"Logic" in the equity market

Commodity prices are down.  Chinese economy has slowed.  The US economy is not out of the woods yet but not decaying any further.  The European economy has not really turned around.

So where is the logic that resource stock prices are moving up?  But like many things that I don't understand, sometimes events happen because it is already anticipated by the well-paid experts...

LRL

Lately, it has been disastrous for me as resource stocks plunged.  While a few tipsters have voiced their opinions that the trough has been reached, the share prices continued to drop!

In the middle of a falling market, I bought LRL recently.  An error (unknown to me) caused me to buy 2 large parcels of LRL.  When I spoke to CommSec, they said they can sell the shares from the second parcel at no brokerage cost to me but I have to bear the capital losses if the share price fell.  Of course, the share price fell so I kept both parcels.  Today, I can sing...

More gas found and flow was greater than expected so LRL has been climbing again.  But let us look at why I bought in the first place.  Share price down.  Gas found.  In China!  So I bought.  When I realized the mistake, I had to ask my wife for permission to keep both parcels...

OSH

I manage 2 portfolios; a private and a super fund one.  On the private portfolio, I bought WPL a long, long time ago when I first indulged in Margin lending with JB Were (now defunct).  This stock was picked by me.  In much later years, I bought OSH as well.  And today, OSH has taken the position as my lead stock in that portfolio.  I expect it to do well as it is exploring in areas with great potential... in Kurdistan in Irag and PNG where it is the biggest source of overseas income for the government.

With the recent rise in share price... you wonder whether it is because of inside information regarding their oil exploration efforts in Iraq or PNG or perhaps there is takeover activity.  I just hope that it is not taken away from Australia.

POG

For the POG to yoyo as it has been in the last few days, it has to be due to market manipulation or dumping.  The supply-demand euqation does not apply.  Hence the good news is, it cannot last forever because it is very expensive to produce gold.  Cost begins even before exploration.

No one has to explain why the POG moves so dramatically unlike stocks on any stock exchange.  So today, gold stocks will tumble again.

POG and NST

This company is a low cost miner.  And it keeps finding new veins with rich gold deposits.  Yet yesterday, the market marked it down 8%.  Hence I collected at parcel with my low buy bid.  It felt like a tragedy that I got what I wanted!  The POG cannot keep falling but lemmings will continue to sell in a falling market due to the momentum.  And thoughtlessness.  You cannot produce gold cheaply.  The alchemists of the old had already found that out.  Of course, you can sell your gold hoard cheaply but you will lose your asset base.

I waited for gold price to reverse.  And it happened last night in the USA.  But there will continue to be instability and the yo-yoing will persist for much longer.

Uranium

In spite of tumbling commodity prices, the price of uranium has remained steadfast.  2013 is going to be an interesting year to sail through for this element.  The Russian contract with the USA on the supply of processed uranium ends.  The Reds were conned into selling it cheaply to the Americans.  When this supply dries up for the Western world, you cannot see the price hovering so low.  Uranium stocks have not been the flavour for some time now.  But the fact that the metal price has held well suggest to me that this is the floor...

Gold stocks

There will be a massacre of gold stocks on Monday.  The lemmings have started the run.  The momentum will lead many down the cliff.  The US economy has not suddenly improved.  The signs are patchy yet investors are piling into stocks and dumping gold.

I have been mostly a contrarian based on simple arithmetic.  As RB said, people need to eat, so I bought more AGR.  People need oil to move, so I bought a little more KAR, SXY, PVD, OSH and ROC.  Tin is in short supply and will be so I topped up on KAS.  Overall, my activity has been curtailed because irrespective of logic, the market is moving somewhere irrational.

More gold stocks will fall but as POG tumbles, so will mines.  The current demand-supply equation based on what is produced and what is bought is in favour of miners.  But when you add in the hoard of gold flooding the market from vaults, then the POG will fall.  Profitable mines (meaning low cost mines) will suffer as well because it is difficult to ramp up production and why sell your defined resources into a cheap market?

RRS

When I read RRS's announcement today, it strikes me to be good.  Oil found when drilling at 160 ft cannot be bad news.  Is the market expecting 1600 ft?  So the share price went... down!  This is just an incredible response, most likely due to market sentiment.  Pity I don't have spare cash that my wife allows me to throw around  :-(

ABU

Picked up a small parcel at 2.8c yesterday.  I am glad to see the non-executive chairman spending $60,000 if his own money to buy at 3c.  That means I could have bought the same number of shares for $56,000.  This is decent parcel of shares for such a small stock as ABU.  Eventually, I expect the market to notice if it continues to find more rich gold veins.  Of course, if the price of gold dips further, then it can be cactus!

