Business school professors often speak of the “efficient-market hypothesis,” which posits that stock prices reflect all available public information and therefore are never overvalued or undervalued; they’re, instead, are perfectly valued. These professors are wrong. In many instances, the market gets it wrong, and a stock can remain mispriced, even after an important piece of news is digested by buyers and sellers. I was reminded of this after looking at the stock action of Assured Guaranty (NYSE: AGO) on Friday, April 15. The company’s stock rose 24% in just one day, but as you more… Read More
Business school professors often speak of the “efficient-market hypothesis,” which posits that stock prices reflect all available public information and therefore are never overvalued or undervalued; they’re, instead, are perfectly valued. These professors are wrong. In many instances, the market gets it wrong, and a stock can remain mispriced, even after an important piece of news is digested by buyers and sellers. I was reminded of this after looking at the stock action of Assured Guaranty (NYSE: AGO) on Friday, April 15. The company’s stock rose 24% in just one day, but as you more deeply analyze the news that affected the stock, it’s easy to conclude that shares should have risen by a good deal more than that. The process may take several weeks or months, but when complete, this $17 stock could shoot up into the low to mid-$20s. Bank of America’s mea culpa Assured Guaranty provides insurance to bond buyers. If those bonds default, then the buyers can make a claim. It’s been a very lucrative business for many years, controlled by Assured Guaranty, MBIA (NYSE: MBI) and Ambac Financial (Nasdaq:… Read More