Bubbles

Ok, so some of us have seen and been through all sorts of bubbles, mind you i'm under 40 so only young in terms of bubbles seen, compared to others.

What I have noticed is that some bubbles last years, others merely months, and they all have similar characteristics, similar sounds are made by participants both for and against the product in question, and eventually it all ends as it started.

Potash was one I was a party to and made near on seven figures buying into the frenzy, luckily was early adopter of the craze and also an early exit.

Some potash companies were biotechs 6 months prior, or gold explorers or the like, funny how they all jump on the next big thing, but if you think about it, they are actually doing their early shareholders a favour, so long as one has the foresight to enter early and exit early, knowing 99% of explorers are just that, and never make a cent.

There are many occurrences of bubbles in the market, and in no way is this post a reflection on just TON per se, but maybe it will wisen up some to understand not to believe all they read.

Sure TON, for example, could end up being a $10 plus company, producing XT per year to some conglomerate or under agreement with China or someone else altogether, maybe they end up building their own car batteries?

To me, it doesn't matter what we think, none of us really know the future, however we can learn from the past.

Lets use TON as an example only, so no brush on just TON.

Imagine we knew today what we knew just 2 weeks ago.

You see, I did know, and stated as much, as I understand not only mini bubbles, but the market and its participants in general through practice.

Not to say i'm always right, i'm just right more often than not, which is the trick.

I knew the stock TON would drop like a lead balloon before $1, I said as much numerous times that this would end in tears, starting at around 30c funny enough, said you're all mad, 45c said good luck, 50c plus said this is crazy, 60c plus started reading my notes on past bubble sectors, 70c had a chuckle while reading the get in now, going to $2, over $1 by Monday, buy now or miss out posts, its all part of the bubble syndrome, and one must listen for it, no matter what the stock.

Even today, after a 60% plus drop in two weeks, you still have inbred muppets that say ah its manipulation by the big boys, top up last opportunity, calling for the CEO's head, expecting the CEO to not only run the company as best he sees fit, but also to somehow miraculously turn the SP around on a dime, after a 800% gain from early proceedings, yeah you are right what is he doing for his holders? lol

He had done what I would think is the best outcome for holders, early adopters that is.

The story is set, the scene is ready, the buyers come, the 800% rise is provided, yet most forget to sell, buy in late, fantasize all the way down, did you know there will be people who bought at 80c, still holding as their silly pride wont make them sell, and even at todays 30-40c, when it will probably be 15c in a month, will still be batting on about how the market manipulators are at it, etc etc etc.

Don't agree? Great, well please observe using my specimen proof of concept by exhibit a) head over to Lynas threads and read back on my posts anywhere from $2 down to where it is today at 14/15c.

Same shite, similar stink, just in the rare earth sector.

Molycorp fell from $70 down to a low of $6 or thereabouts.

For what it is worth, I'll bet $1 SYR don't ever become a producer, never lone TON.

The smaller 2 or 3 on the ASX will make it that are close to production, the rest forget imo.

Lets assume SYR do produce, by the time they pay for all the startup costs plus the time decay to get there, the capital raisings, the current holders will be that diluted their head will spin anyway, and they will lose money.

But anyway, those that will eventually survive in the Graphite space imo are smaller, more nimble, good little operators, selling to a select market their small amount each year, making their $5-$10m for their holders.

Bigger does not mean better.

I read SYR have enough Graphite to control the market requirements for the next 100 years, so if that is even half truthful, and they do ever produce, how will other large miners compete?

How do you think prices will end up with large oversupply?

Who will they even sell to? Think about it.

At the end of the day, it matters not what I think, the market will work it out.

They say it is always hard work taking the stairs up, and very easy taking the escalator down.

Keeping that in mind, TON will jump 10% next week, still be 90% down on its high, 600% up from the start, and there will be those again saying get on and will feed the next frenzy.

Just remember, first on, first off.


Just trying to work out which phase of the bubble we are in today?



Phase 1 The Birth of the Bubble

Most bubbles have their genesis in a kernel of truth. In other words, at the heart of most bubbles is a perfectly sensible story. Consider, for instance, the dot.com bubble. At its center was a reasonable argument that as more and more individuals and businesses gained online access, they would also be buying more goods and services online.

