Even a bet on a broken Sasol is right once —
Shares in Sasol, the oil and chemical company, were trading at R310 at the beginning of January. Even before the global economy was battered by the coronavirus pandemic, the business was facing a number of difficulties linked to its multibillion-rand investment in an ethane cracker and chemical plant in Lake Charles, Louisiana. Cost overruns, production delays and high debt levels were chiselling away at projected returns, raising questions about the wisdom of the venture.
The plunge in the oil price that resulted from the financial challenges of the health crisis piled pressure on Sasol’s prospects and sent the share price plummeting to a low of R21 on March 23, down 93% on its value at the start of the year.
What fascinates me is how, at the height of the turmoil that was gripping world financial markets, a good friend of mine, with little experience in the stock market, took leave of his senses and urged me to add Sasol to his portfolio. A generally rational person, the kind who reads engineering reviews before he buys a stove or fridge, was prepared to bet a relatively large sum of money in the belief that Sasol’s share price would recover and pave his way to great riches. He pressed me at a time when anxious fund managers, fearing a 1929-style depression, were hastily discarding their equity holdings in favour of the safety of bonds and cash, and when Sasol’s fortunes were still prone to further downside.
The odds were stacked against him. Yet the recovery in global stock markets that ensued blended with assurances that Sasol’s management would cut expenses, conserve cash and seek a buyer for a portion of the firm’s American unit, calmed investors’ nerves and lifted the share price to its current value of R83, a gain of about 300% from its March lows.
Even at these levels, Sasol’s outlook is shrouded in uncertainty. It is carrying heavy debt, oil is trading all over the place, chemical prices are weak and industrial demand is anaemic. But the gamble of buying the shares in late March would have rewarded my friend handsomely.
It was my cautious views of the events that were rocking financial markets and the dangers that faced Sasol’s operations that prodded me to dissuade my good friend from buying a parcel of Sasol and fulfilling his hopes and dreams of doing that one big deal. A deal he could brag about for years to come. A deal he could boast about to his family at the dinner table and his friends on the golf course and his partners in business. A time when he hit the jackpot.
THE IMPULSE TO BUY SASOL WASN’T ABOUT THE FINANCIAL REWARDS. NO, THIS WAS ABOUT BRAGGING RIGHTS
The impulse to buy Sasol wasn’t about the financial rewards. The profit would have made little difference to the value of his portfolio and overall wealth. No, this was all about bragging rights — the thrill of buying hotels on Mayfair and Park Lane, of winning a trip to Mauritius in the school raffle or scoring a hole-in-one at the firm’s golf day. This was a oncein-a-lifetime opportunity to celebrate a time when the gods of good fortune smiled on him. And all I did was kill it.