As I have said previously, to think these days that writing about an issue can deliver change, has to be regarded as naïve at best. This is particularly the case in anything that matters, like the stock market helping drive the economy. One of the problems is that this area is perceived as a “get rich quick” zone, occupied by fat cats. Ironically, the fattest cats are those in the blue chip zone of the stock market, the growth / small cap area, which needs all the help. Down the food chain, the relative cost of being listed, and the difficulty in raising money continue to blight matters. For Simon French, Chief Economist at Panmure Gordon, the cause of the current “doom loop” has been the decline in pension funds holding stocks. He also says that it has been the popularity of US tech stocks that have diverted cash from our lowly small caps.
My first reaction to these comments is that even though Mr French is Chief Economist at Panmure, they will not carry enough weight to turn the tide of over-regulation, cost, tax and all the other disincentives to be a small cap listed company, or to invest in this area. Saving the stock market is not a vote winner, and headlines that the stock market is suffering, may actually be seen as a good thing for those who enjoy the failure / suffering of others. In fact, I have been told there are actually those who dedicate their lives and make a living out of trashing and then celebrating the downfall small companies. This is apparently not just to make money from going short of stocks, but to make themselves feel better about their own failure, and to enjoy the failure of others. Strange.
Stock Market Events
The past week delivered what could be regarded as a plethora of end of autumn term stock market events. I have to admit that these days as there tend to be more gamekeepers (service providers) than poachers (investors), due to the ongoing bear market, the incentive to turn up feels rather diminished. It is also the case that after so many years, I know all the people I am going to, or of course those who might not want to know me. If there is a reason to turn up it is to see who the new kids on the block are, ready to take on my mantle. In the end I spent a couple of hours at the Aquis Events, but could not make it to Mello in sunny Chiswick. Perhaps next year.
The November – February Rule
A few weeks ago I reminded myself and readers of what appears to be one of the most reliable and logical stock market rules – Buy the beginning of November, sell the beginning of February. Perhaps not surprisingly given the doom loop the London market is in, so far for 2023, the US market has proved the rule. Indeed, it proved it so well that Fed Chief Powell issued a speeding ticket speech at the end of the week to attempt to cool things off, suggesting that interest rates may still not have peaked. Given that Gold and Bitcoin are both following the US markets higher, the message may be, who cares about what the Fed says?
The sign that we are finally at the end of the bear market in small caps would be that there is capitulation both in the press and among even the most long standing market participants. This may have already happened, but there is the slight problem of having someone with money to actually buy some stock. If all else fails, something to scare market makers into marking up shares. A bit of gold and crypto excitement could be a trigger, although the obvious one would be AI plays. Unfortunately, UK and tech stocks are not generally a good mix. Nor at the moment, are investment companies. One only tends to be valued on one’s worst investment, not one’s best. Therefore, this week it was a breath of fresh air that Vela (VELA) was able to unveil a decent 7 figure win as the investment company exercised the put option agreement to sell its economic interest in AZD1656 for shares in Nasdaq listed Conduit Pharmaceuticals.
I mention FAB this week as it was one of the stocks that did us proud in the Bulletin Board Heroes. Here the company also pulled what felt like being a rabbit out of the hat with a meaningful surprise, announcement. In this case it was that the pre-clinical antibody discovery specialist has signed a collaboration agreement with the National Cancer Institute for the use of OptiMAL® in the discovery of novel antibodies against targets selected by NCI. CEO Adrian Kinkaid has proved that he is on the case as far as Fusion is concerned, and one would expect much more in 2024.
One of the situations that reminds us that although it the odds are against small caps, with the right amount of determination, one can prevail. I have interviewed Greg Martyr, Executive Chairman of Capital Metals (CMET) on several occasions, and he certainly sounds like he is a safe pair of hands. We were reminded of how safe as this week it was announced that Sri Lanka has formally reinstated the company’s licenses – after they were unfairly revoked. The shares bounced at the end of the week, but one would expect much more as the company resumes its timelines.
One of the more epic journeys on a fundamental basis at least, has been that of graphite specialist Tirupati Graphite (TGR). The road to production for any mining company is always a long and winding one, with the slings and arrows of funding, and market sentiment / commodity prices, adding to the mix. This week TGR announced that it had reached an agreement with convertible loan note holders, by issuing shares. The hope now is that the company will ratchet up production, and that current share price levels in the mid teens will prove to be the lows.
Finally, one of the interesting things about writing about small caps is that one is effectively in sniper alley as far as what happens next. This is a very volatile area, and a bullish or bearish call can prove to he horribly wide of the market. Alas, it does not always help if one knows the company in question inside out, or the management have a great track record. I was reminded of this during the week, by a significant investor in the market, who last year wanted to remove the board of a company, but did not eventually prevail. It was delisted, after not being able to secure sufficient funding. In fact, knowing the company in question quite well, I would say that the problem there was actually the business model, in a new space that has not been proven. If the investor had got control of the company I feel that it would have to change course to a new sector.