why the big declines?, page-9

At last year's Jazz Fest I sat beside a consultant metallurgist. He said he has sat on the executive team of a number of publicly listed companies.....and he never understood what drove the movement of the share price.

So what is driving this slump in the share price? Let's look at this from a probability basis.

What are the chances that this is driven by retail investors like you and me who decided that the quarterly report was so bad that most of us panicked and dumped the stock causing stops to be hit driving the price down 20% in a week? In my mind the probability of this is close to zero. Even collectively we don't have that kind of influence....or think....or act that decisively.

So is it insiders who have dumped the stock after an unsurprising quarterly report? As an insider, if you can have influence, you would be likely to make your move before a report comes out. You'd be quietly selling or buying, perhaps influencing member's of other listed companies (I sctratch your back...) and positioning yourself with the news you have prior to market release. (Reports should contain no surprises for member's of a companies "staff". So it doesn't make sense that it is insiders. Probability close to zero.

A reasonable argument could be that it was previously overvalued and now it is being sold down to it's intrinsic value. Sure, that could be the case. But a quick look shows that at $4.00 per share the price is 78% of nett tangilble assets, provides a dividend yield of 5.1% and a PE of 8.21 (with an estimated forward PE of just 5.5.)

So is it a black swan? Is there some news that we don't know about that wipes 20% off the price in a week? Does the smart money know something we dummies don't? It's possible....but if we're talking probabilities...I'd say it's pretty unlikely. While Black Swan events do exist, they are extremely rare. We generally make 2 mistakes with Black Swan events.....we overestimate their likliness and we underestimate their effect. These events are highly improbable but often devastating. We are wired to avoid loss. Why is bad event more likely than a bonanza event? Yet we are spooked into selling but not spooked into buying on the chance their is a windfall resource discovery. The chances are pretty much the same.

So is it that the price is being wiped out because the management team are a bunch of ratbags who are lying, cheating criminals that should be in jail? Oh boy, I've seen that type of behaviour far too many times. Alright, that's up to you guys to decide. I'm kind of new to this company but KCN has been around for a while. Is that the kind of track record these guys display? Has there been discontent on the board? I'm going to guess that the odds of a bunch of fools running this business are on the low side.

Is it the big funds who were so shocked by the quarterly report that they just had to dump the stock? These guys have research teams and direct contact with company directors and influence. These guys shouldn't be surprised by anything that was in that Quarterly Report.

(ps Could a Director or Office Holder have pissed off one of the big fund managers and now the company's being punished? Now that's possible but it doesn't change the business fundamentals......so that should make a beaten down price attractive, yeah?)

Short sellers? Damn short sellers! As of yesterday, registered short sales were just 0.22% of listed shares. That's 220 short sales for every 100,000 shares. That's not a lot

So what's left to make up the 90% probability which describes what's happening? Financial institutions, hedge funds, sovereign wealth funds, market makers? Who has the resources to play both sides of the market...to bid and to offer, to pull bids in a split second just as the price is about to be hit? Who doesn't pay transaction costs on all those tiny trades? Who just might know where your stops are located? Look at any Change in Substantial Holding notice and see how long these guys churn shares before lodging a notice. They buy, they sell, they sell and sell and buy. They skim on price, take a cent here lose half a cent there....and over a million shares or more in a day it adds up. And who better to fleece than some guy who's got spare money to 'invest'. That my friend is YOU .....and me.