Robert Ringer wrote a book in the 1970s titled Looking out for Number One. The book was
unintentionally hilarious in certain parts, but certainly enjoyable, and one thing I do remember was his
description of “LSD deals”. This is a business deal that only someone who was
taking the mind altering drug LSD would find attractive.
Which brings me to Blackmores (BKL.AX). I have long
been a fan of this company, I was buying the shares at around $13.85 back in
2009, you can see the post I wrote at the time here: http://thestockscribe.blogspot.com.au/2009/01/blackmores-and-campbell-brothers-why-i.html
Last Thursday (29 October), Blackmores briefly traded
at over $200 per share. Roughly 14 times the average price that I had bought
at.
Human psychology is always interesting when it comes to
trading markets. Most people are wired to lose money because they simply can’t
stop themselves from doing stupid things. They listen to the media, they listen
to no-nothing “experts”, they jump on popular fads and they follow the herd.
Over time, you are almost guaranteed to lose money doing this.
I’ll put it to you as a long-time Blackmores
shareholder (who is now completely out of the company), that most of the smart
money has exited the company at current prices. How could they not? How often
have you made 11-14 times on your money in the space of 6 years? In all
probability, it’s now the real dumb money that is buying the shares. What a
wise person does in the beginning, a fool does in the end. Just my opinion.
And it doesn’t matter if Blackmores goes up even
further from here, the point is, anyone buying the shares now is playing a very
dangerous game because the stock is priced for absolute perfection, one misstep
and that share price will plummet like a lead balloon.
When I was buying my Blackmores shares back in 2009, no
one wanted to know the company, it was about as popular as dog turd. And that
was great, because that is how I make large amounts of money. Now, they can’t
get enough of it at insane price levels (may be they are all on LSD, I don’t
know).
It’s true that the devaluation of the Australian dollar
and the insatiable Chinese buying of their products (mostly by Chinese in
Australia, not Chinese in China) has
turned things around for Blackmores in a big way. However, the company is now demonstrating
a classic reflexive process.
Reflexivity was a concept discussed by George Soros in
his iconic book: The Alchemy of Finance.
I will quote from this book:
There
is bound to be a flaw in the participants’ perception of the fundamentals. The
flaw may not be apparent in the early stages but it is likely to manifest
itself later on. When it does, it sets the stage for the reversal of the
prevailing bias. If the change in bias reverses the underlying trend a self-reinforcing
process is set in motion in the opposite direction. What the flaw is and how
and when it is likely to manifest itself are the keys to understanding
boom/bust sequences.
A couple of years ago, Blackmores’ sales declined
dramatically (something completely forgotton now), but make no mistake, at some
point it can happen again. But that is the manifestation of the flaw that
George Soros refers to in the above quote.
