Something special: special situations investors look for stories that move stock prices.(Brief Article)

Publication: Buyside

Publication Date: 01-APR-03

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COPYRIGHT 2003 Adams Business Media

For most investors in today's lackluster investing environment, waiting for the economy to rebound or for the next bull market to begin simply isn't good enough. With few industry sectors outperforming the broader indices, some investors seeking better-than-average performance have turned to special situations. "Special situations are something that any well-diversified portfolio ought to have" says Timothy Vick, special situations portfolio manager for Arbor Capital Management. "If someone comes to us with a $1 million portfolio, we immediately try to put a quarter to a third of it in special situations. That's going to be the cushion that gets you through if the market lags for a while."

WHAT ARE SPECIAL SITUATIONS?

Ask 10 Wall Street professionals what "special situations" investing means, and you're likely to get 10 different answers. The most common definition applies to investments where a specific event or set of conditions is expected to impact a company's stock price. That definition is subject to a variety of interpretations. Some special situations are defined by an inefficiency in how markets have treated a specific stock--a price driven down because of a one-time event, for example--or by some catalyst that is likely to push growth beyond a company's industry peers. Some research firms, however, choose to define special situations as companies that don't fit neatly into any specific category, or conglomerates involved in several very diverse industries.

To succeed at investing in special situations, "You have to be agile and willing to look at things that don't fit into the box," says James Mcilree, vice president and equity analyst at C.E. Unterberg, Towbin.

Like comic Rodney Dangerfield, special situations analysts "just can't get no respect." Their roles are often misunderstood, even vilified in some quarters. They are often viewed as having no specific industry expertise. "Special situations analyst" has at times been a thinly veiled euphemism for "investment bankers in a research analyst's job," says one practitioner.

"Our expertise is the ability to look at things from a fresh perspective and not get caught up with the herd," says Alan Weichselbaum,...

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