Wednesday, August 28, 2013

Surging Towards Intrinsic Value

Just eight months ago, Surge Components traded at a massive discount to its net current assets, as discussed here. Furthermore, the company was profitable! More recently, the company has traded within a hair of its net current assets, which is a much more appropriate valuation, allowing shareholders the opportunity to realize a gain in the high double-digits over the course of a few months!

A couple of lessons apply here. Mr. Market can change his mind in a hurry and in a big way, which is great news for investors who profit from volatility. In mainstream finance, price volatility is considered a bad thing, but for value investors it's a blessing; there would be no way to make money if prices didn't move!

Second, I didn't actually find this idea myself; instead, I read about it from other value investors first, as discussed here. Luckily, by the time I got to it, the price was still low, but that's not always the case.

To take advantage of Mr. Market's mood swings, make sure you pay attention to what other value investors are doing, and be sure to act fast, as you never know how long an opportunity will be available!

Disclosure: No position

1 comment:

Behavioral Investors said...

Nice post - as you know, Surge was artificially depressed at the end of last year when Paul Sonkin was forced to exit at any price while closing his microcap value fund. While the discount has started to close it still seems far from instrinsic value - with $3.8 million in cash per share and over $1.5MM in earnings, the surge may be just beginning.

Follow by Email