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Thought Bubble

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Dona Ferentes

Pengurus pengatur
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An occasional log of random ideas, oft provoked by comments from others in threads

Thought Bubble #1

This one has come about along these lines:
1. A contributor to a thread mentioned mentioned he bought into CSL at the float (forget who, but well done!) AND HASN'T SOLD
2. He then raised questions about where/ how to invest now.
3. We're in a time of Capital being raised/ allocated because Covid-19 is changing all the rules

Here goes;
1. Assuming 3,000 CSL picked up for 63c a share = $2K; now with a market value close to $900K. There's a pretty fair whack of CGT if sold, and why would you want to? But a bit of diversification wouldn't go astray. What about a Margin Loan, because the LVR on CSL is >70%. Wouldn't advocate going that high, but say about $400K borrowed, staying under 50% and a suitable buffer. (I'd actually go for less, keeping no more than 30% because Margin Calls are to be avoided at all costs.)

2. On 07 April, the ASX introduced temporary changes to its rules to facilitate emergency capital raisings against the current backdrop of the COVID-19 pandemic including:
  • increasing the placement capacity for listed companies to 25% of their share capital, subject to the placement being fully paid ordinary shares and there being a follow-on accelerated pro rata entitlement offer or share purchase plan offer (SPP). Where small or mid-cap companies already have an additional 10% capacity approved under Listing Rule 7.1A, the aggregate maximum remains at 25%, but companies can choose to use the Listing Rule 7.1A capacity or the new increased Listing Rule 7.1 capacity
  • waiving Share Purchase Plan requirements for the number of shares issued to be limited to 30% of the issued capital and the issue price to be at least 80% of VWAP which are replaced with a requirement that: for follow on SPPs, the issue price must be equal to or lower than the placement price; and for stand-alone SPPs the issue price may be determined by the Board
  • a waiver of the one for one cap on non-renounceable entitlement offers
  • permitting back to back trading halts whereby a listed entity may request two consecutive trading halts allowing in total up to four trading days in halt, to consider, plan for and execute a capital raising.
These temporary measures will expire on 31 July 2020 unless ASX decides to remove or extend them.

3. The reality is that most raised Capital recently has gone through institutions and the retail component is an afterthought, mostly offers of SPP but with upper limits and scale back of applications. Only a few have been pro rata entitlements and even fewer have been renounceable.

4. But there is some upside for most, or at least a put option in the form of the VWAP calculation

5. These capital raises are coming fast and furious.

6. So, why not hold a few hundred companies out of the 2000+ on the ASX and scalp a bit as each comes along. It's not surefire, but I saw similar opportunities line up in GFC and there are quite a few around right now (possibly too late)

7. Of course, a good relationship with a Margin Lender would help, to fund the SPPs as they come along.

8. As noted, many of the Plans are only allocating a percentage of the offer. Sadly most offers contain clauses like this:
 

Not sure if you are referring to me, but I did mention I held CSL and some others from listing and yes, although it is all structured as best I can, tax is still a bit of an issue the kids will need to deal with.


I did use a similar strategy in 1998/99 and 2003 to good effect by using margin but not as many shares as you suggest. It was a bit risky as I had my own business then, taking up most of my time. Fortunately, my broker (as I mentioned in that post) did most of the buying/selling – I simply set the prices for him to act on.
The other benefit of using the full service broker was access to raisings and new floats. Far more scarce these days without such a broker.

Would I do it in this market?
Remembering 2003, if I was at that stage of life, yes I would probably use the same strategy as then and maybe try your suggestions hunting for placements or other entitlements. The only hesitation would be the different market we are in which could collapse in any day or two. A proviso for anybody doing something like this is to be fully familiar with the risks associated with using margin.

Mind you, Country Lass may have other ideas anyway– too many other activities and she would remind me I don’t need to trade and watch the market that extensively.
 
