Idea Brunch with TripleS Special Situations

Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview TripleS Special Situations!

TripleS Special Situations is an anonymous and free publication about special situations, distressed securities, bankruptcy, litigation, and other quirky financial setups.

TripleS, thanks for doing Sunday’s Idea Brunch! Can you please tell readers about your background, your desire for anonymity, and why you decided to start Triple S Special Situations?

Thanks for having me.

The short version is that I’ve been trading for over twenty years, and I came up through the oil & gas exploration world, which is where I developed my extreme level of comfort with holding risk assets and placing large bets on them.

The longer version is that as a young and excitable person, I took everything I had plus a frankly irresponsible amount of credit card debt and bought Washington Mutual stock on the theory that TARP was coming and the banks would be saved. I landed from a flight to my brother’s wedding to find the bank had been seized and I had negative equity. So, I was broke and in debt on the same afternoon.

Out of pure spite, I taught myself bankruptcy law and helped put together the WAMU equity committee, which turned into the equity committee for the largest bank failure in US history. Some of the debt from that case eventually paid 100 to 1 and equity received hundreds of millions of dollars of value. If I’d had real money at the time, I’d be retired. Instead, I got an education and my start in the investing world.

From there I got pulled into every flavor of special situation, with legal ones being a favorite as I have some edge in those since I am willing to do the work others aren’t.

On my semi-anonymity, I run money and I write under a pseudonym so I can be blunt and not make the focus of the writing me personally, since I’m not interested in a cult of personality. I’d rather the ideas stand on their own than have anyone weigh them by who’s saying it.

Why start the publication?

Honestly, because I read constantly, subscribe to 380 Substacks, and I wanted to give something back to the community.

Writing also forces me to sharpen a thesis and build conviction on something I am holding. If I can’t explain it clearly and concisely, I probably don’t understand it well enough to size up in it.

There is also the additional benefit of getting new ideas and meeting new people, which improves my sourcing, which is a challenge for a one-lady operation.

Your Substack lives in the market’s odd corners: bankruptcies, litigation claims, distressed bonds, liquidations, arbitration, merger arb, critical minerals, and weird holdcos. How did you end up here instead of becoming a more conventional value investor?

Because I’m ultimately a small fish, and the ocean is full of sharks who are smarter, better connected, and resourced than I am. I have to focus on areas where I have some sort of edge and that larger players can’t or won’t wade into.

A lot of what I do is deliberately subscale. A $20-$50 million market cap with a billion-dollar arbitration claim is fantastic for a private individual or a small family office and completely useless to a fund that needs to put hundreds of millions or billions to work.

The other reason is my personality. I am a bit of an advantage player (Poker helped fund some of college).

I look for asymmetry, run the odds, and then make my bet, trusting in the process working out over time.

Conventional value investing felt like waiting for a multiple to re-rate.

The stuff I like has to have an identifiable catalyst, that based on my analysis will return at least 3 to 1, but more ideally 4 or 5 to 1.

The other type of investment I like is where I can hedge my downside through use of options strategies or sometimes even Polymarket.

You’ve said publicly that you come from the oil industry. How has that background shaped the way you analyze messy assets, commodity cycles, counterparties, and political risk?

Oil & gas teaches you a lot of things.

First, messy is expected. Energy assets always come with hair, whether it’s abandonment liabilities, take-or-pay contracts, terrible joint operating agreements, questionable title, or completely fabricated reserves. Your job is to figure out if there is a unicorn under all the shit or just more shit, which is basically Special Sits 101.

Commodity cycles tend to be pretty violent and come on quickly. Managing exposure and controlling things like cost are something that is within your control, but the reality is most oilmen will tell you it’s more luck than skill. You need to buy the right lotto ticket, but really it is more important to buy at the right time in the cycle. Price hides a lot of mistakes. This directly applies to investing also. The only thing you control when you buy a stock is your entry price and your exposure management strategy. Everything else is inshallah.

