Tag Archive | "oil sandalwood"

Sandalwood Makes the News Again


Sandalwood makes the news again, but in a terrible way.   We can gain valuable ideas about portfolio selection from this news.

Last year, I wrote about investing in TFS Corp., a sandalwood company after reading a Wall Street Journal article that explained how sandalwood has become so valuable that the police shot dead one of India’s most notorious sandalwood smugglers, known as Veerappan.

tFS corp

See latest TFS Corp share chart www.finance.yahoo.com.

The demand for sandalwood grows as a BBC article “Indian police kill 20 suspected red sandalwood smugglers” (1) tells how Police in India’s Andhra Pradesh killed at least 20 suspected red sandalwood smugglers.

The article says: Sandalwood smuggling is rampant in southern India, with a tonne selling for tens of thousands of dollars on the international black market.

The police are being questioned and investigated about using excessive force but this conflict shows how the growing value of sandalwood means that laborers are willing to risk their lives to harvest this wood.

TFS Corp. is located in Australia and is the only company with a viable plantation plus a vertical soil to oil sandalwood business that includes a sandalwood essential oil distillery and sandalwood skin care brand product.

The shares have risen form $1.19 a share to $1.68, but as the chart above shows, this has not been a smooth ride.  The shares of TFS Corp. are so volatile each investor should ask “should I invest in this company and if so, how much?

Sandalwood has great value and  TFS Corp. has an opportunity to tap into this value, but will they and how long will this take?  If so how much can a TFS Corp. share grow?

Our research found that over ten years the share price could reach $10 per share.  If so, this represents about a 900% gain from the $1.19 price at the time of our recommendation.

However, there is always something we do not know.  This is a high risk investment, plus not every investor has a ten year timeline.  Even more important our minds are not correctly geared to make volatile investments.  Fear provides about twice as much input as greed when we invest.

Many studies have found that fear is controlled within the brain by the amygdala, an almond-shaped part of the brain involved in emotion and decision-making.

We may make rational decisions about investments to begin.  But as the price of the investment moves (up or down) the fear of loss (the unrealized loss or the loss of the gain) kicks in.  Our perception of what’s happening causes blood flow to shift from the brain’s rational center, the frontal cortex, and flow to the amygdala where our emotions are activated.

We become less likely to use reasoning, judgment and planning and often respond to our emotions instead. We can stop thinking through our choices and act out of fear.

From an evolutionary standpoint, fear is good as a neural circuit that helps keep us stay alive in dangerous situations.  In investing this is not so good because our perceptions about the danger of loss activates pathways that send information to the amygdala, which is likely to trigger emotional responses like hiding or fleeing.

We are attacked by our fear of loss.  The reaction tends to be to hide or run which in the financial world tends to be to hold onto bad investments that have dropped in price and sell good investments that have risen.

Let’s use the roller coaster TFS Corp. share price to illustrate why volatile shares have an increased human emotional risk.

Investors who invested when I first wrote may have jumped in February 2015 at $1.19.  Over the next seven months the shares scorched up to $2.22 for a quick 86% profit.   Investors who bought at $1.19 or near began to think, “Should I sell and take that profit?”  Remember the analysis shows that the shares could go to $10 per share.

Then TFS  announced that a Nestle owned company will buy $500 million worth of sandalwood oil from them over the next ten years.  The share price did not rise in a logical way.  The price plummeted back to $1.22 instead.  These are thinly traded shares and I suspect that some major shareholders took profits.

Many investors by this time were be thinking, “Should I sell and get my money back”, (if they invested at the $1.19 price).  Those who had waited and invested at $1.40, or $1.80 or $2.00 per share more likely thought “OMG,  I have lost! I must to get out to save what’s left.”

This is why I have been introducing readers to the Magic Calculator, a service that assesses the potential volatility of shares around the world and creates a trailing stop.

The correct way to have bought the TFS Corp. shares was to set a downside target based on one’s needs and total portfolio and stuck with this target through the ups and downs that thinly traded shares tend to have.

