Wall Street and the efficient market
The fact that there are stocks that soar and crash does not prove that the market is not efficient. An efficient market means that one cannot consistently beat the market averages. By and large, I believe the market is efficient. Mutual funds might outperform the market for a while, but they generally balance out over the long run. The market is not perfectly efficient. I know Value Line ratings consistently ranked stocks that would out perform and under perform the market for decades. Hedge fund strategies developed by Ed Thorpe were also successful. I also think that if one follows a small company that isn't widely followed, one could find an opportunity.
Bubbles, market crashes and brilliant individual moves do not mean the market is inefficient, it means it is volatile. If two stocks were bidding for a big contract. The one that got it would be worth $100 a share, the other worthless, and the true and known chance was 50/50. In an efficient market, both stocks would be selling for $50 the day before the decision, and the day after one would be doubled and the other worthless. That doesn't shown that the market is inefficient. Your examples show that hindsight is 20/20. If anyone can find the market inefficiencies beforehand, they don't have to work. They can make a bundle trading. Easy money.
IMO IDCC's upside potential and probability combined with the downside potential and probability indicate a value in excess of the current share price. Because of that, I am still holding IDCC stock. But I don't think that this is a sure thing. I also don't think there are so many stupid call writers willing to sell lottery tickets paying 100 to 1 and more on something that is probable. That doesn't mean 100 to 1 shots don't come in, it just doesn't happen to often. Most investors are risk adverse, so higher risk stocks have a higher expected return than conservative stocks, so it makes sense that the market would discount IDCC's expected value. IDCC, especially now that it is in play, is very risky. However if an IDCC buyout was a sure thing and the bidding was going to start at $100, there is too much money to be made and there are too many eyes on this for it to be trading around $70. Is $200 or more possible? Absolutely, but it is at the tail end of the bell curve.
