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  • NewmanCofsnofski NewmanCofsnofski Aug 6, 2012 8:43 PM Flag

    For iamnathan: On market psychology

    The offer by Best Buy founder to take the company private provides a good illustration of the psychology of market expectations.

    He has offered to take the company private for $24-$26 per share. However the market price is only $20. This indicates that "the market" believes there is only an 80% chance the deal will get done as described.

    The situation with ACOM is a bit different as there is no known offer. However there is plenty of evidence to suggest offers are being made. "The market" appears 95% certain that a bona fide offer of $35 will be made. Based on options pricing, there is little expectation that it will be significantly higher than this number.

    This is certainly not a sure thing. It is always possible that something will come out of the blue. However given the lower than average volume, there is no information leaking that would indicate a likely scenario other than what the market already expects. The bad news is that there is little reason for optimism for an offer significantly higher than the mid $30s. The good news for you is there is little reason to believe that *no* deal will materialize. If that were the case, we would likely see falling prices on increasing volume.

    Never, ever mortgage the house (or your retirement) on speculation. It is not investing.

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