Stockpickr: Profit From Merger Arbitrage

In 1997, Warren Buffett said that if he had just $1 million to invest he could make returns of 50% per year. He was referring to arbitrage, a technique he used in his smaller, more nimble hedge fund days.

At Stockpickr, we keep track of current merger arbitrage situations that we believe have attractive-enough spreads to make them worthwhile low-risk trades.

I can best explain merger arbitrage with an example. Let's say company ABC is trading at $9. Company XYZ says, "We'll pay $10.50 a share in cash for company ABC," and company ABC jumps to $10 on the news. Now there is a 5% spread in the price (the difference between $10.50 and $10). ...