Schrodinger's Deal
Picture a cat in a box. We’ll call her Mizi. Shouldn't be hard — cat's love boxes. In the box is some poison that is randomly delivered to Mizi. If the poison is delivered Mizi dies. If not, Mizi lives. Until you open the box, Mizi is both dead and alive.
This is Schrodinger's cat, a thought exercise to help understand how weird quantum physics is. It doesn't really work at the scale of a cat — Mizi is not both dead and alive at the same time. It only works at the weird quantum scale.
It's sometimes how things work in financial markets, too. Like right now with Spirit Airlines.
Box Fee
One Spirit Airlines exists at airports and on the NYSE. It sometimes flies passengers. It charges for carry-ons. It grounds planes. It reports financials. Investors develop expectations about those results and respond when their expectations are met or missed. On October 25th, they missed. Shares of Spirit dropped 6% the next day. JP Morgan lowered its price target. Shares kept falling. This is pretty typical financial market stuff.
Another Spirit exists in a Massachusetts courtroom beginning today, Monday, October 30. The DOJ filed suit back in March to block JetBlue's acquisition of Spirit on bigness grounds.
In December, at the end of the trial, the court will open the box. It will either observe a deal that is dead or alive. But we won't find out until then.
Even though Judge Young hasn't opened that deal box yet, Investors have mostly given it up for dead. They may turn out to be right. The government's case is not a zero. There may be other deal risks lurking. It's still an stretch by investors, though, to reach that certain outcome when whatever outcome happens is still very uncertain.
Trial outcomes tend to surprise. JetBlue's case is fairly strong, so investors could be left standing at the gate on this one.
Feeling Seen
The wedge between Investors' behaving like the deal is already dead and the reality of uncertainty around whether the deal will live or die creates an opportunity where we, brave investor, could invest in shares that reflect a dead deal and would benefit if it turns out the deal lives after all.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.