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value investing: trying to have your cake and eat it too?

Posted: December 20th, 2013, 9:50 pm
by albertmills
Hi,I'm curious: value investors claim that the markets aren't efficient, that you can find under priced securities that differ from their "intrinsic" value. Then they go on to claim that that intrinsic value will be realized (or at least the price of the security will rise toward the intrinsic value) given enough time. So aren't they saying that the market for a particular security is inefficient at one time, and then will eventually become efficient?Why should the market for a particular security be inefficient at one time and then over time become efficient? Isn't it just as reasonable to assume it will stay inefficient?

value investing: trying to have your cake and eat it too?

Posted: December 20th, 2013, 11:17 pm
by DavidJN
Well, part of the story might be that the value investor first sets up their position and then directs his/her efforts to communicate the real value to other market participants. But Keynes' (or was it Galbraith's?) warning applies here - the market may remain inefficient longer than you may remain solvent.

value investing: trying to have your cake and eat it too?

Posted: December 20th, 2013, 11:46 pm
by BPS
QuoteOriginally posted by: DavidJNWell, part of the story might be that the value investor first sets up their position and then directs his/her efforts to communicate the real value to other market participants. Not always. Klarman isn't one to make a lot of noise, but someone like Loeb, he's all noise.

value investing: trying to have your cake and eat it too?

Posted: December 22nd, 2013, 6:08 pm
by gardener3
Most of the action happens around earnings announcements. For instance, growth investors expect high earnings growth but are disappointed at earnings announcement and there is a correction in price. Look at figure 5 here: http://webuser.bus.umich.edu/tradingflo ... ysloan.pdf

value investing: trying to have your cake and eat it too?

Posted: December 23rd, 2013, 11:57 am
by MHill
I don't think it's about the market changing from being inefficient to efficient.In an inefficient market, I can buy a value stock. A while later, the other (inefficient) market participants catch on to what a bargain this stock is. They buy some, the price ticks up. Efficiency hasn't changed, only the consensus valuation.