Apart from being the title of the first CD I ever bought, this articles title encapsulates the experiences I have had in the speculative market. My love affair with the market began in earnest around the time my favourite musician decided to blow his head off (RIP Kurt). I started reading your generic style finance magazines, and phoned a broker (selected out of the Yellow Pages), to buy shares in Fosters Group because there was a one page buy recommendation on them. The broker talked me into buying AWA instead and my love affair grew at a rapid rate.
I was a Police Officer at the time, and was financially challenged so I would buy $500 parcels of stocks tipped in papers. If there were too many I would place all the codes in a hat and draw them out. More dogs than Wentworth Park, more losers than a Jim Carrey movie, but what I got was the cheapest education possible. I was buying from sources that gave me last year’s financial news tomorrow, and I thought I was the next Warren Buffett. To go with my average salary, I also developed a love affair of the card machines so in the end my best of Lionel Ritchie CD would end up at a pawn shop so I could pay the bills. Anyway I survived, and whilst working 12 hr shifts on the beat, I decided to become educated on the stock market and aimed at a course that would get a position in the industry. I would show up at exams in my police uniform with a jacket over the top and this became my regime until I had the courage to apply for positions in Perth as I thought I would like to concentrate on mining specs. (Hindsight would prove that it was a good decision to make).
I started writing on the Internet and my articles began to attract attention. It was all about passion for me as I always thought I was never good enough to leave the Police Service so money wasn’t the major driver. As the profile grew and after I had written a book (interviewed 20 junior mining Directors in Perth), I was lucky enough to secure a seat in the game. My final days as a Police Officer were spent doing administration but I also looking at who I had on my books as a potential client.
November 1998 was when I was pitching, and in my first month I remember earning enough money to justify me existence. My dress sense was horrific, but my old police boots came in handy before I felt the need to diversify my shoe collection.
PRE TECH BOOM
The brokers in my office were punting Optus Warrants. (CWO’s). They became a daytrading addiction that was unhealthy but it filled the time in. We had come out of the Asian Crisis and the junior mining sector had been decimated. (These were to become the high-flying tech stocks). There were no clear trends, I didn’t have any major stories I was focusing in on but the churning kept everyone interested.
THE TECH BUBBLE
Those were the days. I admit I was completely different person and come to think of it I wouldn’t like to hang out with what I had become. I would often come back from long lunches totally covered in red wine from the ensuing food/alcohol battles with other brokers. Limousines to the races and meetings, but luckily for me I drugs were not part of the equation as an addiction to the market was enough, plus I would never trust the concoction I was being offered.
This was a boom built on dreams, debt, cheap placements and the greater fool theory where ideas as simple as websites were floated and attracted the herd brigade like no other. Valuations on foreign websites, Directors talking up their prospects, the world was indeed changing and just like in any boom it was never going to end. I was fortunate to have been an adviser through this period as the education I received was priceless. Sure once I could see it all coming apart I bought properties I couldn’t afford but at the very least I was on the right track. Turns out if I had held onto those place in Victoria Park WA I would have tripled my money, but I wasn’t ready and my client business was not solid enough to sustain the mortgages.
I still believe either the top or the bottom of the market is signaled by a punch thrown in the dealing room, and what I saw in late March 2000 was as good as. Things were getting nasty between brokers, clients were starting to really become engulfed in the fear of missing out and I am sure some resorted to violence.
On the 26th March 2000 I penned an article, “On borrowed time and funds” then tried to get as many clients out as possible.
The beauty of the tech bubble was that people were so convinced it was forever that when the bubble burst the stocks involved didn’t die immediately. There were chartists out there who were buying up in expectation of a major bounce, and with the benefit of hindsight they were catching falling knives.
MORE ON BUBBLES
I wrote an educational piece for the finance industry on “Great Speculative Bubbles in History”. It gives a summary of the major bubbles and is an area of the market that not only drives me but fascinates me at the same time.
http://www.futuro.com.au/files/7.pdf
After the tech bubble we have seen mini attempts in childcare centres, retractable syringes, aquaculture, uranium (major event that was destructive for those who came in late), iron ore, magnesium, a return to the Gawler Craton (Prominent Hill discovery by Minotaur), coal to liquids (hasn’t seen the blow off phase yet), oil shale (blink and you missed it in Australia), the Borat inspired boom in potassium, potash and anything to do with fertilisers. Surely by now readers can see a trend emerging here?
WHERE ARE WE NOW?
ASIC have banned short selling on the ASX for 30 days as at September 22 2008. This is apparently to provide stability to the market. I have never seen anything like this in my 10 years as an adviser. I wasn’t terribly impressed when they removed broker numbers, but part of me feels that this could be a case of overregulation. Hedge funds, those addicted to the short-side no doubt in a tizz about what to do next.
The Wall Street bailout package ($700bn) only provided temporary relief on the ASX or was it the short-lived short covering rally from those who had positions prior to the decision?
Junior end of the market has seen three crashes since August 2007. The latest round has come from massive fund liquidations in illiquid stocks. Why worry about new lows when you can go out and create them?