The bubble builds as the market provides positive reinforcement to some investors and businesses for irrational or ill-thought out actions. Using the dot.com phenomenon again, you could point to the numerous start-up companies with half-baked ideas for e-commerce that were able to go public with untenable market capitalizations and the investors who made profits along the way.

A critical component of bubbles building is the propagation of the news of the success to other investors in the market, who on hearing the news, also try to partake in the bubble. In the process, they push prices up and provide even more success stories that can be used to attract more investors, thus providing the basis for a self-fulfilling prophecy. In the days of the tulip bulb craze, this would have had to be word of mouth, as successful investors spread the word, with the success being exaggerated in each retelling of the story. Even in this century, until very recently, the news of the success would have reached investors through newspapers, financial newsmagazines and the occasional business show on television. In the dot.com bubble, we saw two additional phenomena that allowed news and rumors to spread even more quickly. The first was the internet itself, where chat rooms and web sites allowed investors to tell their success stories (or make them up as they went along). The second was the creation of cable stations such as CNBC, where analysts and money managers could present their views to millions of investors.
Phase 2: The Sustenance of the Bubble

Once a bubble forms, it needs sustenance. Part of the sustenance is provided by the institutional parasites that make money of the bubble and develop vested interests in preserving and expanding the bubbles. Among these parasites, you could include:

• Investment banks: Bubbles in financial markets bring with them a number of benefits to investment banks, starting with a surge in initial public offerings of firms but expanding to include further security issues and restructurings on the part of established firms that do not want to be shut out of the party.
• Brokers and analysts: A bubble generates opportunities for brokers and analysts selling assets related to the bubble. In fact, the ease with which investors make money as asset prices go up, often with no substantial reason, relegates analysis to the backburner.
• Portfolio Managers: As a bubble forms, portfolio managers initially watch in disdain as investors they view as naive push up asset prices. At some point, though,, even the most prudent of portfolio managers seem to get caught up in the craze and partake of the bubble, partly out of greed and partly out of fear.
• Media: Bubbles make for exciting business news and avid investors. While this is especially noticeable in the dot.com bubble, with new books, television shows and magazines directly aimed at investors in these stocks, even the earliest bubbles had their own versions of CNBC.

In addition to the institutional support that is provided for bubbles to grow, intellectual support is usually also forthcoming. There are both academics and practitioners who argue, when confronted with evidence of over pricing, that the old rules no longer apply. New paradigms are presented justifying the high prices, and those who disagree are disparaged as old fashioned and out of step with reality.
Phase 3: The Bursting of the Bubble

All bubbles eventually burst, though there seems to be no single precipitating event that causes the reassessment. Instead, there is a confluence of factors that seem to lead to the price implosion. The first is that bubbles need ever more new investors (or at least new investment money) flowing in for sustenance. At some point, you run out of suckers as the investors who are the best targets for the sales pitch become fully invested. The second is that each new entrant into the bubble is more outrageous than the previous one. Consider, for instance, the dot.com bubble. While the initial entrants like America Online and even Amazon.com might have had a possibility of reaching their stated goals, the new dot.com companies that were listed in the late 1990s were often idea companies with no vision of how to generate commercial success. As these new firms flood the market, even those who are apologists for high prices find themselves exhausted trying to explain the unexplainable.

The first hint of doubt among the true believers turns quickly to panic as reality sets in. Well devised exit strategies break down as everyone heads for the exit doors at the same time. The same forces that created the bubble cause its demise and the speed and magnitude of the crash mirror the formation of the bubble in the first place.
Phase 4: The Aftermath

In the aftermath of the bursting of the bubble, you initially find investors in complete denial. In fact, one of the amazing features of post-bubble markets is the difficulty of finding investors who lost money in the bubble. Investors either claim that they were one of the prudent ones who never invested in the bubble in the first place or that they were one of the smart ones who saw the correction coming and got out in time.

As time passes and the investment losses from the bursting of the bubble become too large to ignore, the search for scapegoats begins. Investors point fingers at brokers, investment banks and the intellectuals who nurtured the bubble, arguing that they were mislead.

Finally, investors draw lessons that they swear they will adhere to from this point on. I will never invest in a tulip bulb again or I will never invest in a dot.com company again becomes the refrain you hear. Given these resolutions, you may wonder why price bubbles show up over and over. The reason is simple. No two bubbles look alike. Thus, investors, wary about repeating past mistakes, make new ones, which in turn create new bubbles in new asset classes.