Value Investing News

I see where Bruce Berkowitz of the Fairholme Fund has filed a 13-D on MWA. He now owns over 10% of Mueller Water. What shares did Mr Berkowitz buy? Why the MWA/B of course. Mr Berkowitz is no dummy.

If I understand correctly a similar situation exists between the IDTC (Class C) and IDT (Class B) shares. IDTC has 1 vote per share while IDT has 1/10 vote per share yet IDT trades at a premium to IDTC supposedly due to it being more liquid

Seriously, I remembered the comment was on Value Investing News, but couldn't remember where exactly it was. So, I used the search feature and couldn't find your comment. I'm sure the problem was with me and not the search feature – I probably used a term like "mwa.b" instead of "MWA/B" or something like that. Sorry.

But, getting to the efficiency question – this is a bit of a problem for the whole idea of market efficiency. Most of the really obvious big holes in the idea of efficiency can be said to only apply to smaller investors, because strategies like investing in reverse splits can blow the market away with little risk – but, the big boys can't get involved in anything that only pays cash on 99 shares. Likewise, oddly priced micro cap stocks can't be traded by the biggest investors.

But, Mueller isn't that small! Both of these shares are widely available. In fact, there are considerably more "B" shares than "A" shares. Of course, some big holders will want to keep the "B" shares out of the market now that they have a nice block for themselves – but, even so, there's enough volume in the "B" shares. No one needs to look only at the "A" shares – so, why is there a buyer for any of them right now?

It's like burning a pile of money. I wouldn't call it rational. You're paying extra to have your shares neutered. I don't see the logic behind it. Any institutional investor who touches the "A" shares while they trade at a premium should be made to account for egregious acts of idiocy.

I am glad that you read my post of the few days ago Mr Gannon about the price difference between MWA and MWA/B shares. Though you should have given me credit for the idea. Just kidding.

Seriously though, I find the price difference bizarre to say the least. There is NO rational reason to buy the A shares over the B. NONE!

If one does not think that it really matters on where to buy the voting over the non voting besides price then think back to the takeover of Resorts International. The voting shares got a higher price versus the non voting shares. If I was going to take over Mueller, I would buy the B shares and leave the non voting shares untouched. I would treat the A shares as publicly traded minority interest.

I can understand individual investors buying the A's over the B's. It could be they don't know that they exist, and that they did not do their homework. But for an institional investor to buy the A's over the B's, which happens everyday, I find unconscionable or maybe just plain STUPID.

Next time someone argues about the efficient market theory, point out the discrepancy in this stock, and ask if the market is efficient, why should this take place?