# How far can a spec stock fall?



## Pommiegranite (16 August 2007)

Things are getty really very very silly now.

Question:

How far can a spec stock with great resources and cash in the bank realistically fall?

Is it possible for a company to have a market cap of less than the value of current assets on its balance sheet?

How would this affect this company? 

If you were a director of one of these companies, would you next step be to buy back your own shares?


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## Bushman (16 August 2007)

Pommiegranite said:


> Things are getty really very very silly now.
> 
> Question:
> 
> ...




Very silly. Not many accountants out there. There are a few in my portfolio where the current market cap = liquid current assets i.e cash holdings let alone net assets.

If I was a director I would buy some of the shares back and take it out of the hands of the sheep lining up do jump over the cliff face. Then raise more funds from the longer term sophisticated investors who don't have such itchy fingers. Taking money from the etrade/commsec hedge fund (a giant hedge fund is all that is what the online investment accounts have created) and hand it back to the rich so they can get richer. 

Gosh I wish I had the funds in my hands now. But what did I know about subprime, yen carry trade, a-alt loans, credit crunch and the like a few months ago. All I knew were balance sheets and global economic growth and these will win out in the end. 

Good thing is now that I know what a credit crunch can do to market sentiment, I will be ready for the next bump in the liquidity highway.


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## Rafa (16 August 2007)

i guess a spec can fall all the way to 0...
that i can understand

but the strange thing is companies making billions... PE ratios of 5... i.e. ZFX, how far can they fall??? back to a PE ratio of 1  no way....


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## Pommiegranite (16 August 2007)

Bushman said:


> Very silly. Not many accountants out there. There are a few in my portfolio where the current market cap = liquid current assets i.e cash holdings let alone net assets.
> 
> If I was a director I would buy some of the shares back and take it out of the hands of the sheep lining up do jump over the cliff face. Then raise more funds from the longer term sophisticated investors who don't have such itchy fingers. Taking money from the etrade/commsec hedge fund (a giant hedge fund is all that is what the online investment accounts have created) and hand it back to the rich so they can get richer.
> 
> ...




Spot on Bushman. I'm not sure when to jump back in though. Surely there must be a bottom for some of these stocks i.e when the only holders left are those who can complete simple 1+1=2. They don't have to be accountants, just people who can add up!

So what happens if the DOW falls another 100 pts, or we head into a bear market...I wonder what happens to the cashed up spec stock?

I'm confused by this irrationality..but like you have learnt a lot over the past couple of months.

Oh well life goes on!


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## powerkoala (16 August 2007)

Pommiegranite said:


> Spot on Bushman. I'm not sure when to jump back in though. Surely there must be a bottom for some of these stocks i.e when the only holders left are those who can complete simple 1+1=2. They don't have to be accountants, just people who can add up!
> 
> So what happens if the DOW falls another 100 pts, or we head into a bear market...I wonder what happens to the cashed up spec stock?
> 
> ...




simple thing as 1+1=2 not happening right now.
all i see is ppl ask GIMME MY MONEY BACK.
so whatever price at the bid section, they don't care.
they don't even care what is the company they are investing at.
P/E, market caps, or anything, even company with hundred of millions cash.
so as long this is happening, 0.1c will happen soon or later.


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## nomore4s (16 August 2007)

Pommiegranite said:


> Spot on Bushman. I'm not sure when to jump back in though. Surely there must be a bottom for some of these stocks i.e when the only holders left are those who can complete simple 1+1=2. They don't have to be accountants, just people who can add up!
> 
> So what happens if the DOW falls another 100 pts, or we head into a bear market...I wonder what happens to the cashed up spec stock?
> 
> ...




Pommie, just be careful with the spec stocks in markets like this. They maybe cashed up and have good "resources" in the ground but they don't really have any income/profit making ability, so they could trade sideways for a long time. It will also be harder for them to raise money in a credit crunch type situation to get these projects off the ground.
IMO the days of spec stocks soaring on any bit of news are over for awhile, alot of the bullmarket hype is going to be missing from this market for awhile I would think, people have now been stung by these spec stocks and will be slow to return. As wavepicker said making money in the markets now might actually require some work. 
IMO most of these stocks are falling back to what they are really worth.


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## Bushman (16 August 2007)

Pommiegranite said:


> Spot on Bushman. I'm not sure when to jump back in though. Surely there must be a bottom for some of these stocks i.e when the only holders left are those who can complete simple 1+1=2. They don't have to be accountants, just people who can add up!
> 
> So what happens if the DOW falls another 100 pts, or we head into a bear market...I wonder what happens to the cashed up spec stock?
> 
> ...




