Muzie

Market Calls I Got Right - and Wrong - In 2008

Sir, I must say you very first statement contradicts your statement. If stocks were just pieces of paper, free to go up and down irrespective of the company, then indeed the bankruptcy of the company tied to the stock would have no effect on the "piece of paper" as you put it.

The very fact that the paper is worthless when the company is worthless implies the proxy relationship is alive and well.

> Have you ever purchased a stock that eventually went private
> at a price below what you paid for it? If you purchase Berkshire
> at $4000 a share and it is worth $5,000 a share based on intrinsic
> value, but Buffet wants to take it private at $3750, where do you
> stand now?

No, I never have, though I can't see what the price "I" paid for a stock has to do with the value of a company when it goes private. Though I have never heard of a company going private at a price below the CURRENT price of the stock, and in fact most companies going private will offer a significant premium on the current stock price. But you do make a good point: if you are the only one who "knows" the correct intrinsic value of a stock, then you may never profit from it as that information may never propagate to future buyers. It is unlikely that only one person would know about material information about a stock, and in fact once those buyers have committed themselves, it is usually very much in their interest to propagate what they knew so that new buyers may now see what wasn't widely known before (thus causing the price to rise).

There are no guarantees in markets - and I suspect in fact some dividend & bond buyers will sadly discover that bonds don't actually "guarantee" the stream of returns in the end.

> Where are all the investors that sold off as this market tanked and
> when are they going to get back in the market, that is the question.

That is a good question. As the value of the US dollar has risen, perhaps some have simply gone fully in cash? If these have truly given up on stocks, then they will not come back. If they are mostly "big boys" as you say (I think reality is a bit more in shades of grey than you imply), then it's these guys job to make a return no matter what, which to me implies it is in their own interest to come back sooner or later. Nobody wants to be the first to dip its toes back in, but being the last to come back is just as horrible for these managers.

On Dec 28 09:03 AM long_on_oil wrote:

> Stocks are pieces of paper and that is all they are. If a company
> goes bankrupt have you ever known a common stock holder that made
> a cent. Have you ever purchased a stock that eventually went private
> at a price below what you paid for it? If you purchase Berkshire
> at $4000 a share and it is worth $5,000 a share based on intrinsic
> value, but Buffet wants to take it private at $3750, where do you
> stand now? The lawyers will make a fortune but you will give up
> your shares at $3750. Share prices are set by the big boys and
> the little guys like us just hope to buy and sell at the right points.
>
> The only way you are guaranteed any kind of return on your investment
> at all is to buy stocks that pay dividends. The dividend places
> a bottom on the stock and you are protected to a point. Even dividends
> get cut so that does not guarantee you will make a gain.
> Companies with a long history of paying and increasing dividends
> are by far the best way to go for the average buy and hold investor.
> At least you are getting a known return on your investment. Any
> good site has a screener program which helps you find these stocks.
>
> These last 6 months have taught us that fundamentals have been thrown
> out the window. We all know stocks that are currently selling at
> 2 to 5 times next years earnings. With interest rates at 4% stocks
> have historically sold as high as 25X earnings (based on growth).
>
> Where are all the investors that sold off as this market tanked and
> when are they going to get back in the market, that is the question.