Competition’s effect is the “market mechanism”. This example is from 1996 Russia.
Bill Browder is looking at stock in a Russian oil and gas company. The country’s companies have just become public, and though MNPZ has slightly smaller reserves than British Petroleum, it’s trading for 100x less. Why?
I was convinced that there must be some other explanation for the deep discount and spent the next several days searching for it.
Did the preferred shares have different par values? No. Was the ownership restricted to workers? No. Could the higher dividends be arbitrarily changed or canceled by the company? No. Did they represent only some minuscule part of the share capital? No. There was no explanation. The only reason I could fathom for why they were so cheap was that no one had showed up to ask about them-until I had.
Amazingly, I found that this anomaly wasn’t restricted to MNPZ.
Nearly every company in Russia had preferred shares and most of them traded at a huge discount to the ordinary shares. These things were a potential gold mine.
If there’s a name, there’s a market mechanism. If the invisible is now visible, there’s a market mechanism. If something is weird, new, unknown, secret, there may not be.
Pricing power evaporates with the heat of the market mechanism. Sometimes though, in the far reaches, someone can, find a gold mine.
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