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  • Tom Grady

Most assets are fairly priced most of the time

Updated: Jul 20, 2019

It is rare to find a clearly, materially mis-priced assets. The reason why is simple, the owner of assets typically know their worth and is unlikely to sell them for less. Therefore you only gain from buying an asset if:

a) it's worth more to you than them

b) they were forced to sell at a bargain price

C) you know (or think you know) something they don't.

Typically, for equities, A is only true for industrial buyers. This is why M&A for listed equities typically happens at a significant premium to the prevailing price. The shares are worth more to a company that can merge an acquired company into its own to save on costs and generate more profit.

B happens occasionally as a result of companies moving out of indices, liquidity crisis where people need to sell assets to raise cash, or fund managers needing to sell assets to fund redemptions. It tends to happen for smaller, more illiquid stocks but can happen for larger companies. Arguably the growth in passive and ESG investing has led to selling decisions not being based on returns meaning there could be more bargains out there.

c) If you know something material about a share that nobody else does then it's probably inside information and therefor illegal to trade on. You can form a view on what might happen though and buy an asset with the expectation that something will change to make that asset more valuable in future. This is what we are trying to do most of the time and where the bulk of the opportunities lie.

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