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Welcome to Episode 59 of Special Situation Investing. Below is the outline for today’s show. For full commentary listen to the audio above.
1. Investing returns are the combination of your rate of return, total investment, and time invested.
a. Investors typically think in annual returns
b. This could preclude investors from taking multiple high probability/low return bets each year
c. $10 compounded daily at 1% interest grows to $73.83 in 251 days
- About 251 NYSE trading days annually
2. Long term value investing can be rooted in a structural market inefficiency frequently traded
a. Indexation is a rule set not an active management strategy
b. In the interest of fairness the rules of indexation must be followed regardless of the impact
c. Announcing a multi billion dollar, price agnostic, stock purchase will drive a stock up
d. No rational investor would pre-announce a stock purchase in the billions
e. Adding Tesla and Moderna to the index were in effect irrationally pre-announced purchases
f. Massive pre-announced buy/sell orders will continue due to the indexation rules
g. This long term, structural phenomenon, can be captured multiple times each year by investors
h. Capturing these returns is in effect capturing the phenomenon outlined in 1-c above
3. Conclusion
a. Long term value can be created thru many small bets rooted in structural market inefficiency
b. Each investors tax situation must be considered before embarking in short term trades
4. Additional Resources:
a. Murray Stahl, Value Creation From Value Destruction:
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Short-term value investing