Today's master is Graham! Famous creator of cigarette butt stocks! One of Warren Buffett's teachers! February** Dynamic Incentive Program
He uses value regression analysis for arbitrage:
That is, by measuring the market value of a company, and then comparing the actual value of its net assets, if the former is lower than the latter, it is undervalued. When undervalued, it is likely that the value will revert, and the market value will continue, which is in line with its actual value.
One example is DuPont and General Motors. Graham first assessed the market capitalization of DuPont and then the market capitalization of his holdings of GM Corporation**, which are easy to calculate. It was then found that the two were similar, which meant that if DuPont's market capitalization correctly reflected its actual value, then its net market capitalization of its other assets and liabilities would be zero. In fact, DuPont owns many chemical and other assets that obviously cannot be worth zero, so there is only one answer: DuPont is undervalued. So find a way **DuPont**, it is very likely to make money.
Graham's operation is to borrow GM's ** short sale, and then ** DuPont, wait for it to appreciate before selling it and buy it back to GM. In the end, the extra general shares are the net profit of the set. What are the benefits of this? Why buy GM's ** and not buy something else?
The first thing to consider is whether there is a correlation between the two: the answer is yes. DuPont holds a stake in GM, and if GM **, DuPont will**, GM**, DuPont**. But the reverse is different: DuPont's rise and fall does not affect GM's rise or fall. What will be the result? First of all, GM's **and** itself will not affect DuPont, because without considering other factors, GM's market capitalization**, DuPont's actual value will also **, which in turn drives DuPont's market value**. It's the same when it comes down. And if the short is other**, then the rise and fall of the other** will inevitably affect the final profit and loss. In this way, the impact of shorting stocks is eliminated.
Through this allocation, Graham eliminates the impact of shorting stocks, and actually reduces risk. What was a gambling game for the average person has now returned to its essence and turned into a very profitable investment.
Of course, as the market matures, this will be less and less. However, the A** field is not as mature as the U.S. stock market, and this idea can still have many opportunities to play.