Mortgaging your cat to invest in TOPGLOV (7113) TOP GLOVE CORP BHD
The fundamentals have finally re-exerted themselves. And the reality of Topglove being the world's largest glove manufacturer during 1 of 3 pandemic of the last century, which is still without a vaccine, has calmed investor fears. Share prices are up by 17% from the weekday lows and the irrational Bears have receded. However another particular cry has started to occur, that from Bulls, who are making humorous or flippant calls for people to put all their money into glove stocks, perhaps to the point of mortgaging their cat.
I find it funny myself, but that being said, I am concerned that some people might actually do that, put all their money that they have into glove shares. From a financial point of view, investing all your money in Topglove certainly promises a large rate of return, which even now may still reach 160%. However I would be a little more cautious. The market is not exactly rational and neither are some of the actions of nations in this pandemic.
For example, we saw a sell off from RM25.16 to RM20.50 just because Moderna announced it would begin its Phase II/III trial... a trial that would be completed on October 2022. Not only is this 2 years in the future but they still don't have evidence that their vaccine would work. Then we had a US ban on half of Topglove exports into the country over a mostly resolved case. This ban is an action that the US cannot possibly afford or sustain, as 25% of its 50 States are less than 30 days away from exhausting their PPE supplies.
Yet how many people lost money last week’s selling at 20.50, 19.70 and 19.60? All those losses happened in a Friday (10/7/2020) to Friday (17/10/2020) period that saw a rise of RM1.06 from RM21.92 to RM22.98.
The fundamentals of Topglove and all large major glove companies in Malaysia are presently iron solid, impossible to deny as we can see the actual driver of glove demand, Covid19 growing exponential on the news, backed by biology, medical practice and human physics. Presidents and CEO may demand a vaccine now but they won’t get it any sooner. Scientist cannot work more than 24 hours in a day nor can cells grow any faster in experiment. Yet, market sentiment is like an easily panicked goat and about as intelligent as one too.
In the long term, TG share prices will rise, mirroring the fundamental increase in demand for more gloves as the world both fights the Covid19 pandemic and struggles to keep businesses open. But in the short term anything can happen. There are over 500 phase I/II trials, and over 300 Phase II/III trials of various treatments, some of which are really far out including BCG vaccination, which if truly protective, no Malaysian would have caught Covid19 and honey… Yes, honey. Just goes to show that about every company is running their own Covid19 trial to make a buck. Maybe next month, we get rumors that Egyptian Honey can cure Covid19 and for some reason everyone believes it, panics and cause share price to fall -30%.
Can you stay rational enough in a panicked sell off to say "This is stupid!" and avoid joining in yourself. It is harder to stay rational if you put all your net worth into one investment and just watched 30% of its value vanish in a matter of days. This July 14 panic attack lasted 4 trading days. The attack before that lasted 11 trading days. Both saw a peak to trough of -28%. And the attack before that, Jun 2, lasted 2 trading days and saw a 53% decline.
I am sure most of us have no need from this article and will find the message common sense. But for those just entering the stock market, a small suggestion, don’t put in so much money that you have trouble staying rational during a dip. The coming quarters for Topglove (and other major glove companies) are going to be some of the most profitable in their history and it would be a shame if the only people who profited from it are foreign institutional investors, buying shares cheap off panicked Malaysian retail investors. Don't morgage your cat to invest in Topglove, it would be hard to think rationally.