The internet is a wondrous thing; a rich deposit that sits there waiting to be mined by those people who have recognised there are nuggets of very useful information nestled among the dross of the websites offering off-colour material or the raving expostulations of all extremes of the political and ideological spectrums.
For the investor in general Yahoo! Is one such mine of glorious proportions when it comes to encapsulated information about shares listed on all major stock markets. The place to go to is http://biz.yahoo.com/ and then to look up shares according to the codes used on the different exchanges. An excellent overview of just about all the information an investor could need to form a first opinion about a stock is well laid out on two screen pages. For example, among the real tidbits are the following information for four South African gold shares listed on US exchanges. (Data as per the weekend of 29 March).
|
Company |
AngloGold |
Goldfields |
Harmony |
Durban Deep |
|
Code |
AU |
GFI |
HMY |
DROOY |
|
Tight ownership(%) |
68 |
18 |
3 |
77 |
|
Inst. Ownership(%) |
11 |
10 |
16 |
5 |
|
Float (%) |
21 |
72 |
81 |
18 |
|
Short position (M) |
1.87 |
3.76 |
3.31 |
6.6 |
|
Percentage of float |
2.6 |
1 |
2 |
15.6 |
|
Day’s turnover |
1.79 |
1.7 |
2.25 |
3.07 |
|
Daily Turnover (M) |
1.05 |
2.22 |
1.47 |
2.15 |
The codes given here apply to the US markets – Nasdaq and/or NYSE. Tight ownership (my term) refers to the percentage of issued shares held by owners and insiders and not likely to come easily onto the market. Institutional ownership, presumably that portion owned by recognised pension funds and similar institutions might appear to be too low, if one had to make a guess, but this may just be a reflection of how unpopular gold shares are with such fund managers..
If one assumes that the tightly held and institutional shares are rarely traded, then the ‘float’ – that portion of the issued shares that are likely to be traded with relative ease –will be the remaining shares excluding these two categories. It is noticeable that there is wide divergence in the float of the four companies.
The short position is the number of the shares that have been declared as short sales, and most probably only apply to the US markets. This therefore excludes any short sales on other exchanges, including the JSE. The next row gives the short position as the ratio to the float, with the implication that the higher the ratio the more difficult it will be to cover the short positions. This potential problem is also revealed by the next row, the number of days of average turnover needed to close all short positions. Lastly, recent average daily turnover in millions of shares per day, again only applying to US markets.
So what can we learn from these figures? The first item that strikes is the wide disparity in tight ownership between the companies. Goldfields and Harmony is far less tightly held than AngloGold and Durban Deep. This means that the float or easily traded shares of the latter two companies are only a small portion of the total issue – just 21% and 18% respectively.
Secondly, while gold and share prices remain under pressure, short positions can be kept open almost indefinitely and covering can take place at a leisurely pace. However, if something should happen to send the gold price steeply higher, this time also dragging share prices along, pressure to cover will mount rapidly. This brings the possibility of a bear squeeze to the fore.
In the case of Harmony and Goldfields the squeeze should be light, but for Anglogold and Durban Deep a bear hug of substantial proportions is possible, perhaps probable. In the case of Durban Deep the squeeze could be sudden and severe; with one in seven of the freely available shares sold short and requiring the volume of three days of trading to cover, a steep rally in the gold price that causes holders of shares to sit tight could ignite a buying spree that will send the price screaming upward.
Note that Durban Deep is a highly traded share: 3 days of turnover on US markets for the 15,7% short position implies that the full float is turned over in just more than 20 trading days. It must be this high relative turnover that motivated the large short position, but if owners of Durban Deep should decide to sit tight with a steeply rising gold price, the bears will experience much pain before their positions can be closed.
Friday’s jump in buying interest during US trading, where many gold shares improved by about 7% despite a lacklustre gold price, might just be a warning that such a squeeze could be taking off.