Thought Bubble #2

This one is provoked by an article in the AFR today.
https://www.afr.com/wealth/personal-finance/meet-the-sharemarket-s-corona-generation-20200610-p551dz

Meet the sharemarket’s corona generation

Basically, in the last few months there has been a surge of retail punters both 'playing the market' and also inhabiting chatrooms. It's a perfect cocktail.
... Stuck at home
... Access to money (some using the $10k from super)
... Technology. Everyone can do it.
... Low brokerage models (though Commsec ain't cheap)
... Rapid falls then rapid rises. 10% days a frequent occurrence, and that can be in the big caps. Minnows and speccies, even more.
... and a bit of FOMO
... And a sense of missing out. Can't afford home ownership, see Super going nowhere (or tediously incremental in its risk management squashing returns)

to which I say; First hubris, then nemesis.

These 'players' have fired up other sites; I presume HC has had an influx (how do they know to call themselves 'newbies'?) and Facebook and other Social Media have active though probably evanescent pages, such as mentioned in the article: ASX Stock Tips group, ASX_bets Reddit site and probably many more.

But somehow, these participants aren't appearing here at ASF, or, if they are, not finding it to their taste and moving on in the eternal quest for confirmation and acceptance (self=biasing).

On ASF, the narratives have moved away from stocks and towards social commentary and opinion-making. Some of the market stuff is good (I'm "macro picture first, then drill down" in my approach so that's needed) but I get a sense of exasperation from many that the whole thrust of the site has been away from ASX shares to grandstanding, and this is offputting to many and corrosive for this site.
 
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Well said @Dona Ferentes. I have put people on my ignore list lately - the ones who want the last word regardless of how long it takes
 

It's easy to post an opinion about a topical issue such as Black Lives Matter or whatever political issue is currently clogging up the airwaves. It's a little harder to post some analysis or a considered opinion on a stock.

What the General Chat forum used to be (and was always intended to be) is a place for forum members who, after chatting about stocks, trading and investing, could unwind with a bit of off-topic banter. It was never intended to be anything other than a small off-topic corner of an online community that is primarily built around financial markets, trading and investing.

I, for one, am growing very weary of toxic political discussion. Not just here, but everywhere. I am also getting tired of the unpleasantness that goes along with it. The labelling, the accusations, the insults, the name calling, the relentless dogmatism. I've tried to be tolerant because - let's face it - none of us can ever really get away from politics. But it needs to take a backseat here at ASF and it needs to become far less unpleasant.

If not, then I will have to show the door to those who make it unpleasant.
 

Agreed with your point.

Attempting to explain it though, well I think it's fair to say that for those who've made a profit over the past 4 months, it likely was more due to the macro situation than to picking the right stocks.

If someone bought BEAR on 20 February and switched to VAS on 23 March well then they're sitting on an 87% gain at the moment.

How many can say they picked stocks which have gained more than 87% over the past 4 months?

Understanding the macro picture and trading it has been a profitable strategy in recent times but it's one that those who weren't following the news about the virus may well have missed.

I do think though that if we're going to look at these other issues then the real value is in their market implications but I do perceive there's not too much interest in that here, perhaps due to views about morality and so on. It's what I'm doing personally though, just compiling the data and seeing what it tells me but I do get the impression that there's not too much enthusiasm to openly discuss "painful" subjects as a market timing indicator.

For me personally, the most valuable comments I read on ASF are those in threads such as "Trading the Bounce" by the likes of gartley, ducati916 and others. Ultimately that's the most useful stuff on the forum in my personal view. Note that I've only named that thread and those individuals for example, any other thread or individual of a similar nature is included so no offence intended to those I haven't named etc.

The worst thing I see on ASF is rudeness. There's never any excuse for that in my view. Never. It's most unhelpful to the forum and indeed to anyone. Even if the question is silly, there's a polite way to answer it always.

As for threads about racism and so on, on one hand I'm vehemently opposed to the very concept and I think the forum would be best off without discussing such subjects which can only cause division. On the other hand, I think it's fair to say the situation overseas, US in particular, is such that the issue could potentially have real market implications. It wouldn't need to escalate too much further to become a major cost imposition to business and to impact consumer sentiment, political stability and so on. It would be unwise to ignore it in my view unless your trading strategy is a 100% chart based one.
 

I'm highlighting this to remind everyone, myself included, to note the point and act accordingly.

Joe Blow said:
I, for one, am growing very weary of toxic political discussion.
Click to expand...

I suspect you are in the silent majority on that one.

