SalvorHardin wrote:NotSure wrote:
Not to take anything away from SH, but this is a classic example of survivorship bias. I remember a lot of similar schemes on TMF that ended in poor returns or worse (Lloyds, Marconi, to name but a couple). No-one posts about those ever, let alone decades later.
Agreed, but there's more to it than just picking the one share.
What had been identified by a group of us on TMF in the early 2000s was a systematic undervaluation of smaller companies' oil reserves by the stockmarket and the slow response of the market to new discoveries and reserve upgrades. Not just for a few companies but for the entire sector. This sort of thing shouldn't happen according to efficient market theory (the intellectual underpinning behind tracker funds), but does nevertheless. In addition to the usual array of financial professionals, some of us had considerable experience in the oil industry which helped tremendously.
Quite a few of us regularly met up at AGMs (particularly Soco) and investor events such as Oil Barrel. Soco wasn't the only money maker, though it was the best known (and most envied). Small (and not so small) fortunes were made on many other oil companies such as Dana Petroleum, Encore Oil, Tullow Oil, Dragon Oil, Aminex, Northern Petroleum, etc. (I've only mentioned the ones I made serious money on but there were many more). It wasn't quite like shooting fish in a barrel, but it was pretty close. I've never seen anything like it since, nor do I expect to do so. TLF doesn't have the critical mass of investors and specialists that TMF had and times are different. The other really successful group of investors on TMF was PaulyPilot's action groups.
The wheels started to fall off the wagon with the 2008 financial crisis, but by 2009 lots of us had got out or had seriously downsized our positions. A big trigger for many of us with Soco concerned a poor bad discovery report for a highly anticipated exploration well off the coast Vietnam (ISTR called "Deep E").
As Jim Royle would have said had he been part of the TMF Oil & Gas crowd, "Efficient market theory. My [expletive deleted]!!"
Of course the EMH does not need to price "correctly" all the time, and sometimes the time period where markets misprice can be very long , all the EMH does require is an eventual broad reversion to some fundamental valuation . If no noise/fads/bubbles there would be no market as everything would be considered perfect so why buy or sell.
And of course the EMH is more than pricing efficiency anyway, it does consider more than mere share prices.
It also allows for there to be fads and bubbles impacting pricing. Critics maybe expect a perfect model, not sure EMH ever claimed to be that, but without some market distributing information there likely would be no market at all.
(Samuels, Wilkes, Bradshaw, "Management of Company Finance" 6th edition , pages 385-419 although dated does cover in the round a lot of ground re pluses/minuses/tests etc)