While many of us had today off the American and the Canadian stock markets were both open.
As happens every day “the market” or at least the consensus opinion of the marginal sellers and the marginal buyers of each stock changed the view of the value of most every stock. Some up, some down, a few basically unchanged. This happens everyday and, except for as few as four times a year, usually has nothing to do with any real specific news about the companies involved. Sometimes it has to do with general changes in the economy such as interest rates or jobs reports. Most of the time (probably at least 90% of the time) these day to day price changes are basically meaningless noise. When the moves are larger or accumulate up to larger moves over a period of time we can perhaps use the price change to advantage in buying and selling — assuming we have some idea if the stock is now over-priced or under-priced.
Despite the fact that the movements are usually noise, we do tend to pay attention.
In the longer run there is a method to this noisy madness and stocks tend to rise or fall for important fundamental reasons over the long term.
And sometimes what looks like daily noise can in fact be linked to important fundamental reasons. Sometimes the reasons are fairly widely known (but I may not be aware of them) other times the reasons could be relatively unknown such as leaked information.
In today’s noise:
The S&P 500 rose 0.1% and Toronto rose 0.3%
Toll Brothers was up 2.3% (In fairness there is some signal on this one as this movement is still related to its improved sales figures released Monday morning).
Melcor fell 1.8%. I certainly consider that to be noise because the stock is thinly traded and therefore subject to downside volatility simply because an extra trader or two decides to sell on a given day. Similarly its price can rise a few percentage points just because a few extra people decide they want to buy on a given day.
I notice the debentures of Liquor Stores N.A. were up 1.4% to $104.98. These pay 5.85% on a $100 and mature in about three and a half years. So roughly this looks like about a yield to maturity of about 4.15% considering that the current yield is 5.57% and from that I would deduct about 1.42% per year to reflect it maturing at $100. (The math is not exact here but should be close). The debentures also are convertible into common shares at $24.90. At the moment the common shares trade at $13.70 and the company has been struggling. So I can’t see much if any value on that conversion option.
For a yield of around 4% and reasonable stability of price or expected redemption I would look to some of the rate reset pref shares I have mentioned.
Overall I would ascribe the little rise in this debenture to its low trading liquidity and what I might call “silly buyer syndrome”. Note that I did rate these a (lower) Buy in August 2013 at $104. But at that time the common was at $15.90 and seemed more likely the conversion option could pay off. The trade up to to $104.98 today looks like noise to me.