The problem for ASF as I see it is a double edged sword. On one hand ASF is one of the very few places where sensible discussion on such matters can take place in a calm manner. On the other hand it is not the intended purpose of the forum and an excess of such posts is unhelpful to keeping the focus on stocks.

It is not my place or job to do so but I'll give it a shot anyway and as a first step suggest that posts using foul language, insults and so on be deleted without further discussion.
 
I decided last week to not comment on international politics, especially USA politics, and after my last post just now Covid also.

I just feel I am reading toxic propaganda a lot of the time and am tired of it also.

I probably won't be able to resist a sarcastic comment at some stage though.
 
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As long as we all agree that this toxic propaganda that you see can been seen as truth and your views as propaganda by that others.there is no lack of fake news and figures right and left.
I overall do not see the drama there as if you want, you can put people on ignore and that's it.
Covid-19 is the obvious field where market and debate is interlinked.
I am mostly system trading but by January, all my supers were in capital garanteed and masks were ordered.anyone not ignoring me could have done the same and save themselves 30pc fall.
That is bloody big.
i have now an opposite view optimistic economically.this is being debated hotly.
My view on gold is medium term bearish this is also debated hotly, is influenced by the blm and riots
Anything outside my system trading is influenced by news etc.

ASF gives me a good view of the positions of relatively educated financially people.we are not HC or daily mirror/guardian readers ..even if .
Out of that whether i agree or not, i can have an idea of people reactions and, to be honest, use it on the market.
unless major drama ahead, my fy will see some profits and these would not be there without this forum.
It is not a matter of being right, anyone seasoned in the market knows that
And ignore button is always there
 
Attempting to prompt some more financially useful thinking here, I'll put forward the following question:

Are we at present seeing a blow off top in race-based protests?

If not, is it at stage 1 or 2 of the bull market in protests?

Or are protests merely an indication of something else and it's that something else which needs to be on the chart not the actual protests? That is, in the same manner that the price of shares in an iron ore mining company might really just be a proxy for the iron ore price and it's the ore price, not the shares, that's really driving it?

I say that in all seriousness and without disrespecting the cause but if you look at these things well then yes, they do tend to follow the same basic patterns that we see in the stock market. As I've previously mentioned, you can find much the same in anything else involving herd behaviour - fashion, pop music, etc.

My point isn't to start a discussion on protests but to say that if you're already focused on that well then you potentially have knowledge which has application in the markets. This is a stock market forum after all so put that knowledge to use......
 
Good thinking @Smurf1976, I was thinking about those same patterns, but never thought of markets as an allegory.

Although clearly work remains to be done, the fundamentals on the race front are weak, never have rights and conditions for been POC been better and continue to improve.

I'm of the thinking that there are other macro factors underlying it all... the thing ain't about the thing.... in which case this is a strong trend where the underlying fundamentals might make it go parabolic.
 
wayneL said:
I'm of the thinking that there are other macro factors underlying it all... the thing ain't about the thing.... in which case this is a strong trend where the underlying fundamentals might make it go parabolic.
Click to expand...
Eg

 

The race based protests are a reaction to a couple of horrific events overseas that hopefully won't be repeated, but tensions continue to simmer below the surface here in Australia, although I doubt if its enough to cause serious concern here given the low level of population of indigenous people. That's not to say that their condition does not need addressing by governments, but in the light of other matters I think most people have other things on their minds.

The main problem will come when the job keeper allowances are removed and job seeker goes back to its previous levels, a lot of money will suddenly be taken out of the economy and will be slow to come back as businesses will crank back slowly, those that are able to that is.

Jobseeker and Jobkeeper should be slowly reduced imo inline with the economic recovery that we all hope will come, but the shock of these being reduced overnight might make things worse.

As for the stock market, well where else is there to put money that would provide a reasonable return ?

Property prices are depressed and likely to remain so until borders reopen, and the return on fixed deposits is almost zero.

Maybe governments should embark on a bond selling campaign similar to wartime because this is as close as we will get to war without actual fighting. Social spending to keep the economy breathing repaid down the track when things pick up. And maybe more government investment in things like resources instead of having most of the profits going overseas.

