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This ties back to how those looking to manipulate share prices will focus on the one “sell” indicator to back their prediction of doom and gloom when in fact all other indicators are buy other than the one “hold”.
The November issue also discussed the importance to identify undervalued companies. In the October issue, I referenced Heliospectra AB (OTC:HLSPY) going as far as to refer to their technology as “best in class”. On November 23, Heliospectra was named “Marijuana Industry Technology Leader”. The share price rose 38% from $1.27 on October 1st to $1.75 on December 6. There was no charting undertaken nor any inside knowledge – just due diligence and continuous monitoring of their reported sales and who the customers were led me to conclude that their reported customers would not purchase anything less than best in class technology. To end where we began with respect to predicting future share prices, perhaps the late Steve Jobs said it best:
Again, you can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something - your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.
For a very recent and real example of how difficult it is to forecast outcomes even with live current data when you have to incorporate human behavior and psychology… look no further than the predicted outcome compared to the actual outcome of the Presidential Election.
Case Study 1: Canopy Growth Corporation Acquires Mettrum Health.
On December 1, 2016, CGC announced that it was acquiring Mettrum Health Corp (TSXV:MT, OTC:MQTRF) in an all stock deal. Shares of Mettrum will convert to 0.7132 shares of CGC. CGC’s share price at the close on November 30th was $11.80 giving MT an intrinsic value of $8.42 per share ($11.80 x 0.7132). Typically, the share price of the acquiring company depreciates and the share price of the target company appreciates. What use is that CGC moving average share price chart in the article showing an upward trend now? Ecoforming can make traditional tools obsolete without notice and CGC subsequently announced a $65M Bought Deal. Such announcements tend to put further downward pressure on the share price in the short run.
Mettrum’s shares closed at $5.90 on November 30th. The notional $8.42 value is therefore a 43% premium being offered for MT – at least on paper. Perhaps consider MT shares as being equivalent to a warrant where shares of MT convert to 0.7132 shares of CGC and “gearing” comes into play. Another perspective is to consider MT shares undergoing a consolidation (0.7132CGC:1MT) before converting to CGC shares at par. There are many ways to view the transaction. Was there an arbitrage opportunity given the share prices of the two companies and that conversion factor?
For a new investment: On December 6, CGC shares were trading at $10.78 and MT shares at $7.17. A $10,000 investment would purchase 928 shares of CGC or 1,395 shares of MT. For new money, there may be an opportunity to acquire more shares of CGC through investing in MT rather than CGC directly.