Firsova - I've paid as high as $43 and as low as $8 for PXUPA. I...

Firsova - I've paid as high as $43 and as low as $8 for PXUPA. I don't know what my weighted average entry price is. All I know is that at the time of EACH purchase, I weighed up the situation as I saw it - looking at the risk of complete loss vs. the expected upside.

It's important to remember that the prices I've paid have nothing to do with the current VALUE of the hybrids. Just as the prices that the original holders of the hybrids have nothing to do with their current value.

Firsova, at the risk of sounding like a broken record, the current value of the hybrids is equal to the sum of all distributions between now and judgement day, discounted back to the present.

It's a simple - but not easy - calculation. The easy bit is knowing the value of the hybrids when the company can comfortably afford to pay distributions. It's around $100.

The hard bit is envisioning how many years, under various scenarios, it will take the company to get there, and then apportioning a percentage likelihood to each scenario. Then we have to apply a range of discount factors to reflect the degree of uncertainty in getting there.

Given the operating position and debt position of PaperlinX, the calibre and drive of the management, and the priority ranking of the hybrids, one should be able to come up with a range of values that is still a multiple of the current offer. This is an OBJECTIVE value, because it's true for all holders.

Your, mine, Joe Blow's purchase price - these have absolutely nothing to do with objective value. But yes, it will have a bearing on every person's SUBJECTIVE value, which is what I think you are getting at.

If I relied on subjective value as an investing philosophy, I'd be Mr. Average. And this is because it would be irrational to participate in ownership of a very high-risk entity such as PaperlinX - where all buyers know there is a great chance of total loss - in exchange for a highly discounted subjective gain. That latter investment approach, continued and aggregated over the long term, will inevitably result in the financially damaging transfer of wealth away from the seller to the buyer.


[PXUPA only]