The merry lads at the Oxford Club are at it again, promoting their subscription service with a nice long teaser ad that promises to turn you on to the next hot investing strategy.
And as usual, there’s a little truth and a lot of obfuscation — so let’s give it a look.
Here’s how they open:
“The $120 Billion “Secret Market” That’s Sizzling Hot
“How a little known “Orphan Stock’ strategy routinely hands investors 592% to 2,095% gains. And how one small group of investors could be poised to double their money in a day…”
Sounds pretty tasty, eh? It gets better …
“According to a recent study by Wall Street analysts; investors using this strategy outperformed the S&P 500 an average of 45% over a two-year period …”
Wow — that could have almost kept you into positive territory! Assuming, of course, that the two year period was the last two years.
They describe this as an “Orphan Stock” strategy, and, to their credit, they do go so far as specifying that they’re talking about spinoffs.
Spinoffs are when a division of a company is, as you might imagine, “spun off” as a separate publicly traded company — either because the parent firm thinks that the then “orphaned” division would do better with it’s own management and priorities, or because there’s a belief that this division is undervalued and won’t recognize it’s real value in the market until it’s separately traded.
There are all kinds of spinoffs — sometimes a company will just issue a “tracking stock” without actually selling the division, and report that division’s numbers separately and have them represented by the semi-artificial tracking stock. This is what Loews did with Carolina Group (their tobacco business) for a few years before they decided to completely separate from them and Carolina Group was fully spun off as Lorillard.
Other times, a company will spin off a small portion of a business — maybe 10 or 20%, without wanting to lose control, but in an attempt to get a better valuation for that division and have that better valuation also reflected on the parent company that continues to hold a majority of the shares. This is how it has been so far for VMWare in its separation from EMC, for example, though it’s possible that they’re planning on spinning off or selling the rest of those shares, too.
And finally, a company can spin off divisions in more than one way — two strategies are most common, they can sell the division to the public in an IPO, launching all or part of the division as a separate company; or they can simply spin off the shares to current shareholders so that they can find their own private market. Often both are used, a portion of the shares could be spun off to current shareholders and some time could be allowed for a market in those shares to be set, then the company could sell the rest of the shares in the public markets.
There are more quotes to help make this sound awesome …
“‘I don’t say this often,’ says Lou Basenese, top analyst for a leading financial organization, ‘but this is the kind of situation that could be like a cash cow for you over the coming years. Draw from it when you need it and it could still fund a very nice retirement for you, maybe even your children.'”
Of course, they don’t mention in that paragraph that the “leading financial organization” Basenese works for is the same one that’s sending you this ad.
There are all kinds of tax questions involved with different kinds of spinoffs, but we’re not worried about that now — what we want to know is, what is the one great spinoff that the Oxford Club thinks could make us rich?
We get some clues, naturally, to feed the Gumshoe’s mighty Thinkolator:
“Right now, our team of experts has just pinpointed a ‘Global Titan’ – a powerhouse company that’s poised for growth in overseas markets – that’s in talks to sever ties of one division that’s driving its huge success.
“What makes this “Global Titan’s” new “Orphan Stock” even more appealing is that it’s in a recession-proof industry that will be minimally impacted by the worldwide economic slump. In fact, sales are likely to rise as consumers tighten their wallets and seek out cheaper alternatives in this nearly $600 billion industry.
“Why are they severing ties? Because they know that the China