Observations on the madness of men and markets…

At the time of the South Sea Bubble in the 18th Century, Dr Brian May lookalike Sir Isaac Newton is quoted as saying:

“I can calculate the movement of the stars, but not the madness of men”.

Sir Isaac was also a shareholder in the South Sea company, but I am not sure whether he was wise enough to get out before it crashed.

For a while, I have had my eye on a particular share (let us call it Share X – I am not sure whether being too honest with the truth is a legally safe thing to do, not having any licences to even provide free advice to people and not being a financial journalist). There are several times when I wish I had bought into them. And others when I wish I had sold them.

They are the kind of stock which a trader used to casino games would love. For all my faults, I am not prone to gambling (aside from the occasional lottery ticket shared with friends).

A year ago today, Share X was under $1.90. Just before Christmas 2019, this share was at 3.70. It then peaked around mid January 2020 at about 5.50, before dropping in late March below 2.10.

Where would you say this share is today? It closed at about 8.70, having peaked last week above $9.00.

It offers a dividend yield of under 0.7% (less than I get from the bank!).

Another thing (testifying to the hysterical nature of supply and demand) is interesting to note. A year ago, just over 300,000 shares were changing hands per week. Last week, over 6 million shares changed hands, and in the weeks before that, just under 2 million shares per week.

Without trying to do the sort of technical analysis which goes beyond my mathematical capacity, the only way I can really explain this sort of share price behaviour is sociological. A lot of mug punter first time investors are trying to churn this share, in the hope of making money before the price drops on them, as some sort of monetary version of musical chairs. Because it is a low profile investment fund, rather than a large high profile company, some people have hooked onto it and the result is major volatility.

It is not just this share which is behaving like this. In the USA, Hertz has gone into bankruptcy, and that has not stopped a lot of green horn investors pumping their money into it (ie into worthless shares) causing the share price to triple (?!?). This even encouraged Hertz to try and do a $1 Billion capital raising – money which would have gone to creditors rather than to investors. They almost got it through, too, except that apparently someone either thought about the downstream legal recriminations, or that it was the moral equivalent of taking candy from a baby.

So there are a lot of people out there thinking suddenly that the share market is a big and exciting casino game, where nerve and bluff are going to enable you to make a lot of money, without actually losing any (or at least not too much). Or is it that the share market is like bungee jumping – you can get a big thrill without going splat!

I am not too sure when the market is going to go splat, but there are a lot of things going wrong in the world at the moment, and I am worried about both deflation and inflation, and aside from 1000 Treasury Wine Estate shares recently purchased (as a big drinker of wine, of course I want to own shares in TWE no matter what), my position is almost entirely in cash. This is not a time for optimism.

Published by Ernest Zanatta

Narrow minded Italian Catholic Conservative Peasant from Footscray.

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