But I doubt if Slomo and Fried Burger have the foresight for that sort of thing.
 
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wayneL said:
Good thinking @Smurf1976, I was thinking about those same patterns, but never thought of markets as an allegory.
Click to expand...

Some will find this information completely useless but personally one of the more significant learnings I've had about markets is to realise that the same basic patterns exist far more widely.

3 stage bull markets ending in a mania don't just happen in the stock market. They also occur with the popularity of TV programs, in pop music, fashion, toys and even interior decorating. It doesn't happen always, not every TV program or every singer goes that way, but it certainly does occur and it's not uncommon.

As a TV program example I'll cite Top Gear, that is the UK version in its era presented by the well known trio of Jeremy Clarkson, Richard Hammond and James May.

The show had a niche following and in Australia and ran on SBS for quite some time (stage 1). It then gained mainstream popularity and in due course one of the commercial stations offered enough money to buy the rights to run it (stage 2). Before long there was Top Gear merchandise being sold in shops, public awareness of the show was mainstream even among those who didn't watch it, there was an entire area dedicated to it in at least one department store, they even went as far doing a live show, as distinct from the TV show itself, and local TV spin offs ensued including an Australian version (stage 3, the mania).

It's reported that when they first started producing Top Gear, they literally had to pay the studio audience to get anyone to stand there. By the time the show reached its mania stage the opposite was true and being in that audience was something money simply couldn't buy, demand vastly exceeded supply. Bull market indeed.

Next step - the BBC sacked Jeremy Clarkson following an incident, the other two also left and that was it, game over. As with most manias, it all came crashing down real quick. Top Gear still exists as such today with new hosts but is very much diminished in terms of audience and public interest compared to its peak. It has a lot in common with a stock market after the bubble burst.

Now go and pick a few random pop music groups, so boy bands or girl bands or whatever, and you'll find the same pattern over and over. A point comes where they are everywhere and their music is pretty much inescapable to anyone who listens to radio. In some cases it goes as far as merchandise being sold, pretty much anything that can be branded with the group's name, people copying their fashion and so on plus of course the obligatory tour. Then not long after that someone leaves or there's a huge fight or whatever and the whole thing falls apart usually quite dramatically and that's it, the bubble's burst and the game's over. The odd one carries on for the next 30 years with very much diminished popularity but most quit there and then.

Now look at kids toys or fashion and every now and then the same pattern unfolds. Something becomes popular to the point that even adults without children know the toy exists and even your grandma knows that wearing whatever is the latest fashion. The craze is everywhere but not long after that you won't find one for sale in any shop and the whole thing's well and truly over, now it's nowhere.

Plot any of that on a chart and what you get is a 3 stage bull market which ends in a mania and a bubble burst. In some cases it's complete with the echo bubble as well - a replacement member in the music group, a variant on the original design of the toy, etc.

For some well I've just wasted the past 2 minutes reading that. For me, well I found it rather useful to understand that what goes on in the markets is by no means unique and that the same basic concepts also occur with lots of things which involve herd behaviour. Once a mania occurs, once there's that huge frenzy and it's everywhere, collapse is the usual result with a "soft landing" being something few have achieved in practice be it in TV, music or the markets.

In the back of your mind you probably always sort-of knew that. You knew that fashion and pop music and the latest toys all tend to be rather disposable and that once it's everywhere the next step is it's nowhere. You've spotted a few manias without even realising it at the time but ultimately markets do display that characteristic too.

Ultimately we're all here to make a profit (it's a stock market forum, right?) so my real point is that if there's something else you already understand the basic concept of which can be applied to trading or investing then that may well help you to understand it far better. If technical charts and spreadsheets are causing your eyes to glaze over, well being able to relate that to something else in the world may help in getting your mind around the concept of what's going on.

If it doesn't help well then now I owe you for your wasted time reading.
 
Adding to the previous post - there's more than one operating system for the human mind.

With something involving uncertainty, and the stock market is an example of that, different people will approach it differently and there's more than one method that works (and more than one that doesn't).

If T/A is working then keep doing it. If fundamentals are working for you then likewise keep doing it.

But if it's not working and you find it easier to understand by relating it to weather cycles or farming or crowd behaviour or whatever, and you make that work, well then you may as well do so.

