To punt, or not to punt?

Telstra's T3 float and its capturing of the imagination of would-be investors - or more correctly, punters - now has competition from the media frenzy sparked by James Packer's decision to flog half his media business to a private equity firm.
In case you don't understand what a private equity firm is, a simple example should suffice.

Describing the firm
Take a bunch of pointy-headed number crunchers and let them loose on a company and their figurings can tell them whether they'd be smart to make an offer for a company funded by debt. The tactic is often to get hold of a company and sell off an asset to pay for a big chunk of the debt and then ride up the value increase of the assets retained.

An example
In the old days, it was said that a buyer of Fairfax, might flog The Australian Financial Review (AFR) to fund holding the other assets including The Sydney Morning Herald and The Age. (Mind you, the AFR has increased in value since those days, making this play less acceptable.) Anyway, I guess you get the picture.

About the hunters
The team chasing Coles Myer - Kohlberg, Kravis, Roberts & Co - could easily sell Officeworks and, say, Target to keep the supermarket, liquor and petrol businesses.

Action plan
So, the next question is: do you jump on the bandwagon and speculate that other media businesses are takeover targets? To some extent you're late, but some might suggest there could be more room for West Australian Newspapers (WAN) to go higher as Seven's Kerry Stokes is not finished yet. Reports say Seven wanted 15% of WAN and was prepared to pay $11. The stock spiked to $10.47 on the first day of the play.

Next departure
Of course, anyone reading this could have missed the boat, but there may be a second one about to leave the dock. I don't know, but history has been kind to late investors from time to time. Also remember that under current laws Seven can't go beyond 15%. But when the laws change, buying could begin again and some smarties might even make life hard for Seven - much in the same way as the late Rene Rivkin did a few years back when Gerry Harvey was chasing Rebel shares.

Stay tuned
Other targets could be Southern Cross Broadcasting, TEN and of course Fairfax, so we're living in interesting times for those happy to invest in the media.

It's not a punt
Okay, it all sounds interesting at a time when racing and punting is in the air. However, investing should not be punting if you're playing with money earmarked for your retirement nest egg. Sure, if you like to have a flutter and you're happy to lose a bit, then these companies are good to go.

In good company
Personally, if you must punt on shares, I prefer that novices place their faith in good companies. You can lose in the short-term by misreading the top price payable for a business at the time, but like all good assets, over the longer term they do appreciate.

What a definition!
I recently heard an asset manager make the point that the stock market is a collection of stupid people giving rational people a great opportunity to make a load of money.

Depends on your circumstances
If you aren't risking much and you think of it as punting, then play with the stupid people. But if you're using shares to build wealth for your future, you have to get in the rational camp.

Price doesn't equal value
There is an old cliché question I'm sure you have all heard before: "What's an asset worth?" The answer is, of course: "What someone will pay!" The fact is the foolish price someone pays is just that - a price. The true value could be more or less. Rational people search for the true value and buy when the price is on the low side of true value.

A wise old saying
That takes work, expert advice and great timing - and that's what private equity firms do. However, they too can get it wrong and that's why you should be careful about putting all your eggs in one basket.

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