The post quoted below from over on the AGO board illustrates the...

The post quoted below from over on the AGO board illustrates the point in my earlier post about some shareholders’ preferences for “lottery” stocks. The poster writes thus about his or her intention to reject the MIN offer:

“I think everyone is aware of the risks but are that annoyed with the behaviour of the current BOD's in AGO and MIN, that we are prepared to wait it out and run the risk of losing our investment in total. I am at least.” @32490445

Evidently, the poster would rather risk losing all their AGO investment in the vague hope of a much bigger payoff at some indeterminate time in the future. That pretty much describes a lottery ticket. The ticket provides a little ray of hope that the holder can hang onto until it expires.

However, it certainly isn’t a rational approach to investment, which is why “lottery” stocks perform poorly on average. The prices of such stocks are elevated above their intrinsic value by the irrational demand for lottery tickets.Lottery stocks typically have high ownership by retail investors, which now seems to be the case with AGO. The institutions have eschewed it. (Lack of institutional ownership can make lottery stocks difficult to short, which is a further reason why overvaluation can persist.)

I am not claiming superiority here. I have been there and done that myself.
It was a very expensive lesson.

The negative response from AGO holders to the MIN offer is also illustrative of another behavioural bias, which is to attach a higher value to something that you already own as compared to exactly the same thing, if you don’t own it.

There can be aspects of sentimentality involved in this effect but we also tend to do it with utilitarian assets for which we should have no emotional attachment, such as shares.
There is scant reason to have an emotional attachment to a disembodied unit share of an enterprise with which we otherwise have no connection, but we tend to do it.

This effect melds into the lottery effect.
MIN is offering to pay full market value to the AGO ticket holders, plus a premium, but it’s their ticket, and by golly, they are going to hang onto it, even if will probably expire worthless.

There is a substantial literature on investors’ lottery preferences. For anyone interested here is a link to one paper on the subject.
https://business.gwu.edu/sites/g/fi...Finance_Seminars_12.02.2014_LotteryDemand.pdf


Cheers