deals? was a so special situation where we could get at least 105$ and now look the price is 110$ and will close at the maximum price probabily. But the point is why we lost this deal with a 5% or even few days ago a 1/2% spread play with a chance to close today around 110.50$ with a profit however always of 5%+? I think we should concentrate more to discuss about those deals with fewer spread but sometime much bigger returns and stress-free.
RAD was a risky one because if the deal fail RAD financials are more risky company is too leveraged, high debt, etc etc. However I'm sad of VAL. Was a deal we lost.

 
At January 26, 2017, Anonymous Anonymous said...

I mean there are few sources where discuss and get an a hand of this kind of deals. I think MT has good knowdlege about deals, if we are just able to adjust a bit the selection of deals would be better. I see to many times to enter in tricky deals like one with bad financials of target companies, or tiny cap, chinese etc etc, while if we target better deals even with low spread, for some of us that has ton of cash to invest, could be a better service. You could let us pay a fee no problem, but we need some help in your native language because you can read faster and to have a perception better of non-U.S. investors specially in deals where are involved U.S. companyes or stock exchanges. Main of deals are there, usually deals in Europe are more problematic for other reasons or less frequent. Take care. If you can adjust a bit this blog or create some additional service will be perfect.

 
At January 26, 2017, Anonymous Anonymous said...

Hi MT,

What do you think of ARIA? Supposed to close at the end if next month for $24. Do you consider it a safe deal for a 1.18% profit in about 1 month?
Also, are you still in WGBS? Is it worth holding on at this price?
Also, are you still in KATE? Any updated views?

Thanks

 
At January 26, 2017, Blogger Money Turtle said...

I wouldn't say VAL was low risk. Sherwin-Williams played aggressive with the FTC and looks like it will pay off.

Right now, I don't have much time to further develop this site. I'll keep it simple for now and use this blog as a diary of my trades. But it is something to consider in the future. Thanks for the suggestions...

I'm playing ARIA via Short $22 Puts. I see this as a safe deal with a quick closing in February (tender expires on 2/15 if all goes well). Good timing if playing options as it's right before expiration and long dated options will have an accelerated expiration.

I'm still in WGBS and will wait for the Q4 numbers. I believe the buyout price will be at least $6.00+.

Still in KATE, no real news other than what's been reported in Bloomberg.

 
At January 26, 2017, Anonymous mergerpie.com said...

like to share something about RAD here that we can all learn from the latest reuters news: [It could take two months for the agency to assess a proposed divestiture of that size since it would look at the proposed sales, store by store, and in detail, said David Balto, a former FTC official now in private practice. "Retail market divestitures are very complex. It's unrealistic to assume that they could get through a divestiture that's this significant in a few weeks," said Balto.]

Sometimes we are swayed by news report from NYP, even MLex & Bloomberg. Early in Jan news were reporting RAD deal was going to be completed before 20th. Its all speculation and its important we all do our due diligence and analytics. Now looking back, it became unrealistic to expect FTC to give the go ahead just short of 1 mth when the Fred's news broke out ard 20th Dec. Whatever the precommunications btw FTC n the parties, FTC staff will still need to look at the detailed remedy proposal submitted which will take alot of time.


 
At January 26, 2017, Anonymous mergerpie.com said...

RAD investors (me included) still can hope a nice surprise for an approval today since Walgreens is talking to FTC to finalize the deal. The VAL-Sherwin deal is similarly complex unfortunately.

 
At January 27, 2017, Anonymous Anonymous said...

Isn't the max price for buyout of WGBS 5.7? Am I missing something

 
At January 27, 2017, Blogger Money Turtle said...

WGBS: The buyout price will based on total 2016 revenues. $9 million in total revenues with lowest deduction will give you a buyout price of $5.7. The company has guided for $10-12 million in total revenues so there is potential upside...

Take a look at page 65-66 of the following link for projected takeout price models:

https://www.sec.gov/Archives/edgar/data/1368993/000136899316000148/proxystatementforssmmerger.htm

 
At January 27, 2017, Anonymous Anonymous said...

Thank you so much..

 
At January 27, 2017, Anonymous Anonymous said...

I think WGBS was a great trade.
Even this we have undestimated. It's a great profit, easily we could get around or below 5$ with now a 12% profit.

 
At January 30, 2017, Anonymous mergerpie said...

sold RAD for a loss. The new deal was even more unfavorable to RAD and it still have a chance to blow up. No point taking a 6 month risk now.

 
At January 30, 2017, Anonymous Anonymous said...

what is the new deal? at this point I'm interested, I was so much reading from you about RAD that I'm missing it ha ha. Please describe, however there could be trading opportunity.

 
At January 30, 2017, Blogger Money Turtle said...

The new RAD deal is $6.50 if divestiture is 1,200 stores and $7.00 if divestiture is 1,000 stores or less. If in between, it'll be prorated.

I agree there is a opportunity, but I'll let the dust settle a bit as there's plenty of time to a potential close.

 
At January 30, 2017, Anonymous Anonymous said...

ok but is it just a proposal or the new agreement is accepted from RAD? is needed a vote from shareolders? I wouldn't that a lower price can make angry shareolders.

 
At January 30, 2017, Anonymous Anonymous said...

and what if FTC will say to sell more than 1200 stores? the deal will collapse and stop loss us again? Or the FTC wrote something about positive chances?

 
At January 31, 2017, Blogger Money Turtle said...

Yes, there will be vote by angry RAD shareholders. If FTC wants to divest more than 1200 stores, I think the deal is over at that point.

 
At January 31, 2017, Anonymous Anonymous said...

Are you still holding ALIOY? any reason for the drop today?
thanks

 
At January 31, 2017, Blogger Money Turtle said...

ALIOY: French regulators recommended to physicians not to start patients on Uptravi due to patient deaths. This is old news. I see it as a non issue and does not affect the deal with J&J. I added to my position today.

 
At February 01, 2017, Anonymous mergerpie said...

i am over RAD for now. The new deal adds uncertainty:

1. Buyer does not show enough commitment for the deal to go through. Revising terms of a merger deal is always bad, especially when Rite Aid's business did not deteriorate materially. Rite Aid had been effectively held as a hostage.

2. The revised terms indicated that FTC is not happy about the divestiture even after months of discussion, so even 1200 may not be enough and we are still not sure if FRED is going to be approved as the buyer. Regulatory uncertainty increased.

3. At $6.50, i believe a number of investors will prefer Rite Aid to go alone to continue its turnaround efforts or wait for a new buyer.

Before the revised terms, the deal will return about 28% in about 3 months (my estimates)

Now after the new facts, the deal will return at most 23% in 6 months ($7) or at worst 14% ($6.50).

The arbitrage returns diminished after the new facts and adds new uncertainties..so i will pass this time.

 

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