A Story About Context

Ballard Power Systems is a Canadian design and build Hydrogen Power Cell business. It has been operating since 1979 and is the world leader in their field. They are one of the earliest of the clean energy companies.  You can check out their products, and their history at Ballard Power Systems.

Understanding context.

On 1 November, 2020 the stock traded at $7.38. When green policy leader, Joe Biden became president in the 3 November election, things changed. During the day of 5 February 2021, the stock traded as high as $53.90 and closed at $49.38.  Alan Greenspan’s notion of “irrational exuberance” might fit. Certainly subsequent events have proven that out.

The company looks like a 42-year-old start-up. It has had no profit and slow growth. While an excellent product no doubt, products with no apparent market tend to do poorly. Following the March adjustment in the stock market and with the implosion of the Biden agenda, the stock fell from its early 2021 heights. On 8 December it closed at $18.28.

How about your context.

Someone who bought in November 2020 will be upset because they have lost $35.00 a share between February and December. Down 66% seldom pleases anyone unless they were short the stock.

Should these people be depressed and angry. Maybe, but that ignores the fact that since the purchase date to today they are up $10.90 on a $7.13 purchase. 153% win in 13 months. How many trades like that come along?

The key point is that for most people, there is such a thing as a paper profit, but all losses are real. We are emotional beings and emotion serves you poorly in the stock market. No one is immune.

The moral of the stock story

Stock prices are derived by an auction market. When exuberant investors appear the prices go up. When something changes their attitude, prices fall. Warren Buffett had hypothesized that Mr. Market has bipolar disorder. It is worth keeping that thought somewhere in your mind.

I suppose the stock market is like this:  Here I have a dish of ice cream that costs me ten cents.  Robert, the waiter, comes in and says the ice cream is all gone and no more is to be had tonight.  My ice cream suddenly seems more valuable to you and you offer me, say, twelve cents for it.  Then Bill, who had intended to order ice cream makes you an offer of thirteen cents.  You, being Scotch, can’t resist taking a profit.  Bill brags so much about the ice cream that I decide I was foolish to let it go in the first place and buy it back for fourteen cents. About that time I discover, to my dismay, that the ice cream has melted.”

Fred C. Kelly, Why You Win or Lose

Why You Win Or Lose was published in 1930 and the ideas remain true. You may notice the price of ice cream has changed.

Take this away

Base your stock purchases on business factors like free cash flow, profitability, growth, market share, and management. Market emotion is too volatile to enjoy. Speculation is not investing.

Help me please. If you have found this useful, please subscribe and forward it to others.

I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

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