urbanSTL

^ radio

Hmm, so BUD dropped almost 3% today, or $2, to $66 per share. Does that mean that the market thinks this deal is less likely to happen?

^ Are you serious? BUD actually fared better than the Dow which dropped over 500 points & 4.42% today because of market fears over Lehman Brothers' bankruptcy. If you want to draw any conclusions about market sentiment in a given stock, it helps to compare it with the general market and leading stocks in its sector.



I predicted in late March that Lehman Brothers was going to be the next to fall and recommended shorting the stock. If you had, you would have made a ton of money... Ref: http://urbanstl.com/viewtopic.php?p=119 ... man#119835



Like it or not, the sale is 99.999% going to happen. There are no anti-trust or security concerns that could thwart it. Even A-B is fighting the frivolous lawsuit that would prevent the sale. Let's get real, peeps.

innov8ion wrote:I predicted in late March that Lehman Brothers was going to be the next to fall and recommended shorting the stock. If you had, you would have made a ton of money... Ref: http://urbanstl.com/viewtopic.php?p=119 ... man#119835

So you clearly shorted Lehman Brothers then?



People were warning of an impending collapse over a year ago. If you had shorted most of the financial services firms then, including Lehman Brothers, you could very well have lost money. It's all in the timing, and hindsight is 20/20.

innov8ion wrote:Like it or not, the sale is 99.999% going to happen. There are no anti-trust or security concerns that could thwart it. Even A-B is fighting the frivolous lawsuit that would prevent the sale. Let's get real, peeps.

I would submit that if the market believed at the end of the day today that InBev was just as likely to purchase BUD for $70 a share as it was on Friday, then the price would still be $68. Otherwise, how do you explain the change, did transaction fees suddenly increase? If you are 99.999% sure the sale is going to happen, then I assume you were buying up every BUD share you could get your hands on today, since it's free money with basically zero risk.



And did I say anything about potential antitrust actions? I'm talking about the market's perception of InBev's ability to finance the deal and the cost thereof.

The Central Scrutinizer wrote:

jlblues wrote:

innov8ion wrote:Like it or not, the sale is 99.999% going to happen. There are no anti-trust or security concerns that could thwart it. Even A-B is fighting the frivolous lawsuit that would prevent the sale. Let's get real, peeps.

I would submit that if the market believed at the end of the day today that InBev was just as likely to purchase BUD for $70 a share as it was on Friday, then the price would still be $68. Otherwise, how do you explain the change, did transaction fees suddenly increase? If you are 99.999% sure the sale is going to happen, then I assume you were buying up every BUD share you could get your hands on today, since it's free money with basically zero risk.



And did I say anything about potential antitrust actions? I'm talking about the market's perception of InBev's ability to finance the deal and the cost thereof.

I suspect the drop in AB could be caused by paniced sellers, who see a 500 point drop and decide to get out of stocks, which means selling everything, even their AB. These are irrational decisions made by bad investors.

By bad investors? I don't know if I would say that. The market is always right in the long term, even when it may overcorrect or be irrational in the short term. Humans aren't machines. We have emotions and emotional attachments to money.



BUD went down because of macroeconomic issues -- issues that affect all securities. I agree buying BUD stock wouldn't be a bad idea after the market begins to show signs of calming because I feel the risk of a non-buyout is low and there is a 9% disparity between the current and buyout price. It's good to realize these kinds of distinctions and capitalize on them.



And I have seen little to no inklings from analysts that suggest inBev would have problems obtaining financing to close the deal. Everything is structured to complete it, including $10.4M in incentives for the BUD CEO upon completion.

I thought it went down because one of the banks that was going to lend money to InBev has now backed out



*edit: Of course all rumor, but it makes sense since the stock has dropped again today... but it is climbing slightly higher now

Central Scrutinizer wrote:Right about what? I do hope you're not referring to Efficient Market Theory.

^^ Listen to what I'm saying. A market is the sole determinant in stock price at every instant. Therefore, the market is always right in an economic sense. In the short term, markets can be irrational or inefficient. In the longer term, markets are rational or efficient. If you don't understand these critical concepts, then you only think you know what makes Warren Buffett so special.



The answer to your question is, "not exactly." I am more attracted to the Adaptive Market Hypothesis because I believe the market can be predictable to some degree over the longer term. I don't believe in the Random Walk theory because if stock prices were solely random, then why do bad companies perform more poorly over time and strong conglomerates like Berkshire Hathaway succeed so well in the long term?



If a company has a strong leader, culture, strategy and can execute well -- the stock price will likely appreciate handsomely over time. Is Warren Buffett's success random? If you believe in the Random Walk theory, then there would be no reason to follow his advice nor observe how he takes advantage of shorter-term market inefficiencies. You would just as soon listen to a monkey! After all, everything is random.