At the current POG, most gold stocks are going to suffer horribly.  But it cannot go on forever because gold mines will close curtailing the supply side.

POG

Here it goes again tumbling down.  There is someone selling its stockpile.  But central banks cannot all offload their gold bullion.  There aren't enough Chinese housewives to mop it up.

Personally, if it falls further, it is time to buy ingots of gold because you cannot produce gold cheaply.  Many mines will close at below USD$1400 per oz.  The meagre profit is not enough to run a mine.

OSH

How can a company that finds oil (but unable yet to state how much oil there is) has a share price that 'hovers' only?

I topped OSH up in Feb 2013 mostly to round up my number of shares and also because the market is ignoring what it had uncovered in Iraq.  Today, after the market closed, it makes more noise about oil in PNG and Iraq.  Let us see what happens tomorrow.

ABU AGR

My bid at 2.8c has been sitting around for a long time and today, I collected it.  This company must have found what Lasseter was looking for with good surface veins of gold.  Of course, you have to be either a long, deep and "wide" vein for it to be viable.  But if it keeps finding more then it will be very profitable to mine.

When you announce one bad exploration result, your throat get slit.  And if you survive that market attack, chances are you are badly damaged.  AGR has what Brazil needs to feed its people IN Brazil.  And Brazil has to import virtually all its need.  So where does AGR share price head?  Downwards!  I collect some AGR but not all I asked for.  However, I expect people will dump it.  No wise to buy I think!

SXY

SXY found a new gas field in the middle of Australia.  But when you consider what was found, the share price has not really flown.  In fact, I often topped up because the price fell.

What it uncovered is not bcf but tcf.  That is a large find yet there is a lot of relative apathy.  My most expensive parcel was bought at 73.5c in 2012.  So all except one parcel is underwater.

KAR

I thought I got KAR at its cheapest today.  No, I didn't.  Someone sold a lot of shares today.  But after that early flurry of selling, the share price never went below what I paid for.  In fact, it went even higher.

What does this mean?  Someone dumped at whatever price, and then later the market was buying up.  The seller is crazy unless it is illegal via inside information.

KAR

How can it be that before oil was discovered, the share price is lower AFTER discovery?  Maybe some investors can read the announcements' hidden messages better than I can.

This AM when I collected some shares at $6.40, I thought I should have put in a lower bid!  But after a while, the price has risen over Friday's closing price so I am relieved that my logic still works...

With backers...

Some stocks have powerful backers... with cash on hand.  Yet, in spite of known financial rollers, some stocks continue to do badly.

YTC has Glencore funding some of its activity so YTC does not have to raise cash nor see a banker's approval.  ORE and KAS have Toyota behing them.  Toyota knows tin supply is very limited and subjected to Indonesian government idiosyncrasy.  And lithium will be the future battery cation.

I am glad to have topped up YTC and KAS recently but we will have to wait another year or two to know how well or badly I have done with my logic.

IPR became NEA

In 2007, I like the look of IPR so I bought some shares.  But what a fool I was!  In spite of great announcements, it continued to fall.  And until 2009, I continued to buy!  The intellectual rights protection is no longer a profitable exercise as foreign courts do not give favourable judgment to IPR.  When the management changed to a different industry, the market thought it was pure madness to challenge Google maps.  And it was mad!

But in the last 6 months, this is one of the most spectacular rises on the ASX.  As usual, if you can generate profit and you have longer term customers, eventually the market will love you.  The lowest was just above 3c and now over 30c within the last 12 months.

I used to look at Nearmap as it has better images than Google Maps but now it is not free; not even for shareholders.

While my resource stocks have tumbled, this is one stock where I can still have a brag!  However, resource stocks are starting to turn....

KAR

In 2010, I bought my first lot of KAR shares.  the biggest oil discovery this century is in Santos Basin off Brazil.  I also took up more shares in a subsequent SPP.  No oil has been found but oil was expected to be discovered.

