Market sentiment

Celticheart Investor

A beginner's guide to trading and investing

Regardless of what happens to a company's fortunes the one overriding factor that can make the difference between success and failure appears to be market sentiment. Simply put whether or not the company is in favour or not, irrespective of anything else.

Sometimes it is staggering how illogical that sentiment can be and how dramatically it can affect the wellbeing of the company and its share price.

I have been invested in a number of companies over the years where the fundamentals have been sound but, for some reason or other, the company has just fallen out of favour with shareholders and the market in general.

Conversely, other companies have done remarkably well despite having little of value to offer in tangible terms but shareholders have been drawn in by "the story" and become somehow convince that this is "the next big thing" despite little to prove that that might actually be  the case in reality.

They say never get emotionally attached to a share but all but the most hardened traders do from time to time, I myself have been guilty of doing just that on occasion. Sometimes it can pay off to believe in a company, particularly when there are so many detractors trying to persuade you to sell.

Make no mistake though, do your research and only continue that belief if you feel that the underlying strength of the company is worth investing in. A case in point is Range Resources ltd (RRL), the dual listed (ASX/AIM) company.

We have seen this company drop from highs of the mid 20's to around 0.6p in a matter of a couple of years despite having good assets and massive potential.

Much has been written about why the fall, some of it factual but much of it based on wildly unsubstantiated conspiracy theories too. There were many complex issues, the history of which can be viewed on the company's website http://www.rangeresources.com.au and it is clear that there were some poor management decisions made but the overriding factor that allowed traders and shorters to bring this company to its knees was the loss of shareholder confidence and the lack of any positive market sentiment.

Shareholders and the market in general simply stopped believing in the story. As a long term investor I am delighted to say that with a new and focused management team and funding greatly improved sentiment is once again turning positive. That sentiment is now also being reflected by well respected bloggers like Malcolm Graham-Wood (Malcy) which will in turn further support that return to a positive view on the company's future.

I don't usually focus on specific companies as those that read my blogs regularly will attest to but in this case it illustrates perfectly the point of this topic, why market sentiment is so important to a company's prospects. 

There is a long way to go with Range Resources but hopefully now that a corner has been turned positive market sentiment will return, bringing with it that elusive shareholder value.

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.