The Aleph Blog » Blog Archive » A Straw Blowing in the Wind

A Straw Blowing in the Wind

I would like to point your eyes to this article: Cash No Longer King as Stock, Asset Swaps Drive Takeovers.  This is another sign that equity valuations are getting high.  When equities are cheap, corporations part with cash to buy other corporations and assets.  When equities are rich, corporations use them as a currency to buy assets.  After all, it is a lower risk way to do things, because paying cash raises the leverage of the combined enterprise.

When acquirers are certain they pay cash.  When they are not so sure, they pay with shares.

As such, this is another indicator that equities are expensive relative to cash.  That’s all for now.

Portfolio Management, Stocks, Value Investing | RSS 2.0 |

One Response to A Straw Blowing in the Wind

  1. TheBigSpooky says:

    That’s also $900billion spent with probably a net-negative to employment, capex etc. Time will tell if these are good deals or not but the risk of malinvestment (in the truest sense of the word) seems very high, for the acquirers and the bondholders financing the deals.


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

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