A timely warning
THE RENOWNED DOW THEORY divides the upward leg of a market cycle into three phases. The first is when there’s exceptional value available but little interest. In the second, confidence increases and more buyers appear. The third is when the market is high and “everybody” wants to get in. Small shares, in particular, attract a lot of attention and are pushed up by speculators. Another feature is many new listings with share issues that are heavily oversubscribed.
Sanlam Private Investments suggests in a newsletter that the third of those phenomena is now the order of the day and its head of share broking – Martin Schmulian – warns that new listings must be approached with caution. He refers to the 1998 “listing mania” – when the market was flooded by IT companies that were often worthless. He adds that strangely enough their advice to investors now is the same as it would have been in 1998: look beyond the hype and noise at the fundamentals that support real value – solid assets, good management and a business plan that makes sense in a specific market place.”
That’s a timely warning.