Imagine if it were possible to invest in something you knew, absolutely, was a mistake. And yet still make money. Well, no, you can’t – investing would be the wrong word. Speculating on a mistake being made by others yes, that does or at least can work. As with this little flurry in American Superconductors (NASDAQ: AMSC) last week.
Up to around July 25th the AMSC stock price had been rolling around between $5 and $6 for the previous 12 months. A perfectly respectable company, few hundred million $ market capitalisation. Works in “resiliency solutions” – which really means adding the stuff that allows unreliables like wind to be added to the grid. Absolutely nothing to do with superconductors at all even as it’s a vital part of the modern electrical system.
But there’s a chatter, gossip, about superconductors
Over on Twitter meanwhile there’s excitement that some Korean investigators have claimed to find a room temperature superconductor – this would transmit electricity with zero losses and would really, really, change the world. Whether they have or not, well, the jury’s still out on that. Probably not even if it would be exciting if they have.
But then the AMSC stock price leaps – hitting $21 at one point. Terribly exciting and a grand speculative position. But as we might be able to guess the LK-99 superconductor has absolutely no relationship with American Superconductor. They don’t own it, have nothing to do with it, in fact would be damaged if it were true. But the gossip on Twitter leads to people thinking that anything with “superconductor” in the name is a great bet. And because they do then it becomes a great bet.
Whether this was started off as a ramp – i.e., deliberately done – or not doesn’t matter. Great stock price rise there. But we then get to what happens next – everyone then realises that there is no connection and the price falls back to the $10 level as I write. And, likely, back to that $5 and $6 range in time.
Sure, the equation between superconductor and superconductor is silly
Now of course this is very silly and of course we don’t believe that anyone would do this. But then if we look out across the world and try to count the number of people who are very silly – as the man said, the average IQ is 100 and half of people are dumber than that (George Carlin as that man).
And the thing is this isn’t that rare. One I spotted in the past elsewhere was when Caerus Minerals doubled in a day on the back of news about Caerus Ventures doing a deal. One was a bombed out junior miner on the London market, the other a vast VC fund. But, you know, Caerus.
But this happens – corporate names and tickers do get confused
Or the grandaddy of these things, Zoom. Zoom Video Communications (NASDAQ: ZM) started trading after the IPO in 2019 and soared – which led to Zoom Technologies (OTC: ZOOM) jumping 50,000%. No, really, and obviously no connection between the two companies. ZOOM stock soon returned to where it should have been, around and about zero, ZM didn’t. But in that there’s still the speculative opportunity.
At which point, something to note. These are, clearly and obviously, speculations. They are not trades on any objective point or valuation. They’re trades on how stupid are other people. Then, once the soar has happened, on how quickly will people wake up to how stupid they’ve been? These are not things about revenues, business, nor are they to be divined from charts of share prices. They’re bets on the crowd behaviour of our fellow humans beings. Fortunately this makes it all easier – the thing that evolution has made us very good at is in divining he opinions and behaviours of our fellows.
So, what do we do about Zoom and Zoom, superconductor and superconductor?
This is about human psychology, something humans are good at – despite the evidence of therapists.
The other thing for us to note about this is that this is not uncommon. Confusion about corporate names, tickers, across markets and exchanges. Or, with American Superconductor, simply silly connections between things in the news and a corporate name. Nominative confusion we might call it. Well, people do these things.
Which means, in turn, that we can do these things – profit from the foolishness of our fellows. These are not – and it has to be really understood that they are not – investments. They are, instead, trades based on other people not understanding the world. They last as long as people don’t understand and no longer.
We’re not bad people if we inform the market
We might even think that we’d be bad people for trading off others’ idiocy. But it is exactly our trading, buying in at the start, going short at the top, that provides the market the information about how wrong people are. You know, that old Rockefeller thing, doing well by doing good.
