You’re not going to believe this – I don’t know if I believe it myself – but imagine buying a stock and not really worrying whether the overall stock market goes up or down.

If you’re about to say that’s sheer lunacy, don’t. One savvy hedge fund manager, Tom Hudson, skipper of Norwalk, Conn.-based Pirate Capital, has demonstrated that this unusual investment philosophy really works.

Mr. Hudson, a former portfolio manager at both Goldman Sachs and Merrill Lynch, who started his fund in July 2002 with $2 million of his own money – assets are now $475 million – focuses on announced event-driven transactions, such as sales of a business, restructurings, refinancings, and recapitalizations. An investment in the fund at its inception is currently up 125%, Mr. Hudson tells me.

One of his more intriguing investments, which is especially topical, involves the proposed sale of the Dallas, Texas-based Neiman-Marcus Group, an upscale chain that also owns Bergdorf Goodman. It generated 2004 sales of $3.54 billion.

On March 16, the retailer announced that it was on the block and retained Goldman Sachs to conduct the bidding. At the time, the stock was trading at around $75. In reaction to the news, the shares surged about 20% and closed Friday at $94.32.

Responding to the news, Mr. Hudson, over the ensuing 30 days, bought 450,000 shares of Neiman-Marcus for around $40 million or at an average price of about $91. In fact, he’s still adding to his stake at current levels.

Early next month, the name of the highest bidder will be announced. Mr. Hudson reckons the buyer will fork out about $105 a share on the low side and $115-$120 a share on the high side. That would be equivalent to an approximate purchase price between $5.1 billion and $5.8 billion.

According to the buzz on Wall Street, potential acquirers are such buyout firms as Kohlberg, Kravis Roberts & Company, Thomas H. Lee Partners, Bain Capital, and Apollo Advisors.

An obvious question: With the stock already up a hefty 54% from its 52-week low of $47.48 and trading at just a shade under its all-time high of $96.43, does it have much mileage left?

Judging from his recent purchases, Mr. Hudson obviously thinks so. Why so? Because based on his estimated takeover range, an investment in Neiman-Marcus adds up to a potential return of between 11% and 26% – all achievable, he believes, in a completed transaction in a relatively short period of about three months.

But what happens should there be no deal? The response from our Neiman-Marcus bull: “You can never be absolutely certain something is going to be sold,” but he thinks a sale in this case is a virtual certainty, given the fact it’s not based on selling off real estate to justify the transaction, but rather one that’s predicated chiefly on expansion opportunities both domestically and overseas. Mr. Hudson figures any buyer could easily double the number of stores to around 75 over the next five to 10 years.

One of the plusses here, he tells me, is that investors don’t have to worry about the overall stock market going up or down because people aren’t focused on the ups and downs of the market, but rather on the transaction itself.

Speaking of transactions, Mr. Hudson pulled off a coup via the recent sale of the Toys “R” Us chain to a group of buyout firms. Following the toy retailer’s announcement that it put itself up for sale, Mr. Hudson, starting late last year, began building a 1-million-share stake, which he completed earlier this year at an average price of $19. The buyout price was $26.75, adding up to a sizable profit for our event-driven investor of $7,750,000 or a gain of about 40%.

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THREE TRADING PROBES: Investigations into what appears to be illegal trading on inside information continue to swell. In brief, I’ve learned definitively from regulatory sources of the beginning of three recent trading probes that have yet to be publicly reported, namely:

* The New York Stock Exchange is investigating trading in Solectron Corporation, one of the world’s largest providers of electronics manufacturing services.

* The Securities & Exchange Commission is investigating trading in both the shares and options of Nastech Pharmaceutical Company, a provider of drug delivery systems.

* Nasdaq’s NASD Amex Regulation Division, acting on behalf of the American Stock Exchange, is investigating trading in the shares of InterOil Corporation, an oil and gas exploration and production company.

Regulators are currently querying the brokerage community for the names of investors who have traded in these securities. In InterOil’s case, investigators also seem quite interested in short sales (a bet the stock price will fall).