You don’t always need a particular direction in the market for a good investment opportunity. Sometimes trades can work whether the market is up or down simply because misinformation or mistakes have caused an asset to be mispriced. Over the years we have seen many examples of market pricing errors despite the oft-repeated claims that the market is right if not always efficient. In particular, last November we pointed out the valuation disconnect between Royal Gold (NYSE: RGLD; TSX: RGL) and Silver Wheaton (NYSE/TSX: SLW) — a pairs trade that worked out quite well and may yet prove repeatable. However, right at this moment we’re focusing on a pairs trade between the two market leaders in online social networking, long Facebook (NASDAQ: FB) and short LinkedIn (NYSE: LNKD).
Regardless of what you think about the prospects of these two companies, they both face the ultimate challenge of the Internet age: monetizing “eyeballs”. It was, after all, the inability of the first wave of dotcom darlings in the late 1990s to generate profits from web traffic that eventually saw the Nasdaq bubble collapse. We understand social media and precious metals are about as far apart as one can get but market inefficiencies don’t play favorites and neither should we.
Disclaimer: We do not currently own any of the companies mentioned herein but we may initiate the strategy described above at any time. No compensation has been received from any of the companies mentioned. This is not investment advice; should you seek investment advice we recommend you discuss the company with a licensed investment advisor or broker.