Counterparties and political risk are sort of an interesting discussion, since the oil industry is so full of large characters and scam artists. I grew up right at the start of the shale boom, so I got to meet all the people profiled in books like the Frackers, such as Aubrey McClendon. There are a lot of opinions on Aubrey (RIP), and I will leave it at that. One of the reasons why I enjoy bankruptcy so much is that I can just assume everyone involved in bringing the company under is a questionable person, until proven otherwise. I was planning to be a psychologist in College, so analyzing a person and their motivations is something I really enjoy.

Also, having done deals across the world makes you a lot more cognizant of understanding international cultural and legal differences. When I do arbitration analysis, this comes into play quite a lot. If you win an award, is there even a way to enforce it? How do various treaties and jurisdictional issues come into play?

What are the ingredients of success for distressed and special situations investing? What do you see amateurs often get wrong?

I could turn this into an essay as I have done an enormous number of stupid things in my life but let me break it down into a short list:

1. They focus too much on the upside, without taking a real look at the downside.

I purposefully do the opposite. I want to know what I lose first and if there is a way to minimize my loss through either use of puts, calls, covered calls, collars, or a short position on a related sector business.

2. They confuse or get married to a great story vs. understanding if something is a great trade.

A billion-dollar claim is worthless if the defendant or country can’t pay. Legal enforceability and timelines can wreck you. The merits are maybe half of an investment. You need to clearly identify what your goal is with an investment when you enter into it and stick with it and not have idea creep.

3. They get emotional and forget their thesis.

When a distressed name gaps down 50%, that’s exactly the moment when you find out if you have conviction. And you can’t buy conviction, which is why I think everyone should write up their largest positions, even if they don’t publish anything. Laying out why you are invested in something will allow you to stay calm and remember why you’re even in the trade.

4. They won’t take the loss and they don’t size appropriately.

Sometimes you have to amputate an arm to save the body. It hurts, but it’s not possible to come back from a 100% loss. I concentrate when conviction is genuinely high, but I’m not yolo’ing my family’s money. There’s a difference between a punt and a position, and you should always know which one you’re making.

In a recent post, you said a lot of sourcing has been coming from Special Sits Digest, which tracks activist campaigns, strategic reviews, spin-offs, restructurings, divestitures, liquidations, and other odd situations. How do you use tools like that without just ending up in the same crowded trades as everyone else?

Since you mentioned it, great tools like the Special Sits Digest, are excellent funnels of information, but having a list of hundreds of situations sent to you weekly doesn’t substitute for my personal analysis and judgment.

My biggest problem for most of my life was finding enough stocks worth reviewing to invest in. Now, thanks to AI, Substack, and various stock websites (like Swen Lorenz’s amazing Undervalued Shares), I don’t have to search for situations. I just need to choose which ones I want to be involved in and triage the large number of opportunities. I review something like a hundred to hundred fifty investments a week and usually only buy a few names from that work.

I also get a lot of quality ideas from various Discord groups I am in and friends I have made across the world as a result of writing this blog. There are no better sources than people who think similarly to you but live in a different time zone. A large portion of my investments are overseas. I have trades going on in 8 to 10 countries at a time. Most US traders won’t open a foreign brokerage to buy a £15 million AIM name.

Finally, I try to credit my sources religiously when they want me to, which sounds like basic manners but the more generously you share, the more good ideas land in your DMs.

Special situations investing seems increasingly crowded. Is it tougher to maintain an edge? Can you share some insights into where your edge comes from (e.g., better information acquisition, better analysis, longer time horizons…)?

It is getting more crowded, and a lot of people are selling services they probably shouldn’t and making claims that are frankly downright inaccurate. I think ultimately being a big fish in a small pond, an excessive tolerance for pain, a willingness to suffer through court documents/Edgar filings and being not overly emotional help.

Also, I don’t answer to any investment committee and keep a pretty cheap standard of living (my car is about to hit 200,000 miles and I live next to some trailers), which prevents me from being overly concerned about monthly paychecks coming in.

What are some interesting ideas on your radar now?

Happy to share. These are my two largest positions, although I generally keep ~50 names in my book at any time. Since I like international, let’s do one of those and a domestic one.