- Martin Sosnoff
Sometimes, The Fish Die
Typical Fish Farm
Was it Integrated Protein Resources? I don’t remember the name of the company, but a Florida-based operation was sure it could raise pompano to maturity and supply millions of pounds of succulent fish flesh, monthly, to the East Coast’s quality fish houses. At $2 a pound - this was the 1960s - the arithmetic of the situation was mouthwatering on a capitalization of perhaps 2 million shares. The tanks, with controlled temperatures comparable with the pompano’s natural ocean habitat, hatched the fry. Each day we called to check on their growth. Were they putting on weight? How much were our babies eating? Their formula was a grain mash from Ralston Purina, and they loved it.
The analysts’ slide rules slipped along in measured haste. (Desktop computers were 15 years away.) If Ralston shipped unit trains of feed to Miami, the cost of raising our darlings could be brought down. What if Ralston couldn’t supply sufficient grain soon enough? How rapidly could Integrated Whatever scale up its fish-tank incubators? The earnings breakout might be pushed back a year or 2. The stock traded at $4, and we had extrapolated $5 a share in earnings a few years out - a fantasy of leverage.
Management was properly noncommittal, but were encouraged by the lively hatchlings darting in their tanks. Eager bidders for mature fish were lining up at the door, and the stock moved into double digits. The one thing analysts can do is multiply so many pounds of fish at X dollars a pound. A new industry of sea farming was born. Integrated Whatever made the newsletters of emerging technological growth companies, listed under oceanography, along with intelligent torpedoes and underwater ultrasonic detection devices for mining the ocean bottom. I used to lie awake nights praying that Ralston would deliver enough of its Ry-Krisp on time. If my pompano multiplied exponentially, they might have to settle for short rations.
One morning I telephoned the president of Integrated Pompano. His voice sounded peculiarly flat. At first, I thought the connection was bad, but then I heard clearly that trouble was brewing in the tanks. My darlings had stopped putting on weight. Actually, my babies had rolled belly-up during the night. Nobody knew why. The water temperature remained unchanged. There were no impurities in the filtration system, and the feed was homogenous. All the fish just died! Here we were extrapolating unit trains of Ry-Krisp and figuring out if the East Coast market could accommodate 2 million incremental pounds of pompano weekly. What would wholesalers at the Fulton Fish Market do for us? Nobody had dreamed the fish could die, but they did.
This is known as optimism. When people think nothing can ever go wrong, call it extreme optimism. When analysts and money managers extrapolate numbers covering several years ahead, it is rationalization of optimism to justify presently high stock valuations. Neatness and order exist maybe in a computer printout. In reality, sooner or later, fish die, and bull runs end.
Nowadays, plenty of carnage piling up on the Big Board. Last week, they took AT&T out to be shot. Now 10 points off its thirties high and yielding 8.6%. Nobody cares. Netflix sits 300 points below the 12-month high even after Bill Ackman’s $1.1 billion noisy new position announcement. Microsoft, which nobody can find any fault with, does swing 5% intraday. Who can figure out Tesla? It’s nearly 400 points below its peak, and does swing 10% intraday. They lopped nearly 1,000 points off Amazon, another take-it-on-faith piece of paper. Unanalyzable.
Upon watching such bloodletting, I ran out and added to my Exxon Mobil position. Exxon ticks 60% above its 52-week low but yields 4.7%. When oil futures ticked at $45, a year ago, a few operators talked about $90 oil 12 months out. I bought more MLPs, a surrogate for levitating oil quotes.
Count me out on overspeculation.