"There is absolutely nothing irrational about SDI's slow demise.
It's a perfect example of Co' gambling on the future price of the $OZ against the US, the Euro and the BP.
This Co has 90% of it's revenues at the mercy of the currency. NINETY PERCENT!
They have no idea or are reckless as they haven't hedged.
Seriously , by buying SDI you guys might as well sell the $oz as that's exactly what you are doing, punting and that certainly can't be called investing."
@stocktraderman,
Some might doubt your many and varied boasts about being a 35-year old veteran of the stockbroking industry. From the content and tone of your posts, I have no doubt about it: you certainly are a product of a long time served in that great stock churn machine.
The reason I say this is because it is quite clear that you have certainly never managed a real business in your life.
For example, let's talk about your impassioned exhortation to SDI to "Hedge currencies, folk! For goodness sake, hedge it!"
Put yourself in the shoes of the SDI board and management. When they spend shareholder capital on, say, installing a new machine in their factory, or employing a new engineer, or on R&D, I'm 100% certain that the time frames over which they expect that capital, which is being allocated, to generate a return for shareholders is measured in many years, even decades, probably.
But, compared to this long-term mindset, what you are arguing is that, for no reasons other to protect
short-term profitability, that they should allocate money in taking out derivative positions on the currency. And those positions are based on a macroeconomic variable that they - nor anyone - has any idea of forecasting.
In other words, everything they do is with the long-term growth durability and resilience of the business, but on this one particular little aspect - the currency, something which is proven to be un-forecastable on a sustainable basis by eminently-qualified and well-resourced economist... on this particular short-term aspect they need to spend my money?
And, to boot, on a thing that they can't predict?
That's akin to gambling, but only worse: with gambling the odds are only stacked a little bit against you. Given the cost of hedging, over time you can't win, and the only one who wins is the P&L of the investment bank selling me the contracts.
Fortunately, the SDI board understands this and on the one occasion that this came up in discussion I had with the company's managers, they re-iterated that they don't gamble shareholder capital in currency markets (just like they don't gamble it bond markets, commodities, the stock market, the property market, blackjack, Keno, roulette or baccarat).
As a shareholder, this makes me very happy because sometimes these indeterminate, un-forecastable macroeconomic variables move against short-term profitability, sometimes they work in its favour. But wasting shareholders' finds on trying to second-guess which way that will go in any 6-month period would border on corporate negligence, in my view.
I've designed and executed hedging programs (in my much quoted and maligned 36 years) and SDI being a nice family firm I would willingly advise them on the value of puts,calls,spreads et al and all giving great value at a relatively small cost.
Given your self-proclaimed expertise in the art of currency hedging, and given that what SDI's board managers would really want in a hedging strategy, is to match it with their
long-term capital allocation thinking.
To that end, presumably you think the A$:US$ will be at a materially different level from its current value in 3, 5 and 10 years from now?
Could you tell us what you think that new level is?
(If it will be roughly at its current level, between 70c and 80c (which also happens to be the level it has averaged since the A$ was first traded), then what's the point? Other than, as I said, to enrich the counter-party.
PS. Do they also hedge when the currency is 1.00? Or 0.90? Or 0.80? If so, what about the foregone profit when it goes from those levels back to 0.70 one day? Does the investment bank who sold them the hedging package make them whole for that, or does it just pocket the proceeds?
"IMO, I predict the $oz will be 10% higher within a year......what price SDI then!?"
Forecasting macroeconomic variables... another construct of the stockbroking industry designed to galvanise clients into a trade.
Good luck, you might be lucky enough to end up being on the right side of market randomness from time to time.
(20min delay)
