Capacity Value Trap

Deck: 

Are merchant power assets overpriced?

Fortnightly Magazine - December 2011
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The concept of the value trap is an old one. Warning against buying assets simply because they have declined steeply in value, Richard Wyckoff, a stock market authority of his day, warned in 1924 that “there are a great many times when a security will decline in market price while its intrinsic value and earnings power are shrinking even more swiftly.” The question arises: have assets declined in price because investors over-reacted and shied away from risk unduly, or because the underlying discounted value of future cash flows has decreased markedly?

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