I discussed a merger arbitrage opportunity in Felix Resources. There was no counter offer and the deal went ahead for a 27% annualized profit. The interesting question is whether or not I got the probabilities correct.
James Moniter, previously of Soc Gen fame, wrote an excellent strategy piece on Process not outcomes: gambling, sport and investment! He discuss outcome bias, that is judging a decision differently based on the outcome. He cites multiple examples of where the quality of a decision is judged differently based on the outcome rather than the process used to derive that outcome. This is a serious misjudgement, the best performers in any field focus on the process not the outcome. He cites a great blackjack example. If you think hitting on 17 and get a 4 was a good decision then you are focusing on the outcome and not the process. It clearly is not a good decision.
I’m going to stick with my original Felix probabilities and conclude that I simply had a bad break. I assigned a 60% chance to a higher offer of some sort, a 10% chance of deal failure and 30% chance of the deal going ahead unmodified. That is in fact what happened. Of course the beauty of the opportunity was the positive expected value and I ended up with a positive outcome, just not as positive as expected.
Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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