The Stock Market Surprises

Benjamin Graham and David Dodd in 1934, much of it rings true now as markets remain subject to human behaviours that change little over time. Consider how this reflects the current stock market:

“Instead of judging the market price by established standards of value, the new era based its standards of value upon the market price. Hence, all upper limits disappeared, not only upon the price at which a stock could sell, but even upon the price at which it would deserve to sell.”

We can surmise, and we do, we can think, we can analyse, we can determine, we can dig, and we can hope. Some strategies perform better under different market conditions so there is no definitive answer but to succeed there are certain ingredients we need that give us the best chance of achieving a semblance of success. Having the gumption, having the plan, having the confidence (an ego is in control) and understanding that no-one is smarter than the market, are all lessons I learnt long ago. Whatever the many permutations there maybe we need to be smart and very much in control of ourselves and our behaviour and understand that the market never travels a smooth and reasoned path.

Greed and Fear drive the somewhat irrational excesses as does change and this current ‘price over reason’ behaviour is blowing many minds. None the less it is a fact of market (human) behaviour and learning how to ride it is an art in being smart, poised and balanced. Set your plan, don’t ask too many questions, learn how to protect your capital and ride those waves when they come, because they will, when you least expect it.

The recent market behaviour provides an interesting lesson. Anyone who didn’t get pummelled in the recent market rout is lucky or incredibly smart. Anyone who jumped on the extraordinary rebound in certain stocks – such as APT – is just as lucky or incredibly smart. None of which alas applies to me I purely play a straight bat and follow a series of rules while trying to ride the bumps and capitalise on opportunities making sure I care for my capital as best as I can along the way. Sometimes you get it right and sometimes not.

We could have crawled into our shell after the recent rout, as many did which is a natural reaction, but one that needs to be fought off all in the name of following the plan. Most investors were continually calling for another ‘wave’ down, all the way up, which as yet has not materialised so in the meantime a huge money making phase has unfolded and that word gumption comes back into play here, so after getting sauced in February – March 2020 we jumped back on that horse when signals lit up, put the blinkers on and drove hard into this rally when certain stocks rallied. Our respect for ‘the plan’ is enduring.

But something else is happening in world stock markets. Some stocks are doing incredibly well technology, online, biotech, fintech, ecommerce stocks and gold, and some not so well like the banks, retail, and old traditional stocks feeding off liquidity lifelines. There are some big bulls out there, but the recent passive index-based plays won’t get you there. Sure, there’s plenty of heat in some of those stocks and maybe for good reason. Unlike the internet boom when eyeballs where the major reason investors were buying stocks like Amazon.

In Amazon 1999 it peaked at over $100 but fell in two years to $6.00. Not this time, in 2020 it fell from nearly $2000 to $1700 and is now nearly $2500. Why the difference? This time it earns, more, and more, and more. The pandemic is propelling it higher and it is making more money primarily as the expense of the old-world businesses where you go into a shop and physically buy. The cord of expense has been severely sliced.



Look at the Tesla share price and its dominance of the car market in the US. Then there are the biotech’s still suffering from the stop/start, up/down historical behaviour that it goes through the tough processes to get to production and profits but that sector whether it be stem cell DNA sequencing or other is making amazing advances. The world banking sector is also under threat from the wave of FinTech’s nibbling at their heels. It is becoming more than a nibble now.

The marriage of technology and biotech is beckoning a force to be recked with. In the July Radar Newsletter I looked at a stock that has been around for some time that possible fits that bill – Mesoblast, and there are others. Mesoblast has travelled a tough path over many years but that seems to be the road that has to be travelled to reach that grail of success. There are more and more stocks moving into this space. If we look through the current haze, I think there are some very exciting times, and opportunities ahead and here I just touch on it. Yes, we have a pandemic and for some that has been a boon but in reality, it will pass. What we have to go through to get there is unknown and I’m sure will be difficult.

Can we rely on this new advancing biotechnology wave to get us there?  Let’s hope so and if we steel ourselves, we will get through it. Whichever way you look at it there are and will be some great opportunities ahead and maybe that’s what a certain section of the stock market is telling is. After all the stock market has a crystal ball to the future, bumps and all.