After a poor result in NW Shelf of WA, the trend has been downwards.  And even with oil discovery in Brazil, the market was only interested in one dry well in Brazil.  I topped up a small parcel to round up my number of shares early this year when oil was confirmed.  Still, the market was indifferent to good announcements from KAR.  And then early this week, it says the column of oil is not 200m but over 300m.  Now, it is talking about 500m.

Unfortunately, when no oil was found, the share price of KAR was still higher than AFTER oil has been found!

TON

Yesterday, at the Proactive Investors Forum, I learned about TON.  It surrounds a graphite deposit where the share price of Syrah has jumped a lot.  While TON has not drilled, it has uncovered surface graphite.  The aerial scanning done so far is convincing that there is something conductive in the grounds near Syrah.  That in itself does not mean a huge amount of graphite.  But at 6-7c per share and worth very little, for me, it is a good bet.  So today, I put in a bid and hope to pick some up...

NST

Yesterday, I attended a Proactive Investor Forum.  I asked a question of AKM presenter about its rail infrastructure.  He said with good discovery announcement, with good government process announcement, the share price went down.  But when a railway fixing announcement was made, the share price jumped.

Well, NST keeps hitting good veins of gold to continue digging.  http://asx.com.au/asxpdf/20130509/pdf/42fsdbmlrw5bwc.pdf

SLR

The MD of SLR has just announced that he has spent $50000 to top up his holdings of this stock at about $1 a share.  I collected a small parcel at $1.005 a share this AM.  I didn't know about the MD activity until after I bought.  He knows more than I do.  Hence, I feel I have earned the right to pat myself on my back :-)

Trough in the Resource sector

A trough is only found retrospectively.  Just when you think you are buying at a low, you find your assets dropping further!  This is how I have been feeling for the last few months.  I hardly traded on the market because commodity prices kept plunging, further and further.  But this kind of fall cannot be for forever.  There is a cost in producing any commodity.  So when price plunges, and there is only loss when producing or with unsightly gain only, then the mine will close.

Suddenly on Friday, the USA reports good job figures.  The London stockpile is diminishing.  The Chinese economy may be better than anticipated.  And suddenly, as RB said, what a difference a day makes.

I have topped up/bought small parcels of ROC, WHN, OSH, LRL, ANZ, SLR, KAS, SEH, RIO and CDU in the recent months, much less activity than in the past.  My biggest regret is getting rid of ADN... suddenly it discovered a big lode of minerals and jumped 3-4X.  Luckily, it is only a small parcel.

Earlier in the year, there were WPL, NST, RRS, WCL and PVD but I paused for a while due to extremely severe conditions for resource stocks.

KAR

The announcement this AM was 200m column of oil discovered in Santos Basin in Brazil.  How good is that?

3 out 4 drilling results have confirmed oil so far.  How good is that?

The share price has jumped today but it is below what I paid for BEFORE oil was discovered.  Maybe, the discoveries are less than what is expected.

Banks

Just in case people think that I am brilliant at investing, I am not.  Resource stocks have plunged as China struggles to maintain its growth.  So I have been severely severed!

But in the midst of the devastation, I have always maintained that Aussie banks print money.  I have only sold off NAB completely due to its poor management.  Its move into the UK and bad financial decisions meant that the share price continued to fall and its profit lagged the other three major banks.

In the middle of the financial crisis in 2008, I started to build a holding in WBC in my super fund portfolio.  And it was not a particularly clever strategy but then it is always difficult to pick the trough.  However, a good topping up with the share purchase plan has helped.  That was my cheapest price for WBC.

I cancelled ALL my DRPs because it is hard work when calculating capital gains tax.  From that point of view, it was a bad decision. But it is easier for me to buy bulk where cost of acquiring the shares is easier to follow.

Today WBC (and ANZ earlier in the week) produced a good set of "beyond expectation" result.  I am happy and the market will be happy too.

I have no intention now of buying more bank shares as, like many analysts, there is a few that it could be a bubble.  A bubble?  It is never a bubble if there is PROFIT!  But I like to buy shares when others are dumping...

Resources decimated

Whether you are producing or exploring, it does not make any difference.  When the market sentiment is negative, it is difficult to arouse the share prices of most resource stocks.  It is also crazy to sell in this kind of market.  But will it go down further?  That is a question that can only be answered AFTER the event.  What I can say is that I am not participating in a lot of capital raising because so far, many can be bought cheaper AFTER the event.