The Magic Calculator helps in setting such targets.

Last week, I invited Richard Smith, a PhD in Mathematics, the inventor and operator of the Magic Calculator to visit Merri and me at our home.  His information was so fascinating that our meeting lasted over five hours.

The Magic Calculator eliminates a huge amount of the mental process required for good investing by turning the question of “When should I sell?” into a mathematical model rather than a mental churning complicated by our human reactions to fear and desire.  We desire a profit and fear a loss.  This conflict can cause most investors to make poor investment decisions time and time again.  This is not an error on any investor’s part.  This is a fabric of human nature.

The Magic Calculator also estimates the volatility of shares.  For example TFS Corp shares has a high volatility rating of 40.  This means that the share is likely to lose as much as 40% of its price.  This is powerful information because it helps decide how much of any specific shares we might want to risk.

For example if the maximum loss we feel we should sustain is $10,000, then $25,000 is the most we would want to risk on TFS Corp. stock.  If the investment of $25,000 drops 40%,  the loss is $10,000.

I asked Richard if he could calculate the process of TFS Corp from the time I made that recommendation at $1.19.

He replied:  I took a quick look at TFS Corp.  Was it around January, 2014 that you recommended TFS?  At the time the Volatility Quotient (VQ) was 35%.  Currently the volatility quotient is about 41%.

It does look like the Smart Trailing Stop triggered on the drop from $2.22 to $1.21 from September to December 2014. That was a drop of about 45%, which exceeded the VQ of about 40% by early December.

So while the Magic Calculator would have helped folks understand the risk in this case, I’m afraid that it would have stopped folks out around break-even if they had gotten in at $1.19.

I do think that once you start to see VQ’s in the 40% and above range that it’s good to think of the investment as likely being an all or nothing bet.

Here are three valuable benefits from this information.  First, we can see how much to risk when we see a 40% VQ… everything we invest.  We do not invest more than we can afford to lose.  Second, this clears our mind, we do not have to keep spending time thinking, “Should I sell  – should I hold – should I buy more?”  If we made an all or nothing bet, then we forget about it and let it ride through the turmoil.

This has been the correct action since the shares were $1.19.  Now the shares are in the $1.60 range.  Investors from 2013 have made over 200% return.  Investors who invested last September  may have lost as much as 26%.

Those who analyzed the potential of Sandalwood and the prospects of TFS Corp.  are investing in what they believe . With a VQ of 40%  we may want to logically recheck the performance of the company and the value of sandalwood, but the day to day performance of the share price should be noise we ignore.

New York mathematics PhD. who created the Magic Calculator made a startling investment confession.

Over the years, we have had great success at giving readers information on markets and currencies that were about to explode… up.  Yet one problem we have always had is helping each individual figure out which of these opportunities suits him or her best.  More importantly we have never had a way of helping individuals decide when it is best to sell any specific investment.

Recently I found a solution to these problems when I received this note from Richard Smith.  I am testing his service and recommend that you do as well.

Gary

Richard sent me this note.  Hi, my name is Dr. R. Smith (I have a PhD in mathematics from Binghamton University in New York).  You don’t know me, but I think you’ll want to hear my story.

You see, I love investing. Always have… even though I’ve never really been that good at it.

Over the years, I’ve made just about every mistake in the book.  Whether it’s selling too soon on stocks that go up… selling too late on stocks that go down… or following the investing herd off a cliff over and over again.  You name it, I’ve done it.

I’ve personally lost a bundle.

But not too long ago something happened to me that literally reversed my fortune – and enabled me to get back everything I lost (and I mean everything), plus hundreds of thousands of dollars more… over the course of just 48 months.

The amazing thing is… I didn’t even have to change which investments I was making!

So what happened exactly?

I don’t want to spoil the surprise about exactly what I did, but I strongly encourage you to take a minute to check it out.

You can get the full details here.

Sincerely,

Dr. R. Smith

(1) Indian police kill 20 suspected red sandalwood smugglers