Stock market conventions favor management teams. Trading decisions depend on information. It is only natural to buy and sell stocks largely on the basis of what executives and analysts present. Quarterly meetings, stock reports, and press releases dwell on management choices. Rejected alternatives are almost never presented. The wily investor will ferret out this information. It can be a source of top stock picks.
There are three major reasons why alternatives, rejected by people who manage stock values, may have significant values. One is the competition law. Companies involved in inorganic growth moves may discard valuable brands simply because they do not want monopolistic shares in a market segment. Regulators may put such conditions on merger and acquisition moves.
A second set of reasons relates to the relative powers of lobbies. An entire industry may suffer because it lacks the resources to court politicians and regulators. Natural gas and solar energy may be viewed as victims of the powers of OPEC. A new Washington administration may have a fresh approach to the matter. Neglected sections of the economy may receive new impetus as a consequence.
Thirdly, enterprises that have gone out of style may have recycling and salvage values in their assets, warehouses, and systems. Collective farming in the dead Soviet Union for example, excelled in the production of beneficial insects for mass releases. This is now invaluable technology in a world riddled with chemical pesticide production.
This final episode of our series on better investing through transparency suggests that investors should ask executives questions about rejected alternatives, rather than remain mute spectators to whatever is dished out before them.
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