Price predictions, page-19

As I said yesterday, "Markets and investors are traditionally very bad at pricing in geopolitical risk. Hence the sell-off in FNT yesterday."

Today we saw a classic example of this phenomenon. Hence the rebound in FNT today. Having said this, one swallow, doesn't make a summer i.e. given the current extremely unstable geopolitical situation, the overall macro economic situation is therefore also extremely unstable and thus almost impossible to predict, although there are plenty of business commentators who will keep on trying to do so. Beware!

In a nutshell, this means, that despite FNT's undoubtedly very strong current fundamental situation (at the moment primarily their Tolukuma Project and their Gascoyne Rare Earths Project), the FNT share price wil be influenced by macro economic factors that are completely outside of the control of FNT investors and FNT management.

Generally, making SP predictions is a mug's game, as it has always been. In fact, it has got even more difficult, due to the increasingly complex global macro economics (now we also have COVID to contend with, which is the new elephant in the room!) and the speed with which this news travels around the world. Not only is the future amost completely unpredictable, we all make all kinds of basic mistakes when we try to predict it.

Unfortunately, it would appear that most FNT investors, as well as those on the sidelines, continue to try and figure out whether the FNT SP will go up or down based on what has happened to FNT in the past, rather than analysing where FNT is now (in a whole new ball game, and with a whole new team!) and thus what the "actual" value of FNT's tenements currently are in absolute terms, and how much "potential" value each of these tenements "realistically" or "conservatively" may contain. Having said this, even then, it is almost impossible to methodically calculate this, and therefore, it is no wonder that everyone is almost always wrong. In fact, the only real surprise is that people keep trying (and post their predictions on this thread and indeed on every forum on HC). Unfortunately, this will never change. Such is life.

IMHO, the key factors when valuing a company are 1. where the current SP is trading, 2. how many shares are on issue (SOI) and 3. what the current market capitalisation (MC) is. These investment basics are almost always totally ignored as investors get euphoric when a company announces a significant initial discovery i.e. suddenly the SP is "going to the moon!". However, quite often, and for the aforementioned reasons (SP, SOI and MC), the SP will go nowhere on this news, and investors will be be left asking why (and will often post their anger and disappointment on HC).

IMHO, when evaluating a listed company and deciding whether you want to buy, sell or hold this stock, investors shouldn't focus solely on its SP. Rather, they should look at its MC to get a much clearer picture of how the market is currently valuing the company. Only then will the real picture emerge i.e. is the current SP undervalued, overvalued or fairly valued.

Before I continue, MC and SP are essentially two ways of expressing the same information i.e. a change in one is immediately reflected in the other. Just to be clear, the MC is the company's total number of SOI multiplied by its SP.

Here is an example of a classic situation where there can only really be one real winner. It is based on two companies having similar size discoveries, with the same commodity and thus with potentially the same value:

Company A.

SP: 4 cents
SOI: 2.4 billion
MC = A$96 million


Company B.

SP: 4 cents
SOI: 800 million
MC = A$32 million


If you look only at their SP's, you wouldn't know which company is more highly valued. However, the MC tells a completely different story i.e. investors in Company A have already valued this company far more highly than Company B. This is due to that fact that investors thoughts on company and prospect valuations are often very different and very unique. Or, quite simply, in the above case, there has probably already been a run on Company A, whereas Company B has been largely ignored. However, herein lies the trap, Company A has 3 times as many shares on issue than Company B. Therefore, if investors were suddenly to discover that Company B is severely undervalued (which it clearly the case given the similar value of their prospects), the SP of Company B would rise to 12 cents (3 times x 4 cents). This is simply due to the fact that Company B has far less shares on issue. Although this may all appear to be common sense to most of you, this often very fatal investment mistake is being made hundreds of times every day, and most often in hundreds of ASX small cap stocks. The evidence of which can be found on each of these ASX small cap stock's individual HC stock forums.

I hope that the above may be interesting to some readers.

To those posters whose only reason for being on HC is to criticise, you are either ignore, or soon will be.

Wishing you all good fortune.