Wednesday, March 24, 2010

Transaction Alert: Trimming MDS, Inc.

Today I sold 400 shares (leaving me with 1,100) of MDS, Inc. (MDZ) at a price of $8.50. I bought this stock on November 13th and December 24th for an average price of $7.65, so my IRR is pretty decent. My rationale for this transaction is discussed below.

MDS, Inc. has gone up over the last few days, probably as a result of arbitrageurs buying up the stock in hopes of a quick gain (an opportunity created by the mechanics of a Reverse Dutch Auction). As a result, this one position accounted for around 11% of my portfolio before today's sale.

As you can see from my previous post (here's the link: there are a number of potential outcomes for MDS, not all of them good. I also emphasized MDS is one of my first special situation investments, so there's a chance my thesis could simply be wrong. Therefore, having such a large % of my portfolio allocated to this one position made me a little nervous, and my thought was it would be prudent to sell a portion of my shares.

On a side note, if the arbs currently buying up the shares are unable to tender them via the Reverse Dutch Auction, they will probably scramble to sell. This in turn could pull the stock down, creating a second buying opportunity. I have absolutely no idea whether this will happen or not, but it's something I'm going to watch for and if the stock falls far enough I may buy more.