White, Green or Red?
So I thought I was going to get some free caps points (and I will eventually) by downthumbing Whiting Trust I (WHX) a couple of months ago. Since then, it has returned roughly 50%.
Now trading over $9.50, I scratch my head wondering why people buy this thing. By various estimates, it probably only has about $4-5 worth of distributions left which puts a fair value somewhere in the $3-4 range. (After all, we want not only return of capital but return on capital.)
I wish I could get people to lend me $10 so I could pay them back $5 over the next few years. If anyone is interested let me know. I'll borrow as much as you'll allow!
Now some folks are just plain ignorant/lazy. They see the yield; they may have looked at the distribution record, but they haven't bothered themselves to read the prospectus (or do a simple google search for that matter). As the short life of this trust has been well discussed.
Others are aware of the articles and these folks are just remarkable case studies psychologically speaking. Some of them seem to be putting their ears over head screaming "la la la la la - dividends! - la la la la la!" The others are aware that this is going to $0, that buying and holding at these price levels is silly, but they think they can "time it", buying it, collecting some dividends and getting out before they lose their shirts on this. (If you don't believe me, read some of the messages at yahoo finance's message boards.)
I guess I mostly just annoyed that I can't locate shares to short this.
And I think that raises an interesting point with regard to market efficiency. Is it not possible for an asset to become overpriced but still not a good short candidate (e.g. providing an adequate rate of return for the risk?).
But for now, WHX is in the green which means my CAPS pick is in the red. And that's OK since this is just a silly game. But eventually the fundamentals will win out and the ignorant will get their education lesson.