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Page 3 Guy: In global markets rich in micro caps and blue chips, price volatility is just a dumb measure of risk
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In this less brand new corker of a Stockhead series, The Strawman himself, Andrew Page shares his insight, ideas and annoying (albeit excellent) idiosyncracies worth a gander at in your local or global market.
A top equities analyst, attractive dresser and engaging market commentator, Pagey is the founder and managing director of Strawman.com — one of Australia’s toppest online private investment clubs.
This shot – taken by an intrepid Nat Geo photographer – shows Andrew in his natural habitat, striding the markets with the natural cunning, authority and barest hint of irony that makes a Pagey pelt so in demand in the fashion houses of Europe this season.
Page 3 Guy, Chapter 2
Hi everybody! And thanks for reading Chapter 2 of my new series Page 3. Personally I find the second chapter more exposition than narrative which is why I usually skip it and head straight to Chapter 3, where the story really takes off.
In so honouring this efficient literary quirk, I’m proud to present a rather brief, albeit thumping, to-the-point observation with bullet points, few words, a graph and a pic. If you don’t like it, pls refer the above or better yet, write disdainfully to [email protected] who sends me instructions and bullies me into these situations, despite the day still containing but 24 ridiculously insufficient hours when I could be poking around the lesser known corners of the market.
And why not? The market really does contain all things great and small.
All things bright and beautiful
Yes, hidden about the bourse are entire ecosystems of delight wherein the Attenborough-esque explorer may discover new and unknown species, rare and rich in plumage, dazzling in beauty or red in claw and tooth.
There are always lots of wonderful, secret little creatures hidden away in unexplored crevices, for those of us with the guile and determination to find them. And, goodness me, they’re often every bit as startling as the more common headline acts of the animal kingdom.
The Mini-Micro-Small Caps
In fact, there’s plenty of things to delight and amaze about so-called ‘micro’ or ‘small cap’ stocks:
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More feisty growth potential
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Less established competition from other similar species
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Less rational, more absurd pricing (more opportunity to discover significant mis-pricings)
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Less experience of intruding humanity (ie: much better open access to management, less barriers to engagement)
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The full gamut of nature’s creative wonder
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The next big things are here
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The venemous, ridiculous, absurd, dangerous, extraordinary and domesticable
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This is where we find the outliers – the biotechs, the fintechs, the tech-techs, the evolutionary throwbacks or forwards
High-risk evolutionary strategies
The compromise we accept, however, is that these less-understood regions of the market tends to be ‘riskier’.
Or so we’re told.
If, like some, you choose to define risk as share price volatility, then there’s some truth to that. At least on a day to day basis. Nevertheless, does that mean that big ‘blue-chip’ stocks are immune to wild swings in price?
My Uncle Deng as usual put it best:
Meta Cap
Facebook (NASDAQ:FB) — one of the largest land and sea-faring monsters in the animal world — this puppy is down 70% over the past year, and (as described most entertainingly below) last week lost one quarter of its value in one single session!
Even if you want to avoid tech, and focus only on the bluest of blue chip Aussie mammals, you’ll find their domains are just as wrought with ‘risk’ as the minnows they stomp past.
Just. Wow.
Woolworths (ASX:WOW) is down 20% over the last year.
Wesfarmers (ASX:WES) is down 27% from its January high.
Alas, even the almighty banks have been far from a ‘safe’ long-term bet — ANZ (ASX:ANZ) shares are down 30% from where they were at the start of 2015. Not even seven years worth of dividends are enough to make you whole.
The point here is not to selectively rag on some of the ASX’s golden geese, but rather to point out that bigger isn’t necessarily better.
And that share price volatility is a stupid measure of risk. It’s a jungle for everybody, out there.
Zoologist par excellence
My Uncle Warren – zoologist par excellence – as usual, defines it best:
Indeed Uncle. If you think about it, we should welcome share price volatility with the open arms of the aspiring student, macheteing our way through the tundra. It offers us the opportunity to hack away at the underbrush and with the patience of say, the panther, snap up shares at very attractive prices.
As my own dazzling wife – a learned scientist in her own right – said while looking for an appropriate life-mate: the more volatile the better.
Not everyone will agree.
And to them I say, that’s just fine. Horses – or Shetland Ponies – for courses.
The fact is very few can muster the (significant) emotional fortitude — and patience — required to take advantage of sudden and significant price swing opportunities.
Oh, but they’re out there.
And that’s exactly why the smaller end of the market offers such rich pickings for those who can.
Good exploring!
Andrew Page
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
