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Mark Twain, having seen his obituary printed in a local newspaper, said, “The rumors of my death are highly exaggerated.” In similar fashion (pardon the pun), the rumors of Marks & Spencer (LSE:MKS) being taken over by the Qatar Investment Authority, the country’ sovereign wealth fund, also have been highly exaggerated.
The publicity sure didn’t hurt Mark Twain, and, at least in the immediate, it has been a boon to Marks & Spencer as well. M&S shares jumped 8.3% today to 403.40. The persistent rumors have cited a potential purchase price of 500.00 pence per share, valuing the company at £8.1 billion versus its current market cap of £6.5 billion.
The rumors appear appear to be originating with analysts who are speculating. Personally, I see very short-term speculation as the seedy underbelly of the stock market. This is the stuff the motivates a gambling man to pick Late For Dinner in the fifth race because a guy in the parking lot told him it was a sure thing. The change in the odds depends upon how many people the parking lot “analyst” told and what percentage believed him.
Sources close to the Qatari fund, however, have reported that the rumors have been exaggerated. The sources indicated that “While Qatar has recently said that it plans to invest billions of pounds in the UK, it would be primarily targeted at infrastructure projects and long-term investments.”
Unlike Mark Twain, M&S has, at least up until now, declined to comment on the rumors. As the Evening Standard pointed out, Marks & Spencer has not had to make any formal statement to the stock exchange. In and of itself that should be evidence that the rumors of a deal are highly exaggerated.
It’s unfortunate that the nature of the market leaves it open to speculation. By speculation, I mean looking for the quick buck or “getting in on a deal.” I’m talking about listening to the parking lot analyst, instead of exercising due diligence. No one knows what the future holds, whether that future is 10 seconds from now or 10 years from now. But there is a difference between short-term and long-term investing. Short-term is gambling on an event taking place. Long-term is investing in a reliable management team with a reasonable goal and a workable strategy to get to the goal.
The share price and the trading volume (19,732,241) of Marks & Spencer today provided an excellent perspective on how much speculation, or gambling, is a part of the way the market operates. A gambler is in for the next play. A wise investor is in it for the long haul based on an abundance of research. Think of investing this way – betting on a miracle or trusting in a good team with a great plan.
With no takeover bid coming, a lot of people are going to realize that they just paid more for a stock than it is worth, the share price will more than likely drop, and those people are going to be caught between a rock and a hard place, either having to sell at a loss now, or probably having to sell at a greater loss later. Not to mention the analysts who are going to be chased around the countryside like characters as the end of a Benny Hill show.