Anyway, I'm going to study these pearls of wisdom more closely: http://en.wikiquote.org/wiki/Warren_Buffett

Adaptive Market Hypothesis Implications wrote:The AMH has several implications that differentiate it from the EMH such as:



1. To the extent that a relation between risk and reward exists, it is unlikely to be stable over time.

2. Contrary to the classical EMH, arbitrage opportunities do exist from time to time.

3. Investment strategies will also wax and wane, performing well in certain environments and performing poorly in other environments. This includes quantitatively-, fundamentally- and technically-based methods.

4. Survival is the only objective that matters while profit and utility maximization are secondary relevant aspects

5. Innovation is the key to survival because as risk/reward relation varies through time, the better way of achieving a consistent level of expected returns is to adapt to changing market conditions.

The Central Scrutinizer wrote:Except that Buffett ignores markets. If you don't understand that critical concept, then you only think you know what makes Warren Buffett so special.



I save a lot of time by ignoring these theories and following Buffett's simple advice - buy great companies at a discount. But you are free to waste...err...spend your time as you see fit.

You can lead a horse to water...

The Central Scrutinizer wrote:

innov8ion wrote:

Central Scrutinizer wrote:Right about what? I do hope you're not referring to Efficient Market Theory.

^^ Listen to what I'm saying. A market is the sole determinant in stock price at every instant.

Most often, but not always.

That is factually incorrect. Security prices are only determined in markets by market participants which are subject to the economic forces of supply and demand (let's just suggest that supply is static.) I challenge you to provide one instance where this is not the case.



You may say a stock moved up or down for a given reason but that is inconsequential. The stock only moved up or down because demand for it changed.

The Central Scrutinizer wrote:

innov8ion wrote:Therefore, the market is always right in an economic sense. In the short term, markets can be irrational or inefficient. In the longer term, markets are rational or efficient. If you don't understand these critical concepts, then you only think you know what makes Warren Buffett so special.

Except that Buffett ignores markets. If you don't understand that critical concept, then you only think you know what makes Warren Buffett so special.

If you think Warren Buffett ignores markets, he would consider you an unwise person. I know precisely what you mean and it is one aspect of his trading style. However, those who aim to be academic should be more clear.



The only sense he ignores the market is in being dispassionate toward the noise/ripples that occur in the short-term. However, his transactions both on the buy and sell side do capitalize on market inefficiencies. How can one capitalize on market inefficiencies by ignoring the market??? One can't and he does not. Warren Buffett knows the market and exploits it to his advantage.

http://www.fatpitchfinancials.com/184/why-i-study-warren-buffett/ wrote:Martin and Puthenpurackal analyzed a total of 261 investments during their study period from 1980 to 2003. The average annualized returns for the stock investments in Berkshire’s portfolio from 1980 to 2003 are an amazing 39.38%. I was somewhat surprised to find out that 59 of those 261 investments could be labeled as arbitrage investments. The average annualized return for the arbitrage stocks was 81.28%!

^That article says almost exactly what I did...before you jumped all over me. So I guess the Dow Jones reporter is ridiculous and needs to "get real" too?

NEW YORK -(Dow Jones)- Anheuser-Busch Cos. (BUD) - which in July agreed to be bought by InBev (INB.BT) - is trading well below its acquisition price of $70 a share as investors stay cautious on the deal amid the turmoil in financial and credit markets.



An InBev investor said choppy credit markets appear to be raising some concerns about the financing for the deal, though there are no indications those concerns are justified. An InBev spokeswoman said the company is going ahead with the deal. "We have completed the primary syndication phase of the committed financing with a very diversified group of strong banks," she said via email.



Despite the market jitters, some Anheuser investors are staying upbeat on the prospects for the deal, and expect the stock to slowly move closer to the deal price.

innov8ion wrote:Are you serious? BUD actually fared better than the Dow which dropped over 500 points & 4.42% today because of market fears over Lehman Brothers' bankruptcy. If you want to draw any conclusions about market sentiment in a given stock, it helps to compare it with the general market and leading stocks in its sector.



Like it or not, the sale is 99.999% going to happen. There are no anti-trust or security concerns that could thwart it. Even A-B is fighting the frivolous lawsuit that would prevent the sale. Let's get real, peeps.

jlblues wrote:^That article says almost exactly what I did...before you jumped all over me. So I guess the Dow Jones reporter is ridiculous and needs to "get real" too?

