How do you tell that people don’t know anything about running their business? It’s easy at the first sign of difficulty they put their hand out and ask the government for assistance. That is the current situation with domestic lithium and nickel producers according to this headline.
Below is a chart of LIT, an ETF I use as a surrogate for the price of lithium.
As you can see the price of lithium goes up and the price of lithium goes down – this is a natural cycle in the life of any commodity.
The chart below is of gold going back to 1979.
As can be seen, it goes up and it goes down. Even the powerful bull run of the first part of this century came to an end.
At no point does this or any other commodity in the known universe simply go straight up forever – all booms end in busts.
And at the end of every bust is generally a company putting their hand out as a display of their utter incompetence at managing the life cycle of their product.
I would expect the same to occur with uranium at some point in the future. Although, that does seem to be a slightly more mature industry than lithium mining, which had all the hallmarks of the usual dodgy Australian mining industry tactic of jumping on the bandwagon with a backdoor listing, reaming shareholders for all they could, and then departing.
Nor are traders immune from this lack of ability to manage their business. Over the decades I have lost count of the number of traders I have seen let paper fortunes evaporate simply because they assumed that price would always do what they had seen it do.
There was no understanding that price had a history before they jumped in and that its history would continue long after they had departed. Recency bias is a dangerous affliction among traders.
Traders of all persuasions, sizes, and techniques are merely passengers with no control over the destination.
They are only able to control a few aspects of the journey such as the direction they are heading and how long they stay on the ride. And most importantly how much they let the ride cost them.
