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Co-founder & CEO of AllenWargent property buyers & WargentAdvisory (subscription market analysis for institutional clients).
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Pete Wargent blogspot
Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
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Sunday, 4 January 2015
Oresome Start to 2015
2015 off with a bang
Interesting times indeed for Australia's iron ore miners.
Atlas Iron (AGO) started 2015 with bang with its share price leaping by 39.4 percent yesterday to be some 64 percent higher than it was on Christmas Eve, earning the company a "speeding ticket" (price and volume query) for its troubles from the ASX.
With between a fifth and a quarter of the AGO's issued capital being reported as short sold there will be a few sore heads this new year, and not only for the traditional reasons.
The 2014 collapse
Lest anyone gets too excited it should be noted that the AGO share price had previously collapsed from above $1.20 back in November 2013 to just 14 cents before its recent rebound to 23 cents.
This values the iron ore junior at back above $200 million as a Chinese stimulus and three days of positive territory for the iron ore spot price - which has jumped back to US$71.20/tonne - pushed AGO marginally back above its a break-even position of US $68/tonne.
Last month Atlas announced that it would be slashing its workforce and cutting director's pay in order to minimise costs.
The rebound in the iron price may give the struggling company the breathing space to generate enough cash to survive while refinancing its long term debt position.
Fortescue Metals Group (FMG) enjoyed some respite adding 3.3 percent in yesterday's trade, while other major casualties of 2014 including Mount Gibson Iron (MGX) and BC Iron (BCI) added 14.3 percent and 17 percent respectively.
While these percentage daily gains may sound tempting it should be remembered that for most investors the safest and most reliable way to build wealth over the long term is to restrict losses rather than to place speculative bets in the hope of fast gains.
An asset price which falls by 50 percent must then double - increase by a much greater 100 percent! - to get back to a break even point, which it generally will not do easily.
The most realistic way for investors to build wealth is through the steady accumulation of reliable assets - such as the index itself - which can gradually grow and compound wealth.
Those who play at the speculative end of town may enjoy a few winners but plenty more will get their fingers badly burned as the "small caps" often run out of cash and need to dilute their stock in order to raise further capital to survive - or capitulate and fall into liquidation.