The appeal of Platinum Stocks – rock bottoms tend to spark strong recoveries
As we heard so often after the 2008 financial meltdown, it's a missed opportunity to waste a good crisis. Overlay that on the local platinum sector and there are at least two very good reasons to start accumulating the shares. For one thing, the charts are flashing a very green signal. For another, company managers are dusting off the playbook employed so successfully during the previous crisis. My latest column for the Financial Mail examines the issues in some detail – unpacking the century old Dow Theory; and the ideas employed during the short life of Impala's flawed genius Steve Kearney. – AH
As a young reporter, I was fascinated by the art of charting. In days when share prices were delivered by Reuters ticker, I'd spend hours poring over the book of weekly updated share price graphs, drawing endless support and resistance lines.
Chartists have dozens of theories, some of which work better than others. One all agree with, though, was discovered by Alexander Dow, a farm boy turned journalist who arrived in the US from Scotland in the late 1800s.
Dow's best-known creation is the Wall Street Journal, founded with business partner Edward Jones in 1889. The famous stock index they devised, the Dow Jones Industrial Average, also survives.
But for technical analysts, his greatest achievement was the Dow Theory launched in a series of editorials for the Journal between 1900 and his death in 1902, aged just 51.
Dow believed prices of financial assets move in six distinct cycles that are influenced by human emotion. The wave begins with a period of steady accumulation by professionals, peaking in a bubble of excessive exuberance. That's followed by a spectacular bust, short recovery and ending after a long slide into a trough of utter despair.
The recent performance of the JSE's Platinum Index is an example of how Dow Theory works. It conforms exactly: from 1998's build-up to the bubble and bust in 2008; recovery to 2011 and subsequent 60% slide over the next two and a half years. There's a strong argument that the point of Despair was reached in June with the index now into the professional accumulation phase having risen 40% since.
Charting signals work best when supported by real world developments.
Here, they're provided by an embattled industry drawing inspiration from one of its own, a brilliant but tragically flawed maverick who died almost a decade ago.
Canadian Steve Kearney arrived in South Africa as a 23 year old in 1983. A Colorado School of Mines graduate fascinated by the country's deep-level gold mining operations, he signed on for Gencor as a junior mining engineer.
Ciaran Ryan's highly readable book on Kearney, Platinum Man, describes the young immigrant being appalled when thrust into a system of institutionalized Apartheid. That disgust never left him. Ryan writes that for the rest of Kearney's short life, he "set about breaching the racial divide at every available opportunity."
At 28, Kearney was appointed to run Grootvlei, becoming the youngest General Manager in Gencor's history. At 36, he was appointed CEO of then moribund Impala Platinum. Over the next five years Kearney transformed Impala through putting employees at the centre of his strategy.
The Canadian drew heavily on his MBL thesis, a key section of which reads "Too often the blame for poor productivity is placed on the shoulders of workers. The workforce will respond to soundly reasoned, well-articulated need for change."
With the platinum sector's labour relations in turmoil, Kearney's "One Team, One Vision" playbook is being dusted off. Not just at Impala. His successor David Brown, who now runs Coal of Africa, admitted last week that affluence flowing from platinum's price surge caused Kearney's principles to be forgotten: "We abdicated our ability to communicate directly with the workforce – we allowed the union to be the conduit."
Brilliantly successful in business, Kearney was unable to beat alcoholism, finally blowing it in May 2000 when inebriated while addressing an investment roadshow meeting in London. After several unsuccessful attempts to sober up, in early 2001 the Impala board eventually ditched their CEO. He died in 2004, two months after his 45th birthday. But Kearney's revolutionary ideas live on. And because of the crisis, are making a comeback. About time.
- Alec Hogg is a writer and broadcaster who founded Moneyweb. He now runs biznewz.com. This article appeared first in the Financial Mail.