Thursday, August 20, 2009

Inefficient Markets

With all the talk about the supposed negative effects of the "efficient market hypothesis" that supposedly caused the GFC it's worth pointing out how the markets are often blatantly inefficient. Oceania Capital Partners (previously Allco Equity Partners) has a big stake in iSOFT (ISF.AX). Based on my calculations it is currently worth $A3.10 per share. The company also had 43 cents per share of cash as at 30th June and 24 cents of "realisable securities". Liabilities were 7 cents per share. That totals $A3.70 per share. Yet the stock trades for $A2.77. We'd have to believe that their two private equity holdings have a negative value of almost a dollar a share instead of the $A1.25 per share that they claim for that to be a rational price. Yeah, we should probably take something out for the cost of future management fees but still the stock trades at a ridiculous discount.

I've persuaded myself not to sell any yet :)

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