The Efficient Market at Work

According to the Wall Street Journal, Hedge Fund Orange Capital, LLC is pressuring luxury hotel Real Estate Investment Trust Strategic Hotels & Resorts, Inc. to liquidate its holdings, which include four Four Seasons hotels, two Ritz-Carltons and the J.W. Marriott Essex House in Manhattan. Orange Capital believes that the hotels are worth more on the open market than Strategic’s share price suggests.

This sort of pricing inefficiency is fascinating and, let’s face it, makes the world of investment banking go ’round, as assets endlessly trade from public to private hands and back again in an effort to maximize value.

That being said, if Orange Capital really believed that the assets are discounted in the stock price, wouldn’t it make more sense to keep one’s mouth shut and buy up as much stock as possible? Sure, and just rake in those dividends, which should be abnormally high because the stock price is too low.

Except Strategic’s current common stock dividend yield, like John Blutarsky’s GPA, is 0.0%.

So the market is efficient after all. Who knew?

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