I thought we were talking all along about TON’s ducks being lined up...... then comparing TON as the slow and steady tortoise (as against other hares) .......and I’m glad to see that we’ve now moved on to elephants too
And then the conversation suddenly turns “potentially” NSFW (not safe for work) thanks to
@tobyjack ’s “splish splash”
....
. Thanks to TJ for that nice video with all the elephants and all.
Some key points from the article –
1) Instos selling en masse (bad for peer)
Of course, you can have too much of a good thing. O'Neil is careful to point out that while institutional sponsorship is attractive, a lot of institutional ownership can be a sign of danger. If something goes wrong with a company and all the institutions holding it sell en masse, the stock's valuation can tank - regardless of fundamentals.
My comments – I’ve just pointed out last week that in the event of a
deep financial crisis, how our more overvalued peers would be better candidates for selling. If all instos sell our peer simultaneously, then of course the peer could tank. There is a severe peer imbalance as just illustrated few days back that suggests that sooner or later, instos could end up supporting TON instead of more overvalued stocks
2) Instos jumping in for first time (good for TON)
Think of a stock as a swimming pool. The water level is analogous to the stock price, and elephants represent institutional investors. If the elephants suddenly start stepping into the pool (buy the stock), the water level (the price of the stock) will rise very quickly.
My comments – If instos (elephants) start stepping into TON’s pool, our price can rise very quickly, as we are still to get insto support. This can be a
huge positive (at this valuation) as there is so much upside once instos step in, start to mark up TON, etc.
3) Spooked instos selling of together (bad for peer)
However, if the elephants get spooked and leap out of that pool (or sell the stock), then the water level (price of the stock) will fall rapidly.
My comments – Far more likely to happen to happen to peer stocks that are far more overvalued and where there is a far bigger chance of elephants stepping out than stepping in
4) Importance of price direction momentum (Very positive for TON)
In practice, however, they often forego fundamental analysis for the signals emitted by technical indicators. Because their main worry is whether the stock price is going up or down, institutions will often concentrate on whether the price direction has any momentum.
My comments –
Peer companies have all good news priced in. TON on the contrary has massive good news to come in future. Price direction momentum is clearly overwhelmingly in TON’s favour. TON IMO needs to sell the story to instos to come on as not just short but long term investors
5) Peak insto support also means peak valuation (bad for peer; good for TON)
A stock with a lot of institutional support may be close to the peak of its valuation, or full of elephants. When every mutual and pension fund in the land owns a chunk of a particular stock, it may have nowhere to go but down. Look at the meltdown of technology stocks in 2000 and 2001.
My comments –
TON does not have the elephants as yet; so using this reasoning, it can be argued that
price has nowhere to go but up. On the contrary, some peers could be fully priced in as they are too full of elephants
6) Instos can change ship (bad for peer; good for TON); instos might have supported companies with weaker fundamentals (bad for peer)
Companies like Cisco, Intel, Amazon and others had an unprecedented amount of institutional sponsorship, but as the subsequent collapse of their share price demonstrated, they also had unattractive fundamentals.
My comments – This is a good example of how
instos can change ship. I’ll highlight 2 other companies since we are talking about tech here –
Apple and Google. Lot at the massive support they ended up getting after the dotcom burst from instos, as instos changed ship. So, just having insto support does not mean it will last forever as
instos are ultimately concerned with making money and TON clearly offers massive upside leverage.
7) Market will always find hidden gems (good for TON)
Lynch brushes aside the notion that companies without institutional support carry the risk never being discovered: he argues that the market eventually finds undervalued companies with solid fundamentals. These companies are never out of sight for long. By the time institutional investors discover these hidden gems, the companies will no longer be hidden but fairly valued, if not overvalued.
My comments – Self explanatory and TON seems like a good candidate. The market has already found the fundamental gem called TON, and the good retail fan following that TON has is a good indication.
Instos IMO have a great opportunity to support TON now at this very attractive valuation, and sky is the limit to which TON can be marked up, if the instos do get onto the party. TON needs to sell its story to the instos.
8) Instos might not always have considered fundamentals before supporting (bad for peer)
Although logic and statistics show that institutional sponsorship is a good indicator of a good company, investors should be aware that institutional investing is not always driven by quality fundamentals. Before you depend on the assumption that smart money is the leader in judging fundamentals, make sure you determine whether the institutions are investing for the same reason you are.
My comments –
TON’s fundamentals speak for themselves and I continue to hope that some elephant sized instos will jump into the TON pool.
Here again is an overview on TON (last month) and further updates can be found in my comment history.
http://hotcopper.com.au/threads/ton-overview-aug-21.2577980/?post_id=15853778
(20min delay)