[PairTheBoard]

[ QUOTE ]
"His idea is that there is likely to be a lot of information of this kind that is embedded in the market price and beyond the scope of the fundamental analyst's due diligence. Therefore, the FA must "guess" at how much of the difference between market price and FA-Value is due to information available to the market but not to the FA, and factor that guess into his calculation of intrinsic value. That is, unless the FA has special insight into the market price that allows him to apply Sklansky's fundamental theorem.

This Insider Trading topic is just Sklansky's way of providing some examples to support his proposal that we should look to his Fundamental Theorem of Investing to make more money in the market."

Not a bad analysis. Except that I don't think that the reason that the market's valuation's are sometimes more accurate than the FA is just because of insider information that is bordeline illegal. It is often due to perfectly legal information that even a great FA is not privy to, or hadn't realized might affect the stock price. In other words it might not be so smart to say "what does this stock price have to do with the price of tea in China?". When actually it might.

Also, it should be noted that information not taken into account by the FA is often probalistic. And when it doesn't pan out, the FA mistakingly thinks he made a good bet. In other words some people realize that ABC has a 20% chance of having a thirty point slide. So they keep the stock at a level five dollars below what it would be without this danger. An oblivious FA thinks he came up with a good buy and pats himself on the back when the unseen danger subsides and he picks up his predicted five dollars. Which will happen 80% of the time.

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That's what I thought you were getting at. Your monopoly machine example is not even close to a borderline insider problem. It really serves to illustrate the points you wanted to make which are quoted above. Even better is the hedge fund example given by Groty about privately conducted market research on retail sales trends.

The problem is that there is generally no systematic way of determining reasons for the FA-Value/Price differential. Even your special insights amount to guesswork. Yet the fundamental analysis method has proved very successful for many investors. Spending their time trying to find special situations for applying the Sklansky Theorem might very well be better spent simply doing more FA research.

I don't think anyone here would argue there isn't value in obtaining special information like your monopoly machine info, or Groty's hedge fund market research. Information which either isn't available to the general market. Or knowledge about how the market is specifically misevaluating information that is available to it. Such information or knowledge is valuable by itself and I can't see how it wouldn't add value to a fundamental analysis - which I think was the point of your thread on that topic. If you have ideas on how to obtain such specific information I'm sure people here would like to hear them. The thing is if you don't, it doesn't do us much good listening to you tell us that it would be nice to have.

PairTheBoard