Project Ekaris: Bidding Wars on LuSE

Investing in the stock market is an exhilarating experience. As we had indicated in our inaugural blog, we have selected 4 companies in which we would purchase shares in using the endowment we received from an angel investor. So far, we have almost completed the purchase of all shares except for one company we have been keeping an eye on whose stock is currently not being offered by any of its shareholders. Like with any market place, sellers may decide not to accept offers from buyers when they are aware of information about the company and wish to hold on for the long term. This is the fundamental importance of information symmetry.

Looking at the industry in which our final desired company operates in, there have been signals in the market over the last 3 years that are indicative that the company in question has stopped growing organically and now desires to grow through mergers and acquisitions.Furthermore, their desire to control the value chain of their industry is well known therefore, one can only assume that those that hold shares would rather entertain a bidding war rather than offload their shares.

Our discussions with our stockbroker, SBZ,have indicated that we are better off waiting at the current price we are offering the market. However, we are keen on the stock therefore, we shall soon be advising them to up the offer and see how the market views this new proposal. With indications that our targeted company will this year declare a dividend (our belief system is influenced by what we read in their 2016 annual report), we are also convinced that shareholders in this company are waiting for the much anticipated bounty.  However,behavioral economics argues that our offer may not be taken on because if investors have been waiting for so long for the payout, our gut feel tells us that we may need to look at the type on investor that has shares in this company.

Investor type will dictate how the investor plays on the market. If the investor is keen on a quick return, our signal of increasing our offer will be taken on. However, if the investor is more focused on the long term, he or she is faced with the opportunity cost dilemma. This emanates from the realms of scarcity. According to Xaiver Duran of Alliance Manchester Business School (our alma mater),the problem of scarcity leads to a problem of choice. He purports that one mustmake choices concerning alternative scarce resources to satisfy unlimited wants. In Economics, the cost of one choice is usually measured in terms of the value placed on the best alternative option foregone. This value is known as the opportunity cost. Therefore, for the astute investor, the opportunity cost of our increased offer against a projected first dividend makes this an exciting decision making process.

TFHZPC indicated it will play the game and our discussions with our broker indicate they are watching the market closely to see if our offer will spark some interest. Whatever the outcome of our increased offer, our beloved readers will be the first to know.

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