Have you ever had a good look at one of those “Withdrawal of Cautionary” Announcements”? Usually there is a bit of cryptic waffle, the gist of which is that whatever it was that was troubling management will no longer do so. And then there is that little gem of a phrase along the lines of “…caution is no longer required to be exercised by shareholders when dealing in …”. Now I am all for disclosure of every little snippet of news about the companies whose shares I might own or buy and I have no wish to decry the Cautionary Notice system but the legal wording is a little misleading if not quite cynical. It implies that as long as a company is not “under cautionary” then life for the shareholder is a breeze.
In my view you had better exercise caution WHENEVER you contemplate a share transaction. The problem is that the unexpected price jump (or so called “black swan event”) is just as likely to be caused by developments that occur well beyond the company’s own control or knowledge. And very often by something that is never identified. All it takes is for there to be more buyers than sellers (or vice versa) and bingo – a price move.
This week the US Federal Reserve did exactly what everyone in the market predicted and expected and raised rates 25 basis points. However, the rate announcement was accompanied by some faintly gloomy observations about inflation. Apparently this was not in the script and suddenly people are starting to ask; “The oil price is HOW high?”. This is not the only item that is attracting long overdue attention. There are many other indicators and numbers that us bears and doom-mongers have been fretting over for several months already. This seems to have unsettled further the US markets, and the next thing there were bucket loads of caution being needed by investors.
Our own Top 40 index is nosing about just beneath the 12 000 level after a high of 12 500 odd just before that close-out shindig I told you about last week. I also told you that neither I nor anyone else know if this is the beginning of the end but I do know that it marks the end of the beginning that started at the 9 000 level in July last year. So there’s no need to be shy about taking a few profits and pushing the portfolio liquidity levels up. Do remember that I regard the banking sector preference shares as near-cash instruments and their price should not move much at all even if ordinary shares take a thrashing.
These short weeks are undoubtedly making it harder to remain focussed and to keep in touch with news from overseas markets, which are not taking off quite as much time as we are. Usually this four day Paschal break is one of my favourites and I give no thought of prices and portfolios. However, this time I might even be tempted to seize control of the TV remote from time to time to see what Wall Street is doing. Just “exercising caution” you see.
Please have a happy and peaceful long weekend.
James Greener
24th March 2005
