Investment Philosophy

The Rivkin Report investment philosophy has evolved over the last 11 years. In the beginning, it was an event-driven strategy driven by the late Rene Rivkin. This encompassed two major factors: firstly, a rational assessment of known variables that led to the calculation of a (generally short to medium term) risk/reward scenario; secondly, it was combined with Rene Rivkin's unique market instincts.

Since Rene left the Report, we have continued to fine tune the Rivkin Report strategy, finding great success in identifying specific events that create two things: a value gap between a share price and its underlying value and a higher level of predictability in individual situations due to the influence of a particular event.

It is often said that the biggest mistake a professional investor makes in this business is to deviate from their investment strategy. We have certainly found that our investment strategy has an excellent track record and our errors have come from deviating from that discipline.

Our investment philosophy chiefly identifies 'event driven' investment ideas. We define an 'event driven' investment idea with a clear catalyst to unlock identifiable value for our investors. At the same time, we need to be able to assess the potential downside so we can determine whether the risks are appropriate for the potential returns in each investment.

Not every investment idea will be profitable, and one individual investment strategy will not work in every market scenario. We need to be flexible enough to recognise different situations as they arise. Investing is all about probability, and our strategy has consistently yielded far more winners than losers. We do know that if we apply discipline and consistency, then we can be confident that over time, our returns will be more than satisfactory.

Examples

Illustrated below are a few examples of our event-driven philosophy in practice:

· Takeovers

The strategy is straightforward. We simply endeavour to buy into a stock after an initial takeover bid has been announced around or below that first price. However, selection of the specific takeover and execution are critical. Very often, the first bid is not the last, and the bid may subsequently be increased, providing substantial upside. It is very rare for a takeover bid to fail and for shares to fall back, so downside risk is limited.

Example: Magna Pacific Holdings (MPH)
We recommended subscribers purchase DVD distributor MPH at $0.30 following a takeover bid by media company Destra (DES). Following completion of the trade subscribers received $0.15 in cash plus $0.30 DES shares resulting in a gain of $0.15 or 50%.

· De-Mergers

Often the true value of a company is not recognised when it contains two or more un-related businesses. Analysis is made more difficult, and can be hard for the company management to articulate its vision to the market. Studies have found that value is often released when different businesses are spun off as the market can properly assess each business on its own merits.

Example: Publishing & Broadcasting (PBL)
PBL announced a de-merger of the traditional media business and gaming business into Consolidated Media Holdings and Crown respectively. At the time of the announcement, PBL was priced at $18.10. The value of these businesses were worth more than the existing price. Upon split, shareholders received $3 in cash, along with one Consolidated Media Holdings share which opened at $4.22 and a Crown share which opened at $14.88. In total the de-merger yielded $22.1, or a 22% return.

· Following the 'Smart Money'

Let's face it, insiders will probably know more about a company than outsiders. When we notice successful investors buying into a stock, we take notice. This may include highly regarded funds managers or key industry players. Directors' purchases of shares can provide incredibly powerful insights into the future direction of a share price, particularly in smaller companies.

Example: Just Group (JST)
At the time we were already positive about jeans retailer Just Group as a turnaround story. We felt even more positive after Solomon Lew - one of Australia's best retailers - started buying into JST. The stock moved quickly from a base of around $2.30 to $3.10 over a period of three months yielding a 35% return.

· Value Drivers

From time to time, shares will become cheap because of general market conditions, a misunderstanding of the business, or a one off issue within the company. For the patient investor, these opportunities can present excellent additions to a long term portfolio. Stocks often appear cheap because of a very good reason. Instead of a value 'play', they become a value 'trap'. We endeavour to avoid companies that we can't understand, have reliable managers and have definable reasons why the company is undervalued.

Example: BHP Billiton (BHP)
We have been in and out of BHP over the last number of years as the true extent of the commodity bull run unfolded. Back in 2005 we recommended subscribers buy BHP between $19 - $19.50 and sold in 2006 at around $30 yielding a return of 54%.