Last month, I wrote about why Rupert Murdoch’s Time Warner bid offered little insight into whether this was a market top.
My short list of reasons included cherry-picked data that ignored most of Murdoch’s takeover activity during the past half-century; a small and meaningless sample size of just two deals; and every statistician’s favorite foible, assuming correlation equals causation and not a just a random outcome.
We get to revisit the exercise of debunking the market-top thesis after Murdoch withdrew his bid for Time Warner yesterday. And just to show how serious he is -- that his offer is really off the table -- Twenty-First Century Fox Inc. announced a $6 billion buyback, disposing of cash that could have used to purchase Time Warner.
Think about the arc of this takeover bid in the context of the claim that the offer was proof that a market top was imminent. The next question has to be, What implications does the withdrawal have?
Here are 10 questions that come to mind:
• If Murdoch’s buy attempt was a bearish signal of a market top, is the withdrawal a bullish signal for equities?
• Can the actions of any one person be a good indicator -- contrary or otherwise -- of anything in markets?
• How much confirmation bias is embedded in all of these new claims of ways to spot tops?
• Speaking of confirmation bias: Whatever happened to that indicator we heard so much about in 2010, the Hindenburg Omen, which was supposed to predict market crashes?
• What does it mean when a 3 percent decline from all-time highs engenders so much angst? Is that really a sign of investor complacency?
• On a related note, are investors who are selling junk bonds, overpriced small caps and highly valued tech stocks really all that complacent? Isn’t that rational behavior?
• When was the last time the mainstream media managed to call a top in equity markets?
• Which is the harder thing to do emotionally: Buy equities or sell them?
• On average, how often do markets have 5 percent or 10 percent corrections? How about 15 percent or 20 percent?
• Wait, you mean stocks go up and down?
As for the bid for Time Warner, Twenty-First Century Fox’s stock went down after the takeover offer was announced. Perhaps the decline was more than Murdoch expected or could tolerate. Time Warner’s stock had gone up as well, making what might have been a somewhat pricey deal too expensive.
The consolation prize for the crafty serial acquirer from Australia: He flummoxed a competitor, made it appear plodding and insular, and managed to ding it up as a result of the bid and withdrawal.
I suspect Murdoch is quite pleased with himself this morning.
To contact the author of this article: Barry Ritholtz at firstname.lastname@example.org.
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