Merger Arb

TheBigShort · Jun 6, 2018

Research shows that risk arb spreads have been decreasing since the 90's. This makes sense due to speed of information and interest rates decreasing since that time period. Some merger arb funds are lucky to make 5% a year. The Barclys Merger arb index has done nothing for the past couple of years.

Being a small investor with under 1 million to deploy I would be able to land smaller deals. However the spreads still seem relatively small. Does anyone here have experience with merger arb (small investor deploying under 1 mil) and have seen double digit returns? Thanks

777 · Jun 6, 2018

Yes.

Tough for a retail guy for MANY reasons.

Even half-assed pros have sometimes struggled or even blown up.

Better for most people to simply invest for the long term by buying Berkshire Hathaway or a low cost index fund and holding for 30 years, preferably in an IRA.

Btw, this is not as low risk as many think:

With merger-arb you can severely limit market risk and industry risk and company risk, however, you now have "deal risk". Having a deal or multiple deals blow up can be emotionally extra-hard on many people.

*you would really, really have to know what you are doing and be willing to spend a lot of time on your merger-arb business for this to possibly be a rational choice.

mergerpie · Jun 6, 2018

TheBigShort said:
Research shows that risk arb spreads have been decreasing since the 90's. This makes sense due to speed of information and interest rates decreasing since that time period. Some merger arb funds are lucky to make 5% a year. The Barclys Merger arb index has done nothing for the past couple of years.

Being a small investor with under 1 million to deploy I would be able to land smaller deals. However the spreads still seem relatively small. Does anyone here have experience with merger arb (small investor deploying under 1 mil) and have seen double digit returns? Thanks

hi u can find moneyturtle blog - http://www.moneyturtle.com/ He has been doing it for years...

mergerpie · Jun 6, 2018

TheBigShort said:
Research shows that risk arb spreads have been decreasing since the 90's. This makes sense due to speed of information and interest rates decreasing since that time period. Some merger arb funds are lucky to make 5% a year. The Barclys Merger arb index has done nothing for the past couple of years.

Being a small investor with under 1 million to deploy I would be able to land smaller deals. However the spreads still seem relatively small. Does anyone here have experience with merger arb (small investor deploying under 1 mil) and have seen double digit returns? Thanks

It's possible to do it for a small trader... I have deployed max close to 1 mil but i have been doing it for only 2 years...not much of an record...

mergerpie · Jun 6, 2018

777 said:
Yes.

Tough for a retail guy for MANY reasons.

Even half-assed pros have sometimes struggled or even blown up.

Better for most people to simply invest for the long term by buying Berkshire Hathaway or a low cost index fund and holding for 30 years, preferably in an IRA.

Btw, this is not as low risk as many think:

With merger-arb you can severely limit market risk and industry risk and company risk, however, you now have "deal risk". Having a deal or multiple deals blow up can be emotionally extra-hard on many people.

*you would really, really have to know what you are doing and be willing to spend a lot of time on your merger-arb business for this to possibly be a rational choice.

I agree its not low risk... merger arbs are not for faint of heart.. the risks are in the tail end and even the most secure mergers can fail...

TheBigShort · Jun 6, 2018

mergerpie said:
It's possible to do it for a small trader... I have deployed max close to 1 mil but i have been doing it for only 2 years...not much of an record...

What sources do you use for your data? Are you ever dealing in microcap/nanocap mergers?

TheBigShort · Jun 6, 2018

777 said:
Yes.

Tough for a retail guy for MANY reasons.

Even half-assed pros have sometimes struggled or even blown up.

Better for most people to simply invest for the long term by buying Berkshire Hathaway or a low cost index fund and holding for 30 years, preferably in an IRA.

Btw, this is not as low risk as many think:

With merger-arb you can severely limit market risk and industry risk and company risk, however, you now have "deal risk". Having a deal or multiple deals blow up can be emotionally extra-hard on many people.

*you would really, really have to know what you are doing and be willing to spend a lot of time on your merger-arb business for this to possibly be a rational choice.

I would not be doing it for the reason of low risk. Im looking to see if there is a good risk reward in merger arb. Do you have some experience in this field?

777 · Jun 7, 2018

TheBigShort said:
I would not be doing it for the reason of low risk. Im looking to see if there is a good risk reward in merger arb. Do you have some experience in this field?

I will pm you.