Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10 5/3/83; site cubsvax.UUCP Path: utzoo!watmath!clyde!floyd!cmcl2!rocky2!cubsvax!peters From: peters@cubsvax.UUCP Newsgroups: net.invest Subject: Re: Old & New AT&T Stock Message-ID: <156@cubsvax.UUCP> Date: Thu, 2-Feb-84 10:29:39 EST Article-I.D.: cubsvax.156 Posted: Thu Feb 2 10:29:39 1984 Date-Received: Wed, 8-Feb-84 03:11:12 EST References: <328@hogpc.UUCP> Organization: Columbia Univ Biology, New York City Lines: 36 Bruce Burger (houxn!dossamg) states that, if old and new stock is available on the open market, only temporary market inefficiencies should allow price differentials to exist, and these differentials will be small. This is untrue, historically. There are a number of "closed end mutual funds" traded on the open market which consist of market-baskets of securities. According to efficient market theory (of which Bruce's argument is an example), these should always trade very close to the value, per share, of the market basket which they represent, after perhaps allowing some small discount for administrative costs, etc. Historically, however, they sell for *large* discounts -- like 20% !!! These discounts are public knowledge... in fact, the NY Times lists them (under "Publically Held Funds") in the Saturday business section, and the Wall St. J. lists them Monday, I believe. These discounts also are quite volatile. Case in point: several years ago I bought two of these -- U. S. & Foreign Securities and Tricontinental Corp., both of which are traded on the NYSE, when the discount was about 20%. Tricontinental recently announced that it plans to dissolve and distribute its assets to the stockholders ... whereupon the discount disappeared!! Burton Malkiel's "Inflation Beater's Investment Guide" talks about how to build an investment strategy using these funds. He is one of the framers of efficient market theory, and he confesses he doesn't know why this inconsistency exists. By the way, I have no views on how this relates to the breakup of AT&T. I recently traded my (old) AT&T stock for the "Equity Investment Fund", which holds a market basket of the child companies... but after I did this it occurred to me that I will lose money if this starts trading at a discount.... {philabs,cmcl2!rocky2}!cubsvax!peters (Peter S Shenkin; Dept of Biol Sci; Columbia Univ; NY, NY 10027; 212-280-5517)