Mispriced Stocks & Hidden Treasures
Popular themes are, typically, well known to the market. The popular stocks in those popular themes are priced to perfection leaving just the discount rates for the investors. There might be other stocks which are not yet identified with the theme but might be hiding divisions which gain from it. This is the direction to look for mispriced opportunities.
“Vikram, I think it is impossible!” I exclaimed. It was another morning at the Vikramaditya residence in Mumbai and it was time for breakfast like every day. Last night, I had been reading articles from various prominent advisors in the US. Practically all of them had emphatically made the case that all the information about stocks available to all investors was already priced in. They had cited Nobel-prize winners and their research to prove their cases. Before going off to sleep I had decided to confront Vikram with this in the morning.
“You mean finding mispriced stocks and generating excess returns over the benchmark?” Vikram asked with a slight twist to his right lip—a characteristic Vikram smirk when he felt superior, which was most of the time.
“Yes, I mean…” I was stunned. I had not said anything about stocks. “How the hell did you know I was talking about mispriced stocks?”
“Whittle, you don’t want me to carry out the frivolous, show-off techniques of both Dupin and his copycat Sherlock on how to read the mind now, do you?” said Vikram.
“Honestly, it is all very well in fiction. But I don’t understand how one does it in real life.”, I said, unable to stop myself.