Not all of our share picks have proved profitable. Like most investors our portfolio sometimes contains some duds. Therefore, when we see a dud spurt upwards, rather than wait for it to get back to our buying price, we get rid of it and reinvest in one of our dependable stocks. Today that happened.
Once we fancied Nuworld as a spec, but as we’d invested little in it, we let it continue cluttering our portfolio. Then seeing Nuworld shoot up into an overbought position just as Sasol, started to perk up having fallen out of bed into an oversold position, we did the swap. This position, seeing a share we don’t want reaching a high at the same time as one we do want touching a low, doesn’t happen often. Fortunately, as followers of technical analysis we are in good position to spot such happenings.
There is a lot less said and written about technical analysis these days than when Ben and I wrote our columns for Business Day. Then it was widely recognized that timing is the basis of profitable investment. You can buy the bluest blue chip, but unless you buy it at the right time, you may as well put your money on a lame Derby runner. Likewise, you can buy rubbish that brings in stacks of profit as long as you buy it its bottom, and sell it at its top. The timing of the sale is just as important as the timing of the purchase but can only be achieved using technical analysis.
Nevertheless you have to look at the fundamentals. Why has a share fallen to a low, making it an excellent buying opportunity, and why has a share shot into an overbought position which signals a probable fall?
A look at the chart tells us exactly why Sasol’s price has fallen; an oil price drop bringing down the price of petrol. This may of course continue, but in the case of Sasol, demand for its long list of Oil and Synfuel products as well as Polymers, continue whatever the oil price.
Sasol has a problem. As a South African company it sells most of its products in the ever-declining rand. However with its gas-to-liquid facility at Lake Charles, Louisiana, at a cost estimated initially at $20bn, this may be changing. Critics of the company point out that this project seems to be taking precedence over local expansion. They claim that Sasol’s capital expenditure in South Africa is essentially going towards maintenance rather than growth.
Do we shareholders Sasol care? Nah!