[Mark1808]

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I'm not sure that having a minority interest provides you with less value. When you buy a stock, you are buying a part of the abilities of the management to direct the activities of the company along with a piece of all its assets, future profits and current cash flows. So in order for a minority interest to be worth less, that would be saying that you could do a better job than the current management, and most investors are not willing to spend the huge amounts of time to run a company, so instead they buy a piece of the company, with one of the intangible assets being managements ability.

I think it might actually be the reverse of what you are saying. The reason you have to pay a premium for getting a majority interest is because to do so you have to bid up the price of a stock by buying over half of it. A controlling interest is worth enough to you--economies of scale, you can use the assets better etc.--to bid up the price of the stock and pay a premium over normal value. The difference between the person taking a controlling interest and the real value is the premium you have to pay and seems to me the discount you would be referring to. So the discount comes out of someone who needs a controlling interest's pocket, not a value investors valuation.

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Well the IRS allows minority discounts to estates and the merits have been argued in court. A cottage industry exists to prove that minority discounts should be afforded to minority holders. Stocks are a minority holding and therefore should theoretically be valued at a discount to the value of a company as a whole. These discounts in the market do not represent an opportunity as much as they represent effecient pricing.

Control has value, that is why premiums are paid in buy outs. I am thinking that Buffett's requirement of a 50% discount to company value does not represent a risk premium as much as it represents the fact that a stock priced effeciently should sell at some discount no matter what and a 50% discount means the stock is priced too cheaply while a 15% to 20% discount may be fairly priced.

It is pretty hard to argue that stocks should trade at a discount to company value when virtually every buy out involving an informed buyer is made at a premium to market. Either every buy out is made at a premium to intrinsic value or stocks reflect a minority discount.