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If the standard is a 20% return on investment, then any buyout can be proven to be 20% undervalued, negating all benefit, so you're right, the natural response
by ewzimm 10y ago
If the standard is a 20% return on investment, then any buyout can be proven to be 20% undervalued, negating all benefit, so you're right, the natural response would be to reduce the bid to make up for that, but now that we have this precedent, we can assume they know about it and have even further undervalued any buyout, so we can prove in court that any stock is actually somewhere around 40% undervalued. But any buyer would anticipate this further proof of devaluation and lower their bid even further, so naturally we're going to approach zero bids on provably infinite value stock.
- smallnamespace 10y agoThat's probably not right. Under mild assumptions, each successive update to expectations will be proportionally smaller in magnitude, and the price will converge geometrically to a somewhat lower (but non-zero) number. It's the same reason why the government spending multiplier isn't infinite, even though government spending spurs private sector spending, and private sector spending increases the tax base.
- ewzimm 10y agoI was wondering if someone might say something like this! Of course, my statement was meant to be absurd. I was just imagining the arguments of future lawyers explaining how their clients' stocks were infinitely valuable becuase of the assumed profit-seeking behavior and anticipation of lawsuits by investors.