3.4 kilos, 1,637 pages of A4 and 730,197 words: the flotation prospectus for GLENCORE is a reflection of the global commodities giant in its outsized and gigantic format. With its market capitalisation of £36bn, the king of trade is directly integrating the Footsie index and offering itself the luxury of a double listing in London and Hong Kong. This booming entrance comes exactly at a time when several commodities prices (food, energy and industrial) are reaching fresh peaks.
Like “everyone” knows, this surge in prices has been partly driven by rocketing demand from emerging markets in a “clear” sign of the robust pace of global growth. Indeed, it is so “clear “that “everyone” wants some. So why not me?
Individual investors, like a number of investment funds, have therefore ended up taking interest in this market. To the extent that at the end of April, for a few days, daily trading volumes for ETFs indexed to the price of an ounce of silver exceeded those of ETFs indexed to the S&P 500, which are nevertheless among the securities the most traded in the world.
However, just a few days later, two weeks before the flotation of GLENCORE, the value of an ounce of silver plummeted 30% after nudging the $50 mark, in a record level not seen since January 1980. This plunge was accompanied by a similar decline in oil prices (-10% in a single day), copper prices and other commodities.
Oh Red alert! Maybe the “clear” rise in commodities prices is already not so “clear”.
While crowd movements have a spectacular impact on share prices, investors that know how to get out on time are rare: bubbles are intoxicating and the higher they fly, the more “everyone” would like to ride them. Do we need to remind ourselves of the early 2000s and the hangover that hit all of those who thought they were securing their future by entrusting their savings to VIVENDI or ALCATEL?
With less media hype, the success of French mass retailers during the 1990s prompted the same blind confidence from investors. CARREFOUR, the unrivalled champion in the sector, was blazing ahead and its merger with PROMODES in 1999 went down as the pinnacle of its success. However it proved to be a flash in the pan and difficult days were to follow for some time for shareholders.
Buying commodities at the same time as “everyone” is synonymous with pure speculation in our view and represents only an anticipation of how “others” behave without reflecting on whether value is to be created or added on a lasting basis. It does not truly represent the act of an investor keen to remunerate savings over the long term.
Investing while being wary of fashion trends is a fundamental benchmark in our way of approaching equity investments, whatever the market backdrop. Coco Chanel used to say ” fashion goes out of fashion: style never does”. Our experience over the past 20 years has confirmed that temporary crazes rarely rhyme with value for your assets.
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