So much for trusting analysts to pick winners

By Admire Mavolwane



WE can only but marvel at the wisdom and ingenuity of those who coined the phrase “bull run”, as it turns out that the term very appropriately descri

bes activity on the stock market.


Although the male bovines are not the fastest moving animals around, they do run very fast when the race starts, but tire very quickly and are not good at keeping up the momentum. In the aftermath of the monetary policy statement, the buying frenzy on the stock market started with genuine investors, punters and speculators all piling in.


Whenever, all three categories of stock market participants decide at the same time that it is time to buy, huge distortions in share prices occur with some of them reaching absurd levels.


Rather than having a steady rise, the market begins to experience quantum leaps in some stocks which can only be explained by the Greater Fool theory. The theory says; ignore valuations, never mind quality, instead just buy as there is always a fool around the corner who will buy the stocks off you at even higher prices.


For the week to Friday, August 4, daily gains averaged 13,1% and the industrial index gained 83,3% to reach an all time high of 170 970,41 points. In the second week to last Friday, the market gained 16,6%, a meager return when compared with the previous weeks. Although the positive sentiment is still evident in the market, true to description, it has turned out to be a real bull run as the market now appears to be running out of steam.


Others would volunteer the opinion that the market went up too quickly.


Overall, the industrial index is showing a return of 95,6% since the beginning of the month.


On a year to date basis, the industrial index is up 924,7%, slightly underperforming the average year-on-year inflation to July of 960,5% but well ahead of the monthly compounded rate of 312,1%. It is also well ahead of the exchange rate, which depreciated from $100 000 in January to $650 000 on the alternative market, a 550% return.


In August, those who were relieved that Falgold in its March interims had not, as usual, threatened to close and voted with their purse at that moment look to have been rewarded for their faith with a 567% gain, in just about two weeks.


First Mutual is in second position with a return of 367% followed by Zimplow. As the table below shows, there is no obvious common thread running through the counters that have seen a section of investors walking with a spring in their step.


One common feature though, — highly visible to us — is that none of the top money makers appear on any broker’s or analyst’s buy-list. In fact, with the exception of Zimplow and First Mutual, the rest will for a long time never make it to the esteemed buy list of many analysts but by year-end, when the blessings are being enumerated, one of them will be there. Talk of a missed opportunity by “investing” trust in the “know it all” stock market nerds.


The other end of the spectrum is dominated by relatively illiquid counters which investors shun when the bulls are in dominance.


Gulliver, after a relatively good run in July, is actually showing losses of 15,2% whilst Border could for all intents and purposes be regarded as an unlisted entity for it rarely trades and in this latest bull run investors have not been bothered to give it a glance.


All is well that ends well as history has this uncanny habit of repeating itself. With inflation and the exchange rate threatening to runaway, as they did in 2003, the stock market seems to be following the same historic path. In August 2003, the industrial index reached a then all time high of 754 608,01 points (old currency) which would equate to 754,61 points after rebasing.


The bull market was at that time driven by some phenomenal results from the banking sector with Trust Holdings producing some amazing numbers which left many investors shell shocked. The market then went on to flatten out in the next three months before crashing in December 2003 after the monetary policy statement.


The most damage was done in the September to November period as the market intermittently showed signs of taking off, especially after the publication of inflation figures resulting in many punters being locked in a “bull trap”.


As can be expected from previous trends after such a heady run, investors are now treading carefully, lest they be the bigger fool.


Memories of February 2006 are still fresh in many minds and recent statements concerning a possible hike in interest rates — attributed to the monetary authorities — do not augur well for the stock market.


As of yesterday, the market was starting to look listless betraying the jitters of many investors.


Those who were hoping that the market would exceed the record monthly return of 145% that was attained in January 2006 will obviously be feeling let down.

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