Theoracle, I'm not sure why people should be cynical about...

Theoracle,

I'm not sure why people should be cynical about investing in companies.

The fundamental problem, as I have argued until I was blue in the face, is that people, firstly, simply don't consider risk properly for risk and, secondly, people confuse return with nothing more than randomness.

The fact is that the overwhelming majority of people invest, not in businesses, but in trying to second-guess where share prices will be going.

The difference between these two mindsets might sound trivial, but it is, in fact, enormous.

There are over 2,000 shares listed on the Australian stock exchange and I have come to the conclusion, after many years of being a passionate investor, that there are only a handful (maybe 100 or so) of publicly listed companies that are able to increase in intrinsic value throughout their business cycles.

The rest are simply either outright rubbish or are highly conceptual in nature. Yet people insist on buying these stocks (and they always will) in the naive hope that they might be able to jag the stock price going up because they believe that have some edge in interpreting how the buyers and sellers are lining up at any given point in time, or because they believe the uranium price or the gold price or the nickel might go up, or because they think a certain company will strike oil in some exotic global location.

But people simply don't risk-adjust their investments by asking themselves the question: "What if I'm wrong? How much downside is there to the share price if I am wrong?"

Bizarrely, the way some people think they manage risk is by not investing at all, thinking they will be able to "time" pullbacks into which they can buy.

Yet many academic papers and even real life evidence suggests that the opportunity costs are high of of being "un-ininvested" in the broader equity market over time. (And that's the equity market, in general, which includes all the crap companies; the opportunity cost of sitting in cash and not investing in high-quality, competently-managed, wealth-creating companies is enormous, and people simply fail to understand this.)

But back to FGE:

As some followers of the stock have alluded to in recent posts, I think that what is becoming increasingly clear is that some of the counter-parties to the contracts secured by FGE in recent months might be having some fresh reservations about FGE's fit-to-perform standing in relation to those projects.

So there's no doubt that ongoing business risk for FGE will have been perceived by investment quarters to have risen given the events of the past few weeks.

Based on this I am actually now thinking that the company might struggle to get the raising away except at extremely discounted pricing, even below $1.00.

This might have implications for the capital raising process itself, because if my memory serves, and I'm not an aficionado of the Corporations Law insofar as it relates to all aspects of the issuance of fresh equity, but I believe that if the size of a new raising is significant enough as to constitute a substantial enough re-capitalisation, and under certain special circumstances, then the company would have to re-issue a full prospectus to investors.

If that's the case, then I don't think we will see FGE stock trading again for many more weeks.

Apologies to all for the sanctimonious sermonising, but I sometimes find it frustrating that people get caught, unwittingly, in these sorts of situations when they are so easily avoidable.

Cam