For those on the politics, well I see a mania going on with certain subjects and it'll end in the predictable manner with the only real difficulty being with the timing but manias ultimately collapse. Spotting these has wider application to all sorts of things.
 
No I think you're spot on. I guess Prechter et al were on to that, socionomics etc. Even some of his predictions didn't come off, it's a useful way to look at the world.

It's funny, you can even plot the popularity of practitioners in my field the same way.
 
Very sage post Smurf, the tech bubble is a pretty good stock market example of mania as was the Poseidon episode of some years ago (probably a lot of insider trading going on in both those cases).

I comes down to the two fundamentals of the stock market, fear and greed, and those two emotions aren't going away any time soon.
 
Interesting how my 'bubble' expanded on the last paragraph, and away from the main thrust intended, which was how the Covid conniption brought a lot of new punters to the market (even if they didn't make it to ASF) because of the perfect cocktail as outlined:
... Stuck at home
... Access to money (some using the $10k from super)
... Technology. Everyone can do it.
... Low brokerage models (though Commsec ain't cheap)
... Rapid falls then rapid rises on the market
Click to expand...

Keeping with this theme, I posted a follow-up somewhere of a Firstlinks article
https://www.firstlinks.com.au/article/easy-money--download-robinhood--buy-stonks--bro-down
that explores the wacky world of investing.
"The result is a bunch of new players day-trading and laughing at the world of fund managers and experts. Sure, they are inexperienced, but they work on the theory that stocks only go up, and if it’s a terrible stock that just fell 50%, then that’s even better. It has so much potential.

It sounds crazy to anyone taught to value a company based on the net present value of its expected future cash flows, but in this world, none of that matters. The new traders drove up the price of Hertz after it declared bankruptcy with massive debts and no revenue, and the share price rose so rapidly that Hertz planned a new capital raising.

Where are these communities hanging out?

TikTok is a massive global success story with a billion members who post short dance moves, lip sync routines, cooking sessions or whatever. It’s also dominated by young people and millennials, and Robinhood advertises heavily to this market. The chat function on TikTok includes stories of quick daily market gains with videos on ‘How to Trade’ and 'Financial Advice', some of which are agonisingly naive.

Reddit is a large collection of online public forums where people share information and comment on posts by other people. It has become a global feedback site on almost any subject and one Robinhood section has 300,000 members. A popular Australian site is ASX_bets with 8,300 members. Reddit claims to be the number one resource for traders under 30, and they can legitimately collude.

And what of Robinhood? This is now a serious business. It has increased its user base by millions each month since March and embarked on a new share issue valuing the company at US$8 billion. It is privately held, and the app is not available in Australia. Robinhood makes money by selling data to high-frequency traders, which may translate into other activity by large players."

.... the article is worth a read, for the giggle.
 
Thought Bubble #3​

I have mentioned elsewhere that, in my opinion, the perfect stock to own is a
"Ten Bagger that pays a dividend". ​

It's got to be the case, of having income that increases, with built-in gains on the initial invested capital.

Though of course, nothing can be assured or assumed over the longer term. A company can decline or disappear completely, dividends can dry up, takeovers force your hand, but that doesn't take away from the bold statement. I completely agree with the lifecycle thesis as outlined by @Smurf1976 in post #14 , by the way.
 
I don't know why, but many stocks I have watched for unhealthy lengths of time, trigger memories of events experienced in nature.
I have shared some, but here's another one...
Your in the tinny to go fishing on the bay, you notice a bit of choppy surface in-between current flows.
Looks interesting, so you putt over and drop anchor, throw a handful of chum or 2, and then cast the light weight hook and tackle.
Bang, your on immediately. You reel in your garfish, and take it off the hook.
Quickly bait the hook again, cast, bang! Brilliant.
Repeat over and over with an occasional handful of chum.
You know it's time to go home when you have a good feed, but ooh boy, it's lovely to be grabbing easy fish.
The message sinks in that the fish have picked up on the game as your next cast doesn't get a bite.
Time to go and do the fiddly gutting, as no amount of chum or baited hooks are successful.
Wait another day, different spots, same scenario or not.
 
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