Timing the market or maybe what time is it for?
Timing the market or maybe what time is it for?
before we talk about time in the market
I have belatedly got into my first SAAS name in the market and then the market crashed.
I am down 50% on that name which I had only gotten just a few weeks ago. Now I am face with the prospect of averaging down in a down market which is merciless towards anything that is technology related.
On hindsight, I should not pull the trigger since the market is tanking.
On the other hand, it is hard to resist taking a few shot when the target within sight.
The problem with hunting investing in a crash is that bullets cash is never enough.
This got me thinking about the old adage,
“it's not about timing the market, but about time in the market”
Yes, the old adage has proven to be true in a number of studies but it is always nice to have the lowest average price.
If the market’s momentum is negative, the averaging process should start only when the negative momentum slows or reverses.
What is definitely clear that NOW is not the best time to be averaging into tech stock.
So what the market is presenting to us right now?
With high uncertainty in the market, the spread between the various merger deals have continue to stay wide.
Maybe the market is allowing us do some merger arbitrage?
Swedish Match (90/10):
Swedish Match said Wednesday that its board agreed to a SEK 161.2b cash offer from Philip Morris. Under the proposal, subject to shareholder approval, investors will receive SEK 106 in cash for each share held.
I believe the shareholders would be keen to cash out in this type of environment.
Cash looks like a sure bet now.
The odds look like 90/10?
90% that we will receive SEK 5 and 10% that it will fall back to SEK 78 - the highest price prior to the announcement (losing SEK 23).
Expected Return = +ve
Tenneco (70/30):
I am sure not many people heard of Tenneco.
Apollo fund had announced in Feb 23 2022 that they will be acquiring Tenneco for USD 20.
The transaction, which has been unanimously approved by the Tenneco Board of Directors, is expected to close in the second half of 2022, subject to customary closing conditions, including approval by Tenneco shareholders and receipt of regulatory approvals.
-Press Release
So we have a USD 20 deal that is closing at the end of the year and it is trading at USD 16?
The deal seems to price to go south soon?
I am unsure how to weigh the odds but as the date ticks down to the second half of the year, the chance of closing gets higher?
The odds are 70/30?
70% chance of earning USD 4 and 30% chance of losing USD 6.
Expected Return = possibly +ve
Activision (70/30):
Activision’s deal is given the limelight by Warren Buffett. He seems to be swinging for it with his stake possibly crossing 10% by now.
I am unsure how Uncle Warren is weighing the odds.
Since the probability of Microsoft walking away from the deal is really minimal and the probability that Justice Department will put a stop to the deal is gets smaller by the day, the odds of 70/30 seems justified?
The lowest 1 year price is USD 57 and the offer price is USD 95. At current price of USD 77, the upside is around USD 18 and the downside is around USD 20.
Expected Return = possibly +ve
Twitter (50/50):
This has to be the over analysed deal of the year.
I am not going down the rabbit hole of analysing the deal.
You can just google it and you can have the analysis for both side. Or you can have the WSJ version here.
Elon Musk should have the financial might to buy over Twitter.
He seems to be getting cold feet or having some buyer remorse or trying to get some discounts.
Either way, it remains that the setup for Twitter looks good.
If we are to assume that the closing price is between the 3 years low of USD 23 to Musk’s offer of 54.20, at current price of USD 36 the upside is USD 18 vs the downside of USD 13.
Overall, it looks like a decent bet, if the odds are 50/50?
Expected Return = +ve
The general thoughts here is that the weighted returns for a basket of such merger arbitrage would do decently well?
Maybe, these instruments would allow us to juice some returns while we await even lower average price.
Or maybe the lower price is already here and it would be gone by the next summer.