Avoid those potential torpedo stocks!

Another sector that’s quite “hot” at this time, and not likely on the radar screen of a ‘maverick investor’ is fertilizers.  The following comment on the earnings release of YAR International is an example of what I’ve been saying concerning the cost side of the profit equation for many companies due to high energy and commodity prices:

Yara International ASA (YAR-OL 334.00) – First Take: Q4 Miss Based on High Energy Costs.  Production rates were spectacular, but were partially offset by high energy costs and ……

Am I just being a ‘resource’ party-pooper?  Quite the contrary, it’s a sector I’ve made my living in for thirty years.  What’s important is that (covered in A Maverick Investor’s Guidbook in depth) danger rears its ugly head when everybody ignores the obvious – in this case the “obvious” being the impact of rising commodity prices on the demand for those same commodities. 

The same can be said for the stocks themselves.  If all of a sudden the compelling ‘stories’ like food shortages, growing developing populations and so forth that are driving fertilizer stocks higher, and attacting all sorts of investors (pro and novice) into the stocks, should all suddenly get disappointed then lookout.  Earnings reports aren’t supposed to be short of the mark.  This negative surprise can quickly mean that instead of more buyers than sellers (which causes stock prices to go up) then there’ s bunch of investors asking themselves “WAZZUP” and trying to sell all at once. 

I am really no smarter than you, just perhaps more (or less) experienced, but what I try to avoid is situations where there’s been a nice positive run in a stock, or any investment for that matter, and I hang in too long and give back the money I made.  Sound familiar?  It’s the mistake most amateur and even professional investors make over and over again. 

 Invest to Live, Live to Ride

About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.
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