Pundits, power and panic #finance
It seems that traders on the stock market rely on the guidance of brokers and the pundits in newspapers, rather than doing their own due diligence before trading. We all rely on others to analyse complex annual reports, we can’t read them all; but many pundits seem to amplify minor problems.
Tesco had an accounting error not long ago and after the pundits in the media had found a suitable metaphor to describe this ‘black hole’ in it’s accounting; the share price fell dramatically. Was this a sell signal or a buy signal? People were selling, I watched and bought when I thought the time was right at 172.7 and at the time of writing I’m quite happy with today’s price at 245.00. That’s not a bad return in 4 months.
The brokers also publish their opinions and use incomprehensible language like ‘even weight’, over weight and sell! Why not just stick to buy, sell or hold? They too react to news with panic and influence the market. Some ratings agencies caused further panic at the height of the financial crisis by downgrading whole economies. The downgrades of companies provides shorters with opportunities to make a fast buck. Is that the intention?
Some commodity traders buy up commodities when they appear cheap and so have a stabilising influence on the market. But if panic sets in, everyone sells gold or oil on the basis their favourite pundit or broker said they should!
Within this chaos there are opportunities even though it’s like swimming with sharks in piranha infested waters. I checked out Solo Oil this morning. The price was 0.56 at close yesterday and now it’s 0.53. Why the drop? It hasn’t really dropped that much, the spread has increased to a whopping 9.43%. Is that the market makers compensating for risk or manipulation of the market? The real opportunities come from watching for a big dip in price that is actually genuine and then taking advantage. The global financial crisis brought about lots of panic and so many opportunities for people willing to do the research. Those opportunities are disappearing now, but there are still FTSE 100 companies like RSA Insurance that haven’t yet recovered fully and so might still be a buying opportunity. Even Premier Foods which has been slated by pundits this week, is at a more attractive price now than when it was laden with debt. They have paid off a lot of debt, restructured the business and raised money through a rights issue, but the share price still languishes down at 40.5. The Directors paid a price double that and so I think we can be confident that they are doing their best to bring Premier Foods back.
Exploration companies in the AIM look for new drugs, oil and gas, new technology and other opportunities. These companies can take years to come up with a result, but when they do the share price can really take off. I think we are seeing that now with Solo Oil as it transforms from an explorer to a producer. I also own Graphene Nanochem which is exploring in a different way, but seems to have a lot of potential. The company operates in the Far East and so the pundits warn against it. It’s true that some Far East companies have been a scam, but many are just different. I read about one that operates in China and their balance sheet was in Chinese Yuan. It seems some investors thought it was pounds sterling! Again you have to do you research and evaluate the risk. You can also invest quantitatively and well as qualitatively. Invest smaller amounts in the riskier companies and larger amounts in the quality companies. That makes sense. Right? It is also less risky if you diversify your investments.
That’s all for today. Please remember these articles are not to be taken as advice. I am not a financial advisor, I’m a writer and photographer. You can subscribe to this site to get updates using the widget in the sidebar. You can also follow me on Twitter. In the meantime, don’t listen to the pundits, do your own research.