Lag
September 11th, 2019
⏰ 1 minute read
⏰ 1 minute read
Question
Sometimes the simplest things are the best, right? An investor asked us last week, ‘do palm oil stocks tend to follow the palm oil price?’. It’s one of those simple questions that we don’t always think about. Anyway, we pulled up the share prices of 7 Indonesian listed plantations & compared them with the palm oil price. Here’s what happened.
YoY
The first part of answering was deciding how to do the analysis. Should we do a sophisticated regression analysis & plug all the data into a model? No. But to make it a bit more sophisticated than just looking at the prices, we decided to look at the year on year changes in the prices of the shares & palm oil.
Plus
Before we reveal what happened, let’s look at what has happened to the palm oil price. During 2016 the price went from $500 to $700. During 2017 the price declined from $700 to $600 & during 2018 the price fell back to $500. 2019 we got to $480, but we’ve now rebounded to $530. Plus, minus, minus & now finally back to plus from a year ago!
Lead
When we compare the share prices, it’s a match! The share price YoY changes follow the palm oil price. Here we show just BWPT, but the others follow too. But that’s not the whole answer. As you can see the shares are about a 3 month lag behind. So while palm oil is now plus from a year ago, BWPT is not, in fact far from it -30%!
Easy
Can investing in palm oil companies & BWPT really be this easy? It’s counter intuitive. Most investors think it takes a lot of analysis & financial forecasting, followed by complex valuations & relative valuations to work out where the shares are going.... Last time the catch up was spectacular! Let’s hope we are in for the same this time.
Keep up with our progress back to profit here
Sebastian
Sometimes the simplest things are the best, right? An investor asked us last week, ‘do palm oil stocks tend to follow the palm oil price?’. It’s one of those simple questions that we don’t always think about. Anyway, we pulled up the share prices of 7 Indonesian listed plantations & compared them with the palm oil price. Here’s what happened.
YoY
The first part of answering was deciding how to do the analysis. Should we do a sophisticated regression analysis & plug all the data into a model? No. But to make it a bit more sophisticated than just looking at the prices, we decided to look at the year on year changes in the prices of the shares & palm oil.
Plus
Before we reveal what happened, let’s look at what has happened to the palm oil price. During 2016 the price went from $500 to $700. During 2017 the price declined from $700 to $600 & during 2018 the price fell back to $500. 2019 we got to $480, but we’ve now rebounded to $530. Plus, minus, minus & now finally back to plus from a year ago!
Lead
When we compare the share prices, it’s a match! The share price YoY changes follow the palm oil price. Here we show just BWPT, but the others follow too. But that’s not the whole answer. As you can see the shares are about a 3 month lag behind. So while palm oil is now plus from a year ago, BWPT is not, in fact far from it -30%!
Easy
Can investing in palm oil companies & BWPT really be this easy? It’s counter intuitive. Most investors think it takes a lot of analysis & financial forecasting, followed by complex valuations & relative valuations to work out where the shares are going.... Last time the catch up was spectacular! Let’s hope we are in for the same this time.
Keep up with our progress back to profit here
Sebastian
