Monday, October 6, 2008

Getting a dollar for 71 cents and dispelling Efficient Market Theory...

Today, I awoke late, as I tend to do on too regular of a basis-and as usual, checked my email and how the markets were fairing... it was about 10:30, I saw that the Dow had lost a few hundred points; my gut reaction was "good, maybe some companies will be cheaper." Little did I know just how cheap one would get.

As I looked through my folder that contains stocks that have some compelling values, I saw that Dataram (DRAM) was down around 30%. It seemed rather strange that this would happen all of a sudden since the company has no debt, next to no liabilities, and a ton of cash on hand... I was finding the company relatively attractive at 2.15/share, coupled with the fact I only buy things when when they on sale, I figured that I should become a fractional owner of the memory maker. Since it would take the company not selling any chips for about 9 months, while still spending current levels on R&D AND G&A to get below the cash levels that I purchased at, this is a nice quantitative bet.

In order to get a hold of it, I actually moved the market up a little with my minuscule purchase, and essentially bought 17 million dollars worth of cash for about 12 million. The great thing is that after my purchase, the stock only went up. I am still in awe that people were able to buy over 70K in stock that is, by definition, the most classic of net-nets. I never really thought that I would see something so painfully obvious happen in my life.

Take that efficient market theory!

3 comments:

David Adams said...

I'm looking forward to getting the politicians out of the way so the same thing can happen in the housing market.

Jeff said...

Absolutely.

The thing that I don't get is that in last nights debate, both candidates essentially said that the problem had been caused by the government regulations that were in place. Ironically, they both feel that MORE intervention from the entity that created the problem will fix the problem.

Isn't the definition of insanity when you keep doing the same thing and expect a different result?

Kentucky Progress said...

Yeah, that got me too.