Page 223

Stark came back to the U.S. markets in a significant way at the beginning of the fourth quarter of 1994, with the U.S. exposure reaching as much as 65 percent of the portfolio at various points between then and 1998.

In addition to its location and heavy global focus, other factors make Stark Investments different from the typical superstar managers. Stark and Roth are both Harvard-trained lawyers. Stark says that background helps them in their risk arbitrage work where evaluating regulatory risks and analyzing documentation are very important. Regulatory obstacles and litigation can often become elements affecting the outcome of a risk arbitrage transaction. "A legal education helps us in the analytical process. It instills a discipline."

Talking with Stark, one sees the implications of his legal background—he is very prepared and thorough, and is a meticulously analytical thinker.

BOOKS READ AND WRITTEN

Stark worked for his father, an accountant and active investor, one summer while he was in high school. While he didn't enjoy the accounting work, he turned his focus to investing at the suggestion of his father, who gave him Edward O. Thorpe's Beat the Market: A Scientific Stock Market System to read. This book focused on warrant arbitrage. If the strategy were applied scientifically from 1946 to 1966 (the book was published in 1967), an investor would have made money every year. This got Stark and his father investing in warrant and risk arbitrage.

Stark worked on his own book beginning in his senior year at Brown University and then while at Harvard Law School. Published in 1983 by Dow Jones-Irwin, Special Situation Investing: Hedging, Arbitrage and Liquidation was about special situations and why persistent opportunities exist in what appears to be an efficient market.

The book caught the attention of a couple of important investors, including two of the other superstar managers—Paul Singer of Elliott Associates and Donald Sussman of Paloma Partners. Stark and Sussman eventually became co–general partners of Stark Partners; that fund operated until early 1992.