It’s a long way to the top when the bottom keeps stretching

CONFERENCE CALLER: The question most asked on any long journey is, ‘are we there yet?’ which is a good question, especially if you don’t know where it is you’re going.

What we should really be asking at present is, does the question maintain its relevance when we’ve been ‘there’ before?

According to Far East Capital executive chairman Warwick Grigor the fact that we are still wondering how far off that destination is doesn’t mean there is no value in the sector today

Opening the RIU Resources Round-up in Sydney, Grigor told delegates there is excellent value, what is missing is a lack of willingness to act from investors.

“The concept of value is a moving feast,” he said.

“If you ran the numbers on iron ore stocks a year ago against the oil producers the value would have been apparent.

“Since then the price of both of these commodities have collapsed.

“Only those who could have seen the future of these commodities would have had insight as to where the share prices would go.”

Ah yes, insight. Along with foresight it is one of the valued tools of any speculative decision. Which commodity will have a good run over the next six months? Which companies will benefit from such a run? Who will be the leading goal kicker at the end of the AFL season? Who will win the Melbourne Cup?

All very good questions and all covered by a raft of writers and analysts qualified to speak as to what the outcome for each could be, but none with the ability to actually predict what will be.

“How can you or I gain access to this sort of knowledge?” Grigor asked rhetorically.

“You could ask the analysts – but how many of you know of any fully-visionary analyst with such foresight?”

Foresight – there it is – something Grigor suggested even the industry’s best analysts lack.

“How many have not been compromised by group think?” he proposed.

“In most cases they are writing research to support corporate deals or House Stocks.

“The independence of Broke analysts is very circumspect – no matter how hard the individuals try to be objective.”

There are many investors and analysts, and brokers, out there who are still suffering from the beating they may have taken from the great bear market in mining and commodities.

“While it is true that if you get the cycles right you will always make money – how many investors really do get it right?” Grigor said.

“How many confuse the concept of value – particularly relative value – of different companies across a sector without considering the big picture? Too many I would suggest.”

And so it has come to pass that while the journey we currently find ourselves on today is bumpy to say the least, we are back at the same place we have been many times before in markets.

We are at the bottom of a cycle – with the turning point somewhat elongated – as we seek to flush out the excesses of the previous bull market.

Like a really bad hangover – one of those that lasts into a second day – this current bear market doesn’t appear to be fading any time soon.

Two years ago many analysts suggested there were too many junior companies listed on the ASX and that they would be cleared out by an investment climate in which too many would not be able to survive.

Two years on and they still hang in there – like Mr Frodo, perch perilously over the molten lava pits of Mordor with the welcome hand of Sam the money man pulling them back to safety again and again.

“There are too many junior companies [that] need to fail because they are distracting us from those that do have a future,” Grigor said.

We really are back to where we have been before, which Grigor indicated by referring to the early noughties when the dotcom boom was raging.

“No one wanted to know about mining but a junior company that announced it was considering a dotcom deal could easily see its share price double – or triple – on no detail,” he said.

“It is a little more considered today, but we are at a similar stage of the cycle.

“The best way to breathe life into the share price of a junior mining company today is to announce a technology deal.”