I jumped in to early last week and have a deep paper cut sitting here today. So it might be too early to jump back in now. Given the rule that DIJA gives up 1.5%, ASX 200 gives up 3 to 4% and the speccies give up an arm and a leg, it must be wise to wait for the DJIA to settle down. That will happen when the Wall Street Press stop seizing on every 'hickville mortgage loan company catching nose bleed in the stratosphere' story, further fuelling the fires. 

The last bear market lasted 3 years. But the way I read it, cashed up speccies funds with good ground will start producing regardless of a bear market given that, unlike financials who have securitised dodgy debt, near term producing specs have commodities in the ground that have a real and measurable commercial value and a market to sell it to. I am not talking about 'wing and a prayer' speccies (even though I did gamble on a few - ouch).

The one I keep looking at is CBH - it has $200m + in the bank, an operating mine, 2 more close to production and a host of other projects. I just cannot accept that this company is only worth $300m? That is mad.

ZFX does not make any sense to me either. It paid a $1.40 dividend last year! I mean it did rise out of the ashes of Pasminco but that was at a time when zinc was not worth much. 

Anyway that is the way I read it. But panic is panic and I cannot see where this will end given the way it is playing out in the world markets.

Good luck!


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## prawn_86 (16 August 2007)

nomore4s said:


> IMO most of these stocks are falling back to what they are really worth.




What about stocks that were already undervalued and have continued to fall?

Too much panic selling going on. I have held everything and am sitting on a big loss but i am confident that most, especially near term producers like qol and azc will have a cashflow shortly which may change peoples perspective.


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## powerkoala (16 August 2007)

and now we see GREEN for some of them ?????
what the ???


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## dubiousinfo (16 August 2007)

In 87 there were spec stocks that couldn't find a buyer at any price.

I noticed that a few of the spec oppies had no buyers at times today.


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## dj_420 (16 August 2007)

look at URA, 1.68 to 0.18 today! almost a 90 odd % loss

GDN from 1.30 to 0.11 today! huge losses


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## powerkoala (16 August 2007)

dj_420 said:


> look at URA, 1.68 to 0.18 today! almost a 90 odd % loss
> 
> GDN from 1.30 to 0.11 today! huge losses




how about pen, ags, rmi, gbe, ntu, and others ????
if we quote everything, whole all ord list will be here


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## Fab (16 August 2007)

powerkoala said:


> how about pen, ags, rmi, gbe, ntu, and others ????
> if we quote everything, whole all ord list will be here





AGS might have found a bottom so. Back up almost 10% today  Not sure why so


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## powerkoala (16 August 2007)

Fab said:


> AGS might have found a bottom so. Back up almost 10% today  Not sure why so




that's the only one green on my portfolio today though 
so can't complain anymore.
at least one is up.


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## tech/a (16 August 2007)

dj_420 said:


> look at URA, 1.68 to 0.18 today! almost a 90 odd % loss
> 
> GDN from 1.30 to 0.11 today! huge losses




You must be on drugs?


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## Boyou (16 August 2007)

Bushman said:


> Very silly. Not many accountants out there. There are a few in my portfolio where the current market cap = liquid current assets i.e cash holdings let alone net assets.
> 
> If I was a director I would buy some of the shares back and take it out of the hands of the sheep lining up do jump over the cliff face. Then raise more funds from the longer term sophisticated investors who don't have such itchy fingers. Taking money from the etrade/commsec hedge fund (a giant hedge fund is all that is what the online investment accounts have created) and hand it back to the rich so they can get richer.
> 
> ...




Well written ,Bushman.I am sitting on a fairly substantial paper loss at the moment...and ,of course looking back to how I could have handled my portfolio better. Was planning to take some profits very soon,but now, have been overtaken by the market.
BUT ,my basic philosophy is still in tact and in place.AND I  am still valuing this learning experience 

Let the sheep be slaughtered! I am in for the long haul

Cheers Ya'll


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## wayneL (16 August 2007)

Boyou said:


> Let the sheep be slaughtered!



Bears are indiscriminate, they'll eat anything.


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## Bushman (16 August 2007)

wayneL said:


> Bears are indiscriminate, they'll eat anything.




Ultimately bears bite the hand that feeds them...


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## DOC (16 August 2007)

Bushman said:


> Ultimately bears bite the hand that feeds them...




but honestly today was ridiculous, how much can a koala bear?


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## BIG BWACULL (17 August 2007)

DOC said:


> but honestly today was ridiculous, how much can a koala bear?



The way things are goin I think  i'll wait till Gum leaves


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## wayneL (17 August 2007)

Bushman said:


> Ultimately bears bite the hand that feeds them...



Smart bears grow horns.