Sorry if you felt you were jumped on but I do believe the deal is very likely to go through. 99.999% was an exaggeration of course. 94% is still very likely, per the existing arbitrage spread. Do you or do you not agree with this reasoning?

innov8ion yesterday wrote:Like it or not, the sale is 99.999% going to happen.

innov8ion today wrote:...but I do believe the deal is very likely to go through. 94% likely, per the arbitrage spread.

So you aren't as confident as you were yesterday?

innov8ion wrote:94% likely, per the arbitrage spread.

Using your formula, it'd be higher when you consider transaction costs, but you definitely need to take another look at that formula. Think about it. If you come up with the correct answer, maybe I'll give you an HP.

^ I wasn't accounting for transaction costs. Risk arbitrage does interest me, so perhaps I will learn about it more indepth. As is the case with most things, the more we learn, the more we learn we don't know. I think I'd rather not know much more than most people -- At least those I'm competing with in the zero-sum game of the stock market.



As for my observations you critiqued, perhaps you could share your specific insight. (I think a trip to Borders to find a nice arbitrage book is in order.)



Graham’s Indicated Annual Return Formula for Risk Arbitrage

To calculate the value of a potential arbitrage commitment, Benjamin Graham, the father of value investing created the following formula, which he discussed in length in the 1951 edition of Security Analysis; its creation was heavily influenced by Meyer H. Weinstein’s classic 1931 book, Arbitrage in Securities (Harper Brothers).



Indicated annual return = [GC – L (100% - C)] ÷ YP



Let G be the expected gain in points in the event of success;

L be the expected loss in points in the event of failure;

C be the expected chance of success, expressed as a percentage;

Y be the expected time of holding, in years;

P be the current price of the security

innov8ion wrote:94% is still very likely, per the existing arbitrage spread. Do you or do you not agree with this reasoning?

I disagree. Your analysis assumes that AB is worth zero if the deal doesn't go through.

A few more coming in:



Anheuser Busch (BUD) NewsBite - BUD Falls on Market Worries

Posted on Tuesday, September 16, 2008 10:46 AM

Market Intelligence



Anheuser Busch (NYSE: BUD) opened at $65.52. So far today, the stock has hit a low of $63.12 and a high of $65.52. BUD is now trading at $65.24, down $0.96 (-1.45%). Over the last 52 weeks the stock has ranged from a low of $45.55 to a high of $68.58. Shares of BUD are declining with other beverage makers this morning as investors await the Federal Reserve's announcement on interest rates this afternoon. Some analysts think the central bank may lower the federal funds rate in order to shore up confidence about the economy. Technical indicators for the stock are neutral and S&P gives BUD a neutral 3 STARS (out of 5) hold ranking. We will just watch this one for now.



Entire article:

http://www.marketintelligencecenter.com/articles/674096





From the Post Dispatch Sep. 16:

http://www.stltoday.com/stltoday/busine ... enDocument



InBev said it is still on track to close the transaction by the end of the year. But Edward Jones analyst Jack Russo lowered his rating on Anheuser-Busch's stock from 'hold' to 'sell' on Tuesday, citing risks to InBev's financing package.



"While we still see it as probable that the deal closes as planned at $70 in an all-cash offer, fragile credit markets increase the risk that financing falls through, gets delayed, or gets restructured," he wrote in a research note. He said the risk/reward ratio for owner Anheuser-Busch stock is poor, since there is "substantial downside" if the transaction does not go through.



Morningstar analyst Ann Gilpin likewise urged caution.



"Given the recent deterioration in the credit markets and general uncertainty in financial institutions worldwide, we feel it is prudent to raise our uncertainty rating for Anheuser-Busch," she wrote in a note to clients. "While we think the deal will likely go through, the state of the credit markets adds some uncertainty around our ($70) fair value estimate, which is based on the transaction price agreed to with InBev."



and last but not least:



Buffet Sells BUD Shares



Today on CNBC, Buffett said he sold 61% of his holdings in Anheuser-Busch because he believed InBev’s takeover bid would fail. Last week, Deal Journal wrote about the timing of Buffett’s stock sale, noting that the billionaire had left money on the table by selling so much A-B stock before InBev raised its offer to $70 a share, or $52 billion, from the initial unsolicited $65-a-share bid.







-----------------------------------------------------------------------------

Just remember: Banks / shareholders want the 70 dollar shares to ensure financing and sale. We will wait and see... as the pros say "cautiously".

Central Scrutinizer wrote:

innov8ion wrote:That is factually incorrect. Security prices are only determined in markets by market participants which are subject to the economic forces of supply and demand (let's just suggest that supply is static.) I challenge you to provide one instance where this is not the case.

And you're studying for an MBA? Oh dear!



Have you ever held a stock certificate in your hands? If you have, then you have your answer. And your "one instance".

