To: John Arnopp who wrote (1900 ) 10/29/1998 2:24:00 AM From: michael r potter Read Replies (2) | Respond to
Something is different this time. Unlike the previous ('97] bottom, when SFE was at $17, this bottom contained a large premium to NAV. If it traded at a premium despite the gloom and fear [well founded] of suspension of rights offerings, what will make the large premium collapse now. The market is mostly efficient and has had plenty of time to factor in the bad news. I doubt that SFE buying accounts for the majority of the premium. Could it be that the market is willing to discount the potential of SFE monetizing its growing and valuable interests in internet related companies over the next 12-18 months? After all, that is about the only area that has been hot this year. If so, the market is assigning a market value of about $200M to for SFEs interest in their non-public investments. With the market caps. existing for Ebay, AMZN, YHOO,etc. that might not be unreasonable. At that bottom in early '97 there was virtually no internet related investments factored into SFE. That is the only big difference I can see between the two bottoms. If this is the main factor, a large premium might be maintained for an indefinite period of time [granted, it is hard to believe after seeing it trade at no premium so many times]. Even though SFE and components are getting overvbought, that bottom in NAV earlier in the month will be a lasting one, and the downside in SFE could be limited. With rights offerings suspended for the first time since '92, the fact that it's trading at this premium, tells us that something is different. I am not totally comfortable with this explanation, but the main point is that the market is probably not being as inefficient as many think with regards to the high premium to NAV. Always interesting. A reminder, the traditionally strongest months of the year are coming up, mutual fund tax loss selling is about over, and individual tax selling has been underway and will be well past its peak by the end of Nov. The only negative I can see is the overbought condition of SFE and components, and an overall market that has come a long way in short order. Maybe that will provide another entry point...but from what level?