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## BIG BWACULL (17 August 2007)

wayneL said:


> Smart bears grow horns.



and Real Bulls grow balls


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## nizar (17 August 2007)

Bushman said:


> The last bear market lasted 3 years.




Do you mean 2000-2003?

Well thats not much of a bearmarket is it?
Considering the XAO ended 2000 flat, 2001 flat again, and 2002 with an 11% loss.

Im looking to backtest my system over a bearish period and its hard to find any in the last 20-odd years!


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## Nicks (17 August 2007)

Hate to say it people, but a spec company (or technically any company) can drop to 0.

You see, if noone wants to buy shares and the SP goes down heavily, even much more than it is rationally worth, say even less than its net assets, and the bank dont want to give them money, then they have to offload assets just to stay afloat. If noone wants their assets then they too drop in value (quite plasuible at the moment, having no buyers for a prospective asset like a tenemant or holding, especially when most of the potential buyers are in the same situation), thus starts the fire sale, next thing you know the asset and balance sheet of the company are worth 0 and it has to pay back its creditors such as banks who are saying .... give me my money, and no you cant have any more, and other like companies are saying... no we cant buy your assets, we are buggered too, have no cash to buy and need to sell ours too. Banks are saying .... Shivers we aint giving risky money out now.

So, hence why any specs got offloaded, real bad, and if the recovery dont come soon, there will be many that fall to 0 and you will lose all your money, including any that you just recently bought because you thought it was now a bargain and 'things are just getting silly'. 

Only ones that are safe are blue chips with their own cash and dividends, that banks trust. I guess they could profit from any cheap asset fire sales.

Any experienced traders or any one working / trading in the finance industry care to comment or clarify......?

Any one wanna bag what I just said because all of us hate negativity at times like this? espcially speccie day traders?


(ps one blue chip I'd hate to own right now is MBL - Macquaire. They 'revalue' assets to bump up eps, wonder whats happeing to thise revalueations now... CEO was smiling from ear to ear last agm, meanwhile average Jo's were pumping money into MBL @$90+ per share, some even with these new self managed supers would have pumped heaps into the MBL millionaire factory and now have lost 33% of their retirement, I smell Enron in the house of cards)



_______________________________________________________
do your own research, just my opinions not necessarily fact


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## nioka (17 August 2007)

powerkoala said:


> if we quote everything, whole all ord list will be here




The easiest way to check on the popular speccie stocks is to check the stock pick comp. I've been looking there for bargains.


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## Nicks (17 August 2007)

Nicks said:


> (ps one blue chip I'd hate to own right now is MBL - Macquaire. They 'revalue' assets to bump up eps, wonder whats happeing to thise revalueations now... CEO was smiling from ear to ear last agm, meanwhile average Jo's were pumping money into MBL @$90+ per share, some even with these new self managed supers would have pumped heaps into the MBL millionaire factory and now have lost 33% of their retirement, I smell Enron in the house of cards)
> 
> 
> 
> ...




FYI Babcock and Brown - BNB, do not follow this strategy. Hence I think they are much safer at the moment and will remain a bargain. Potential strong rebound.


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## powerkoala (17 August 2007)

nioka said:


> The easiest way to check on the popular speccie stocks is to check the stock pick comp. I've been looking there for bargains.




some of my speccie are flying high.
maybe you bought it just now, nioka?
quite surprise with the increase though


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## Bushman (17 August 2007)

nizar said:


> Do you mean 2000-2003?




Yes


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## professor_frink (17 August 2007)

nizar said:


> Do you mean 2000-2003?
> 
> Well thats not much of a bearmarket is it?
> Considering the XAO ended 2000 flat, 2001 flat again, and 2002 with an 11% loss.
> ...




That was a high to low move of roughly 22%. How much bigger are you after


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## Bushman (17 August 2007)

Nicks said:


> Hate to say it people, but a spec company (or technically any company) can drop to 0.
> 
> 
> Any one wanna bag what I just said because all of us hate negativity at times like this? espcially speccie day traders?





Off course you are spot on Nicks. Any company can go belly up when it cannot pay its debts. At this point the company will have zero value and its assets will be sold off by the administrators. Pasminco, HIH, Ansett, Sons of Gwalia are some of the listed examples I can think of that have gone under in Australia in recent times. Two of those, HIH and Ansett, were iconic Australian companies. Then there were the market darlings in the States - Enron & Worldcom - that went under and left very little to pay back to its creditors and equity holders. 

Always remember that when the empire crumbles, equity holders are the last in the queue to get their money back and often will not receive much back in the dollar invested after creditors and debt providers have received their shares. 

So keep an eye out on those cashflow statements people. 

One thing I will add is that I like solid investors in the top 20 with deep pockets especially cashed up Chinese investors. That is where the funds are given their massive trade surpluses.


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