You do realize that a stock certificate is still a share of stock? A share of stock bought on the market that was and always will be subject to the forces of supply and demand? Try again.

Central Scrutinizer wrote:

innov8ion wrote:The only sense he ignores the market is in being dispassionate toward the noise/ripples that occur in the short-term. However, his transactions both on the buy and sell side do capitalize on market inefficiencies. How can one capitalize on market inefficiencies by ignoring the market??? One can't and he does not. Warren Buffett knows the market and exploits it to his advantage.

No. Buffett knows businesses, not markets. Actually, he does know markets - he knows to ignore them. As he (and Charlie) said this year, they have no idea where the market is going tomorrow, next week, or next year. If they did, they wouldn't even bother evaluating businesses and would buy S&P futures instead. It would be a lot easier.

Why do I get the feeling that I'm talking to a brick wall? You do realize that if one acts on something, one can't be ignoring it at the same time? Because Mr. Buffett himself says he acts based upon market inefficiencies. So he can't be ignoring the market like you incessantly suggest. Unfortunately, your stubbornness appears to stand in the way of clear thinking.



Warren Buffett:



- "Berkshire's arbitrage activities differ from those of many arbitrageurs. First, we participate in only a few, and usually very large, transactions each year. Most practitioners buy into a great many deals perhaps 50 or more per year. With that many irons in the fire, they must spend most of their time monitoring both the progress of deals and the market movements of the related stocks. This is not how Charlie nor I wish to spend our lives. (What's the sense in getting rich just to stare at a ticker tape all day?)" -- Buffett himself speaking about market arbitrage

- "I'd be a bum on the street with a tin cup if the markets were always efficient." (He admits exploiting market inefficiencies)

- "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." (How do you determine the value of price w/o comparing it to market value?)

- "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well." (He pays attention to the market. In fact, he can be seen as a market contrarian.)

- "Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid." ('Nuff said. Buffett is speaking about market inefficiencies.)

- "I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out." (Buffett speaking about exploiting market efficiencies."

- "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." (Buffett again as a market contrarian.)

Aviator wrote:

innov8ion wrote:94% is still very likely, per the existing arbitrage spread. Do you or do you not agree with this reasoning?

I disagree. Your analysis assumes that AB is worth zero if the deal doesn't go through.

That's not true. In a vacuum, BUD stock would have been worth only about $50 max if the deal never happened. That's about where price support existed on May 23rd, when the first rumors came out. But since then, they've acted like a real publicly-owned company and streamlined operations. I'd estimate they've added on approximately $5 worth of value to total a $55 bottom if the deal falls through. In such a market vacuum, the bottom would be approximately $50-55.



But stocks don't trade in vacuums, so perhaps we would factor in the shifting value of a complementary macroeconomic market by dividing the value of the DJIA today by its value on May 23rd and multiplying that by the $50-55 range. This amounts to a 13.85% decrease in the DJIA resulting in a new possible range of $43-47.50.



FYI, Edward Jones analyst Jack Russo stated that, "The risk/reward ratio for owner Anheuser-Busch stock is poor, since there is "substantial downside" if the transaction does not go through." Given that, I'd say my predicted bottom is both accurate and substantial. You think I'm joking? The market doesn't f around -- in such a scenario it could very easily gap down 20-40% overnight.



A Morningstar analyst said that while the deal is highly likely to go through, "The state of the market adds some uncertainty about the $70 fair value estimate."



As far as Buffett goes, he said the 61% sale was a mistake: http://www.stltoday.com/blogzone/busine ... a-b-inbev/

September 17, 2008,

9:44 am



Market Freak-Out Hits Pending M&A Deals

Posted by Heidi N. Moore

It isn’t you, it’s me.



That is the message Mr. Market has been sending to companies with pending mergers and acquisitions. But the falling stock prices of acquisition targets — sometimes well below the acquisition price — didn’t reflect problems with the deals themselves. Rather, it was the AIG factor.



Worries about the fate of the giant insurer American International Group brought the lending markets as close to a standstill as they have ever been since the credit crunch that began last summer. Banks abruptly stopped lending to each other Tuesday. And any pending merger, anywhere, that required financing was absolutely hammered in the stock market.



The result is blown out arbitrage spreads–the difference between the stock price at which a deal is struck and the current market price. Spreads typically widen when there are expectations that a deal won’t close or that there might be trouble ahead.



But even the deals that looked in the bag fell below the acquisition prices. The stock of Anheuser-Busch, which will be acquired by InBev for $70 a share, fell to $66.10, roughly 6% below the deal price.





Full article:

http://blogs.wsj.com/deals/2008/09/17/m ... lenews_wsj

^^Now might be a good time to break out your favorite Monte Carlo simulator.