Interest rate cuts to come, yet property auction clearance rates have fallen dramatically. I see now that some real estate developers are using the woes in the stock market to push their own projects. One in particular used the line, “Property prices WILL rise”, and no doubt the regulators had a day out on this one. Maybe I am missing something but wasn’t sub prime something to do with undercooked steak?
The petro dollars are going into Bollywood and English soccer teams of all places. I guess when you make far too much money it is time to derive some enjoyment in life. Most of mine can be fulfilled at home or at a seafood buffet so each to their own I guess. I shudder to think where these funds will head once a new trend is established. I make it my aim to be set before it happens as the first mover advantage is always the greatest!
Money coming into the Australian gold sector finally! I noted a change in buying levels of the last two weeks and see that the love is now being shared with the mid-caps. The smaller end of town is still “ghost” but if it continues they will start to see a change in sentiment. My clients are very well positioned in the juniors as the stories over the last year haven’t really changed and if anything we have only seen companies go under as opposed to really “emerging” from the pack.
Quality gold companies in Australia will have the opportunity to lock in some prices that many would not have thought possible. $1000AUD plus with some upside targets to $1500 and beyond. If only there were more meaningful discoveries where the CEO’s are confident of delivering into the hedges!
In a previous article I selected gold, geothermal, and lithium as the places to be. Based on some further research and the Brownlow slide show (what women really want) I am going to add diamonds to the list. We have not seen a diamond bubble in Australia since 1994 so I guess 14 years is long enough for those who blew up in that rampage to forget bout it!
I also spoke about Yield Man but he is out somewhere on the sauce with Hancock. I still laugh about attending an AGM of a 5c oil explorer with different chairs and where people were not afraid to ask about dividends. That oil explorer was in fact Hardman that went >$2.00 at one stage before being gobbled up.
Some well cashed up juniors are now surviving on bank interest. That’s right make some cuts to the team, switch back to one-ply toilet paper, and instant coffee and wait for the market to improve. (Unless of course you are on the verge of drilling into an orebody).
SOME BAD NEWS THOUGH
Bubbles lead to destruction and you only have to look at what the debt fuelled consumer and real estate euphoria has done to everyday human beings. Not only has it affected Wall Street it has also infiltrated struggle street where local councils in Australia who bought CDO’s have lost millions in rate payers funds. This will have an impact on all concerned from those who make it their lives to be in the social pages to those at home draining the fat off low quality hamburger mince to put tables on the food.
The lessons from this may be learnt, but people are inherently greedy and in some aspects pretty silly and lazy to the point where they listen to others to make a quick buck. A bubble in precious metals, geothermal, or even biotech’s is going to attract a lot of interest and funds and at the end of it we are going to have the same result. As I have said many times before, “Bear markets are periods for the regulators to work out what wrong during the bull”. I doubt we will see warnings on the gold juniors now that there are some signs of life. The early to latter stages of a bubble are all legitimate events and it’s just a case of “evolution” Life is all about cycles and this is evident in the “Current Affairs” merry-go-round. From shonky mechanics, to dentists that charge for fillings that aren’t required, to the recommended brand of washing powder, how to bargain, women that have made fortunes in real estate and written books about it…the list simply goes on. Let’s hope for the stories on investor groups discussing their PM investments or the fortunes they have made prospecting. My longer-term readers have probably already identified the Locantro cycle of articles!
In ten years I have only ever seen one client who has managed to completely turn themselves around. The struggle to take profits into a booming market will continue and create considerable anxiety for all concerned. The current market lull is only buying some out there time, time before they become infected with the green eyed monster and on this occasion really blow themselves to smithereens.
The market is all about perception. I mentioned to my 5yr old son that I was to embark on a trip to Los Angeles next week, and I was stunned at his response, “Dad but will they kill you?”. Must stop him from watching the re-incarnation of 902010!
Best of luck to everyone.
Tony Locantro
Personal Disclosure: I have personal holdings in speculative shares in gold, silver, base metals and industrial sectors and may at times liquidate or increase these holdings as I see fit. My clients have considerable investments in a number of companies and may rotate these holdings when required.
Disclaimer: The opinions contained in this article are purely my own and any prior to any investment decision you should contact a licensed financial adviser. Speculative shares are volatile, should be considered high risk and can result in significant financial losses. I earn fees from trading and raising funds for junior resource companies.
About the Author: I am an advisor to hundreds of small to medium investors in the speculative sector of the market and have been since November 1998. In 2001 I wrote "The Green Room" A Guide to Speculating on the Australian Stock Market and have run a number of presentations. I am currently writing my second book and it should be ready for publication in early to mid 2009. I have a small number of books left and am happy to send these out to prospective clients free of charge.
If you would like further information or are interested in becoming a client I can be contacted at [email protected]. I am in LA from October 4-8 and am happy to catch up with anyone prepared to listen over a drink or three.
IGR Price at posting:
17.0¢ Sentiment: Buy Disclosure: Held
