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What’s up guys!
A bit gloomy on this wet and wild Sunday ain’t it?
But not for yours truly, cos it’s the perfect excuse to churn out more content for the blog.
Y’know, much has been said about the recent surge in the stock price of buy now pay later companies.
I’m talking about the After-pays, the Zip-pays, the Splitit-pays of the world.
Here, have a look at their stock prices recently:
And my favourite, Sezzle-Pay
It has made those of us who were fortunate to be invested, incredibly rewarded.
And of course, countless media and news articles have been written waxing lyrical about the “Buy Now Pay Later (BNPL)” sector and why it is the next big thing since sliced bread.
However, all it does…
… is take me back 10 or so years ago.
When I was a wild-eyed young buck. Ready to take on the world.
A year into my finance career, I was always on the lookout for the next big moneymaker.
And in mid-2010, I thought I found it.
Not find, as in I discovered rare earths mind you.
No, that would be a gross over-achievement for someone who failed high school chemistry.
But I did discover the sector.
Before most other people did.
I’m quite proud of this.
“Gives self-congratulatory pat on back”.
Oh, for those of us who don’t know what rare earths are, they are the essential natural elements that go into new technologies such as smartphones, digital cameras, computer parts, semiconductors etc. for those things to… work.
And in mid-2010, the rare earths industry received unprecedented attention and market interest as the next big thing, so of course, naturally their stock prices increased.
Here are just a couple of those.
And probably the best known, Lynas Corp
What’s striking to me is the speed of the gains and the subsequent falls in share price as the story failed to materialize into anything substantial.
And more recently, another sector that boomed and busted was the Lithium market.
You know, Lithium? The stuff that is crucial to the makeup of Lithium batteries… batteries which have revolutionized the consumer electronics industry?
So naturally, we had the Lithium boom of late 2017 and early 2018.
Here’s what happened to a few of those companies:
Again, the speed and magnitude of the price movement during that time has shown that there was incredible wealth to be made and lost as the story failed to materialize into anything substantial.
Now hang on a second here.
Am I insinuating that rare earths and lithium are useless and irrelevant to our society and therefore hold no value?
Of course not – they are incredibly useful and valuable.
Their value is in the long-run.
And as we all know, company stock prices… are as emotional as MrsFrugalSamurai post-Korean drama viewings, in the short-run.
What I am saying, is that rare earths, lithium and buy now pay later companies – go through moments when they become market darlings.
That is, the story becomes so good that it is almost criminal to NOT own them.
Everyone – from the big fundies, to the newbie beginner, has bought into their story.
And it doesn’t even matter which companies you own, because the rising tide lifts all ships in that sector.
But maybe The Frugal Samurai – Buy Now Pay Later companies are here to stay?
But can I tell you what I think?
My personal opinion is that an unsecured consumer credit business model without credit checks has one major flaw, in that it is an unsecured consumer credit business model without credit checks.
That has not stopped me from buying in.
Because the biggest take-aways are:
- The number rule of making money, is to make money.
- When a sector is going through a “market darling” phase, and everyone believes in the story, then the momentum is too strong to go against.
- This creates a bubble. Because the value of a company is a derivative of its future cash flows and earning potential. A company does not 10x their value and hence earning potential in 6 months no matter how good their prospects are (-10x is a different matter).
- Never be too greedy and assume that a company’s stock price will keep rising or remain at higher levels… because the value of a company is a derivative of… yep, see above.
- Find the next big story, that is where the next big money will come from.
And as with all investing, proceed with caution.
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