Time for a bit of reflection on yesterday.
I have been holding off a little while between accumulations in anticipation to see what this quarterly would show and what the market would do. After reading the results and listening to the conference call I saw that the narrative basically was the same.
1) Management understands the situation the sector is in and is playing the game as strategically as possible
2) Conserving cash is king
3) Strategic other options are not being rushed and the opportunity to maximise is being played out
4) Based on the above the company is not going to run out of cash anytime soon and no raising will be needed.
I was then ready to execute my cashed-up accumulation and then I paused. Something wasn’t right, Colin was not bashing the stock.
My post on HC are more for me then for anyone else as they help me gather my thoughts in a well-structured manner. They help me reflect on what I am doing and what is happening. I then started rereading some of my recent posts and it reminded me as to what is going on.
What happened the day before the announcement was pure genius. While the percentage of shorts was low, the actual number of trades was very high. It was the high volume that masked the truth. What the data does not tell us is when during the day the trades took place, but my guess is that they went very hard with volume right at the start. They had a resistance barrier that they wanted to break, and this was the chance. They wanted to create the illusion that they knew something that nobody else did. It worked, and that early push brought down the barrier and panic set in. Stop losses were triggered, fear came into play and that is it they didn’t need to do anything else. The market momentum did the rest. People ran for hills.
That then brings us to the results. Great results when comparing to the share price. For how much the companies share price has fallen recently really what the results show is that the fall was not justified. There are posts galore that confirm fundamental value!
As the comments started coming in, it was obvious by midday that the price would end the day lower. As I mentioned a few days ago, this stock is not trading on fundamentals, it is not trading on future earning potential, its simply trading on momentum alone. By breaking the barrier yesterday that created enough doubt and disillusion that no one would want to commit.
I have been pretty up front in my posts and management really let that sink in today that things are going to be tough for probably at least the next 9 months. There is no hiding it, the market is not currently growing as per forecasts currently. The key to this is China. EV sales in July, August, September and very likely October are down and in many cases below last year. When you see excellent car companies like BYD see their 2018 vs 2019 monthly sales in negative growth you know it is not good. In one of the most important markets for EVs at the moment the lithium sector based on growth can’t handle this. The trade war, changes in China subsidies, ICE dumping has impacted the sector. The problem that Tesla is so far in front of everyone else and many people are waiting for a Tesla is also impacting the sector.
Government policies in Europe and to some extent in China will start to unwind the middle of next year. Tesla shanghai will improve China sales and latter in the year Tesla Y will start to substantially improve US sales. Pretty much no one in the US wants an EV unless it is a Tesla. Until all this plays out the sector is stuffed. Which converters and miners will not make it is the biggest question?
In my opinion GXY will definitely make it. If you look at the moves to play around with Mt C the way they are (as described yesterday) you can see how much foresight they have in how much harder this is going to get short term and how they need to manipulate strategically the way they operate to stay ahead of the game. They are looking to make the most of a very difficult situation and this is a years planning in advance.
People can pay out management all they want, but if you look at the hidden messages in their actions you can see that this is one of the best run lithium companies to be in Australia. We (including I) can complain about the lack of information and the like but at the end of the day no huge twitter or Instagram feed is going to outweigh the quality of spending time on strategy rather than cosmetics. When the tears come, the makeup comes off!
What I saw and heard gave me even greater confidence in this management team and what lies ahead in the years to come. If a company can excel in the toughest of times, imagine what it can do when things go gang busters. Key short term will be the SDV plan. If it is modular and cheaper, quicker and more efficient than the last DFS that will be a huge confidence booster.
However, the day ended, and the price was lower and I did not execute my buy. It came down to being so aware that regardless of all the value at play they are currently meaningless. The price is going to go down lower and I will save up just a little more to buy (or at least evaluate) an even bigger chunk at the next resistance level. A slight alteration to make the most of the current situation.
Did I ever expect the share price to come down to this level? No chance! It is remarkable what FUD can achieve and this has definitely been a lesson for me. Does this impact my investment? No, it does not, and I have explained my accumulation strategy before. While my paper profits are growing in the red, the accumulations have been based on knowledge and fundamentals at the time of purchase. It is impossible to factor in over craziness and FUD into the calcs. Therefore, slow and steady buying is key. When I do my regular trade at the following lower price I ask myself is the long term narrative still strong, is the fundamentals strong at this price and I buy.
As long as the long term narrative remains the same I will continue to accumulate as every share purchased now does wonders into the future. Should the future not be where I expected it to be then hey I will become like the rest stuffed! However, I don’t see that very likely, as the momentum in the sector is growing. Thanks primarily to Trump we have hit a big speed bump. This speed bump has created a loaded spring and whichever company can make the most of the current situation will be ready for a launch come the day growth returns.
The problem is everybody’s trades and financials are totally different and many good people are suffering. I feel sorry for so many people across so many lithium threads that are suffering.
The way I see it is if you call yourself a long term holder and you wanted to bail you should have sold out by now. If your still holding then you just need to prepare yourself. We are at the stage of what is the difference between 80c and 50c, not much now. Key risk now is to the upside not down.
The next 6 – 9months are going to be tough.
The SDV plan to be released in late November appears to going to be very good for the company, but don’t expect it to do any wonders for the share price (the other side will just talk about funding), don’t expect an uplift from a fantastic deal with A40 (the other side will just talk about some negative).
The company will move ahead and make some great deals, be profitable, grow its customer base and set itself up for a great future.
The price however, will most probably only react when the ones in control are ready for the momentum to swing in the opposite direction.
I have shares that I have held for 10+ years, managed funds I have held and accumulated with for 20+ years, the long game is no problem for me I have seen it and have experienced the benefits.
The only questions that I keep asking myself are:
1) Is this company of risk of being bankrupted? No!
2) Can this company be one that is last man standing should all hell break loose? Yes
3) Is the EV boom going to be real? Chances of it being yes are growing with time!
As long as those answers remain the same, I sleep easy at night. If any one of those answers change, I will be selling up and running for the hills and learning a difficult lesson.
If you read this far, you must be pretty keen. This post was by far substantially more than normal for me rather than you. My reflection says trust my decisions.
Good luck all. Keep doing your own research and filter out all the crap.
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