On the same old topic / off topic
Bernie,
You have identified our difference, exactly:
<<Specifically, when I consider "risk", my principal concern is whether I can lose more money from transaction A or transaction B. So, I am contemplating "risk" to be risk of capital loss between the 2 choices we were discussing. I noticed you were talking about percentage risk...>>
That is exactly it! We were _never_ discussing the same "2 choices," so we could not agree, naturally. Luckily, our difference is a semantic, not a substantive, one.
In a nutshell -- using round numbers, for simplicity: (We will pretend that the differential in price was last 6.125, as you require.)
Your contention is that 4 LGNDW make a superior investment to 4 LGND, for the two simple reasons that the warrant position retains the upside, while limiting the downside, and that the time premium paid is recouped in margin savings. Your proposal thus minimizes "risk," using any rational definition of that term. You are absolutely correct. The risk associated with your proposed warrant position is _lower_ than that associated with the common position to which you contrast it. I have never argued the opposite, and I never will.
My contention is that 7 LGNDW make a superior, but also riskier, investment to 4 LGND. Note, at current prices, my two alternative positions require a (roughly) equal dollar-investment. The upside is magnified, but at a cost: the associated risk also increases proportionally (although, not commensurately, as it increases _less_.) There are a number of reasons why I prefer 7 LGNDW to 4 LGND, reasons that need not be repeated now. Suffice it to say that I believe it to be a positive-expectation substitution.
So you see, Bernie, you and I have no argument, and never had! And, by the way, I agree with you that financial risk is the only variety of risk that it is appropriate to consider when making investment decisions. Abstract "risk" might make a good subject for a philosophy discussion, but not a finance one.
Take care,
RB |
