One of my favourite kind of opportunities is one with a limited downside. In early March Outdoor Channel received an all cash takeover bid which topped an existing offer, and coming from a cash rich company. A bidding war looked very likely so I announced on my blog that I was going long.
I bought it at a few cents over the offer price, this was a great opportunity to take full advantage of any greater offers, whilst the downside was protected and at most I would lose on dealing costs. I considered it very unlikely the takeover would fall through.
I was correct, and a bidding war commenced. Although the upside was small (nothing compared to the 70% I had made on my Supergroup (LSE:SGP) investment), it was well worth it considering the protected downside.
After fees I made 12.3% on my investment in just over 2 months. That is an annualised return of 70% and I’m pleased with the outcome. It’s just unfortunate these opportunities don’t come along more often.