Special situations, Net nets and Cigar Butts

Hi, my name is Manav Janus but I prefer Asiddha Janus (Imperfect creature). I am a CFA aspirant and I mainly invest in special situations, Graham-style net nets and cigar butts. My intention behind starting this thread is to source new investment ideas of the above nature and for fellow interest investors to throw their ideas into the mix and test the strength of those ideas.

The intention of discussing investment ideas carries with it the risk of wrongful construction. I hope that those who contribute or read this thread act like adults and not make financial decisions based on the discussions here.

Special situation investing is defined as “In investing, a Special Situation is a specific structural, non-operational event that affects the value of a specific corporation or its securities. The term is used as an umbrella for numerous corporate restructuring, transactional or financial engineering efforts.” This type of investing was popularised by Joel Greenblatt. But Ben Graham had already mentioned “workouts” in his book ‘Intelligent Investor’.

Various corporate events that I follow are - Schemes of amalgamation like Mergers, acquisitions and takeovers, demergers and reverse mergers, special dividends, buybacks, capital reconstruction, rights issues, change in corporate structure and changes in the management team.

Special situation investing carries with it its own advantages and risks.

Risks involve - regulatory restrictions, complex deals which can exploit investors’ follies, and risks that are applicable to all equities and others.

Advantages - Arbitrage opportunities (low monetary risk), short-term opportunities other than in the nature of trading, can exploit market inefficiencies in small and mid-caps.

Most of you must be aware of Cigar butts and Net nets, which are essentially, highly undervalued stocks, going through rough times or otherwise, usually of bad businesses, which one can invest in to make a quick profit (within 1 or 2 years). These are usually book-value plays.

I hope that this thread will become a fertile ground for interesting ideas.


I am relatively new to investing so, I have participated in only a few special situation opportunities.

  1. Ujjivan Financial services limited reverse merger - UFSL is required by the RBI rules, to be merged with its subsidiary Ujjivan SFB. I have forgotten the share swap ratio, but there was about a 40-60% upside. I made over 100% in less than 6 months even though the merger is still yet to happen. That is the great thing about special situation investing, sometimes, the market gives you 80% or more of the potential gains without you needing to wait till the deal happens.

  2. Primal enterprises demerger - PE spun off its pharma division. I had suspected that the funds which had held PE would have to sell the shares in PP once they are allotted because of regulations. I made more than 6% in a day by shorting PP. I will probably never do such a trade again, I was sweating till I squared off the trade. Not good for me as my temperament does not suit trading.

  3. Triveni Engineering and Industries Ltd buy back - Recently the company made a tender offer buy back at ₹350 per share. My estimated acceptance ratio was like 1/3 (if 100% participation) but I guessed it would be 45-50%. I made a tidy little profit.

These are the only three SS I have taken part in and luckily all three have been profitable but I know eventually I will make investments that will lead to losses. Hopefully not many.


Already dealing with special situations (general). So would it not be better to merge this with that thread.

It is always good to hunt if a thread exists meeting the need before starting one .

Sir thanks for the advice. But I believe the scope of this thread is bigger than the one you have mentioned. I want this thread to be also a place for discussing net nets and cigar Butts (there might be individual threads on these too). I want to make one comprehensive thread on Short term non- speculative form of investing. There are many great threads on long term value investing and on trading.

Thanks you

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